WCCC 2012: The Lego Group - UBC

The Lego Group

Building Strategy

Just six bricks can be combined 915 million ways

AgendaIntroduction

Analysis

Strategy

Implementation

Risks and Mitigations

Conclusions

“A competitive strategy to continue the organization’s financial success and dominance in the toy market”

Expanding dominance in a toy market with opportunity and uncertainty

Licensing challenges

influencing product

New competitors taking market

share

Commoditization of Lego product

Uncertainty in Disney Licensing presents a challenge to future contracts

Lego has considerable investment in

licensed building sets

Lego Star Wars, Spider Man,

Indiana Jones

Disney’s recent acquisition of Marvel gives it rights to over

5000 characters

Disney favoured partner is Mattel

Marvel had agreements with

Hasbro to produce toys

Future of Disney licencing

opportunities is unclear

Hasbro has a strong past

relationship to Marvel

New Kre-O product launch could

increase royalty payment tolerance

Hasbro’s multiple product lines might act as

stronger incentive

Hasbro’s introduction of Kre-O is a significant threat to market share

Hasbro’s brand power

Enlarged marketing budget

Guaranteed Shelf Space

Popular Transformers brand

Compatible with LEGO blocks

LEGO has considerable product brand value

Hasbro cannot mention LEGO in its promotion

Failure to protect LEGO brand from competitors has lead to commoditization

MEGA blocks has challenged the

control over the brick ecosystem

All competing products will be compatible with

LEGO

Lego must focus on its brand

values

Brick Ecosystem to Lego Ecosystem

• Connect to consumers on multiple platforms

Brand Engagement

• LEGOs leadership in the market drives responses

Innovation Focus

• Focus on delivering value beyond blocks

Develop Experiences

“A competitive strategy to continue the organization’s financial success and dominance in the toy market”

Expanding dominance in a toy market with opportunity and uncertainty

Licensing challenges

influencing product

New competitors taking market

share

Commoditization of Lego product

High profile brand licensing is an easy revenue generator

Focus on Western Brands

Proven• Spiderman:

$100 million toy sales

Low Risk• Pipeline of

opportunities

Integrated Competition• Disney, Hasbro,

MEGA Blocks

License Brands in localized areas to increase product awareness

• Unproven brands• Higher risk potential• Lower competition means discount purchases

Lock in untapped licenses

• Anime • Cartoons and Movies• Popular Media

Purchase smaller brands in specific

area

Strategies to focus on New GrowthBuild Avoid

Brand Products

New Licensing Popular Licensing

Customization Standardization

Expand beyond North America

LEGO stores a proven concept in

North America

Bring to emerging markets with

localized content

Create an on the ground brand experience to engage new customers

Build Foundation with Lego Stores

Core Products• LEGO Themes• LEGO Games

Special Products• Localised

Content• Collectables

Media• PC Games• Ipad Apps• Comics

Interactive• Play Booths• Building set

Projections• Personalisation's

Engaging the Consumer: Virtual Media

World is going virtual

Average 6-year old has access to a mobile device

Mirroring virtual content is essential

to continued success

Engaging the Consumer: Virtual Media

Mobile Application• Augmented Reality• Stories/comics from licensed/non-licensed products• Games

Partnerships with Zynga for Facebook games

Engaging the Consumer: Point System

Localisation and customization tied to LEGO brand with Point System

Add value to all LEGO branded products

Network Effect – Each new product adds value to the system

Engaging the Consumer: Point System

Gaining points

• Buying products• Completing video game

achievements• Use of mobile app/Zynga

Facebook games• Any LEGO Theme Park

purchases

Engaging the Consumer: Point System

Why collect

points?

Customization of products

Exclusive DLCBuy products online or at a LEGO store

Theme Parks

Engaging the Consumer: Lego Account

Engage with online community• Upload pictures/videos of LEGO creations• Discussion boards• Share creative ideas

Track and manage points

Connect with LEGO

How is fits togetherGet Points Add Points Spend Points

Lego Packs Personalised -Lego Characters

Game Achievements Enter via: Collectable Content-Special Editions

Comic Purchases QR Codes Downloaded Content

Engaging the Consumer: Point System

Creates unique LEGO experience

Allows LEGO to tap into the creativity of its users

Gives LEGO consumer data that is hard to get through vendors

Risks and Mitigations• This would be a big problem• Mitigation would require extensive investments into

LEGO’s innovative capacity

Inability to procure new licensing agreements

• Hasbro’s Kre-Os do not have sufficient brand power• First mover advantage

Competitors copy our strategies

• LEGO grew revenue by 37% when the market increased by 13%

• Ecosystem will further mitigate brand switching

Competitors steal our market share

Implementation TimelineItem F M A M J J A S O N D J

Develop Objectives

Contract Developers

Product Development

Product Testing

Test Release

Feedback Implementation

Product Modifications

Store Modifications

North American Launch

Assumed CostsOnline content development

• Agency at $500k

Online content management• $500k per year

Store build-out costs• ($200-400k per store) * (50 stores) = $10 million

Marketing costs for emerging markets• ($250k year) * (40 markets)

New licensing agreements• ($1 million each) * (1 per market) = $40 million

Metrics of Success • Change in sales after

rolloutVs. Generic

Blocks

• Click through rate on point systemNetwork Effect

• Total sales of localised content

Local Engagement

Revenue Growth Expectation

20%• No further

licensing

25%• Estimated

impact given our strategy

30%• Best Case

Scenario

2011 Revenue: 20,818mm DKK

The LEGO Group

Non-Licensed Building Sets

Licenced Building Sets

Video Games

Board Games

Theme Parks

Stores and Merchandise

Online Website

Mobile Content

“Our ultimate goal is to inspire and develop children to think creatively, reason systematically and release the

potential to shape their own future –experiencing the endless human possibility”

Endless Human Possibility