The lego case

1. The toy industry is a diversified and constantly renewing industry. It is also unique in the sense that it exhibits a strong seasonal trend with most of the sales occurring in the fourth quarter, due to the Christmas season. These factors make the toy industry one of the most dynamic business sectors the world. In addition, the toy market is highly unpredictable, since most of the targetedconsumers are children whose tastes and preferences are extremely volatile, hence, it is hard to determine with assertiveness which products will succeed before their introduction in the market. The toy industry is highly fragmented and largely composed by small and mediumsized companies that must demonstrate dynamism and resilience since they are often dependent on the popularity of one or twoproducts. The largest and best know companies in this industry include Lego, Hasbro, Mattel, Bandai, Playmobil and Takara Tomy.

MACRO ANALYSIS
Companies must be aware of different legal frameworks across countries Strict laws and regulations on safety being the most common hazards for children:  Choking or aspiration of small parts  Strangulation  Cuts by sharp parts of the toy  Injury byprojectiles  Drowning  Motor vehicle incidents involving toys  Lead paint These regulations are getting stricter every day due to the lack of carefulness of some Chinese manufacturers. With more rigorous legislations, other countries will stop importing Chinese cheaper products which will force them to improve the toys.  Weak Economy → Postponing consumption  Increasing seasonality of sales Thecombination of these two characteristics and the threat of videogames led the toy industry to a setback during the last years but it is now slowly recovering.  Shrinking global child population  Reluctance to buy Chinese products  Booming in the demand for electronic products  Consumers look for “value” however they do not shift to less expensive toys  Environmental and Social Responsibilityincreasing awareness  Widespread use of internet and PC games have a great impact on the toy industry  Toys must be constantly evolving, otherwise companies will not succeed  

POLITICAL - LEGAL ENVIRONMENT

ECONOMIC ENVIRONMENT

SOCIO - CULTURAL ENVIRONMENT TECHNOLOGICAL ENVIRONMENT

1

MICRO ANALYSIS
Clients:
There are two distinct segments whose criteria of differentiation is thenature of buyers/users: 1. The buyer is not the user (S1, children): Adults buy for children. Studies show that many times, to not disappoint children, parents make sacrifices to offer their kids exactly what they want. 2. The buyer is the user (S2, adults): Many grownups are enthusiastic about toys like puzzles, board games, Lego or figures. The toy industry is highly fragmented. There are somemore relevant companies like Hasbro, Mattel, Lego or Bandai whose combined total market shares are less than 20%. Due to the cheaper workforce in Asian countries like China, most of the suppliers are from that region. Also eastern European countries are common suppliers.

Competitors: Suppliers:

Industry Attractiveness: The toy industry may seem attractive due to its large size. In 2009global sales were around $80.2 billion and the NPD group, a North American market research company, forecasts worldwide toy sales to top $83.9 billion in 2012, which means that the growth is medium. Despite the existence of two client segments, when comparing them, it is clear that the sales from the children segments are lower than the sales from adults’ one, meaning that the size and growth of thelatter segment might be lower. To analyze the margins I used the Five Forces Model below and concluded that in a scale from 1 to 5, a good estimate for the margin of Segment 1 would be 2 and for Segment 2 would be 3.

Threat of new entrants: Technology, as well as preferences, are always evolving and in this market it is easy to have success with one product only S1 and S2: MEDIUM LOW

Threat...