1

Table of contents 1. Introduction ............................................................................................................................................. 2

1.1 Background ........................................................................................................................................ 2

1.2 Problem formulation .......................................................................................................................... 2

1.3 Market definition ............................................................................................................................... 3

1.4 Methodology ..................................................................................................................................... 3

2.The External environment ......................................................................................................................... 3

2.1 Macroenvironment ............................................................................................................................ 3

2.1.1: PEST- analysis ............................................................................................................................. 3

2.1.2 Macroenvironment: Friend or Enemy? ........................................................................................ 5

2.2 Immediate industry and competitive environment ............................................................................. 6

2.2.1Dominating economic features of the toys and games industry: ................................................... 6

2.2.2. Competition ............................................................................................................................... 6

2.2.3. Industry driving forces ................................................................................................................ 7

2.3 The external environment strategically: Opportunities and threats .................................................... 8

3: The internal environment: strength and weaknesses ............................................................................... 9

3.1. The LEGO Group’s Strength and weaknesses ..................................................................................... 9

3.1.1. Strengths .................................................................................................................................... 9

3.1.2. Weakness ................................................................................................................................... 9

3.1.3 Overall the LEGO Group’s internal environment .......................................................................... 9

3.2. Think Global, act local strategy. ........................................................................................................10

3.3. Recommendation .............................................................................................................................10

3.3. Goals and results ..............................................................................................................................11

4. Conclusion ..............................................................................................................................................11

Bibliography ...............................................................................................................................................12

Books ......................................................................................................................................................12

Articles and reports.................................................................................................................................12

The LEGO Group’s information ................................................................................................................12

Online sites and databases ......................................................................................................................13

Appendixes .................................................................................................................................................14

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1. Introduction

1.1 Background The story started in 1932, when the founder Ole Kirk Kristiansen “a Danish carpenter, decided to extend his

carpentry business by manufacturing a line of simple, hand-carved, wooden toys”. 1Today the LEGO group is

a global brand of toys, with 78.7% of its total value sales in 2008 generated in Western Europe and North

America2. Furthermore the LEGO group ranked number 8 in the world, and has a world market share

around 1.4%3

The Danish global toy company the LEGO group has seen ups and downs throughout its history. However,

“the LEGO group has seen continued growth over the previous five years, and sales have increased by

double digit growth rates in the last few years”4. (See appendix 2 for the LEGO Groups’ financial highlights)

“In 2009, value sales in the global market for toys and games declined by 1.3% from prior year, reaching just

over US$138.6billion”5.Furthermore “Value sales of traditional toys and games declined by nearly 3% from

prior year.”6

The LEGO group is interesting to analyze, because it is a company that experienced growth from 2008 to

2009, when the world market for toys and games declined. Expecting continued growth in sales, The LEGO

group has a focus on growth in the years ahead.7 On the basis of growth, the LEGO group has defined seven

growth initiatives, one of them being:

“Seed “emerging markets”: The LEGO group does not yet enjoy a strong market position in markets such as

china, Mexico, Brazil and India. These markets are expected to see strong growth in the future, and the

LEGO group plans to invest in developing them.”8

This project will focus on the LEGO Group, and their expansion of its market share in china.

1.2 Problem formulation Based on the above background for the project, the specific problem being analyzed is:

How can the LEGO group strategically expand its market share in china?

The problem formulation will be answered through a couple of sub questions that will be answered

throughout the analysis:

What are the opportunities and threats for the LEGO group in China?

What does the market for toys and games look like in china?

How is the competition for toys and games in China?

What type of strategy should the LEGO group execute in order to increase market shares in China?

1 International directory of company histories pg. 287 2 Euromonitor International”LEGO group – toys and games – world “April 2010, pg. 15. (see appendix 1) 3 Eurominotor International: “Toys and games 2010: Treds, Development and prospects, December 2009. However the LEGO group is ranked number 4 in the world of traditional toys according to the LEGO Groups company profile 2010 pg. 9. 4 Company profile: An Introduction to the LEGO group 2010, pg. 6 5 Euromonitor International: “toys and games: Treds, developments and prospects” pg. 4 (see appendix 3) 6 Euromonitor International: “toys and games: Treds, developments and prospects” pg. 4 (see appendix 3)

7 Company profile: An introduction to the LEGO group 2010, pg. 6 8 Company profile: An introduction to the LEGO group 2010, pg. 6

3

1.3 Market definition For a consistent analysis, the market must be defined. The LEGO group is operating on the market for toys

and games. This industry is further divided into a market for traditional toys and games9 and one for video

games10

The LEGO Group has a number of products in its product line, with its core product being the LEGO bricks

(see appendix 4, for some of the LEGO Group’s products)

1.4 Methodology This project is based on desk-research. The models, graphs, and calculations created are enclosed in the

appendixes at the end of the project, along with the most important numbers, figures and graphs found

and used.

The strategic analysis begins with an analysis of the external environment; first an analysis of the

macroenvironment , followed by an analysis of the immediate and competitive environment on the Chinese

market. The macroenvironment is analyzed using the PEST model. The political, economical, societal and

technological factors that may affect the LEGO Group in China are indentified in the model (see appendix

5), and the primary weak forces that are concluded from the PEST are analyzed. The Legal, and

environmental factors are not included in this analysis, since the project is primarily based on the different

societal values and consumer differences there are in China. The competitive forces are analyzed with a

Porter’s five forces (see appendix 13). Furthermore the dominating economic features and driving forces of

the industry is identified, and analyzed to get an overall idea of the market, to find the opportunities and

threats that the LEGO Group must be aware of.

After the external analysis, the focus turns inward, towards the LEGO Group itself, with looking at the

internal situation. This is a short analysis of the LEGO Groups strengths and weaknesses. These are needed

to look at to see if the LEGO Group has the means to follow through with the opportunities they should

siege.

From the analysis, a strategy is crafted for the LEGO Group, on how it might increase its market share in

China.

2. The External environment

2.1 Macroenvironment In order for the LEGO Group to craft a strategy in China they must be aware of the macroenvironment

there.

2.1.1: PEST11- analysis

The overall PEST model, and identified factors can be found in appendix 5

The PEST factors are used to identify weak signals that may change the LEGO Group’s environment in the

future, and affect the LEGO Groups strategy. “The factors and forces in a company’s macroenvironment

9 This includes: dolls/figures, activity/construction, indoor games, infants, pre-school, model vehicles, soft/plush toys, outdoor games and other traditional games 10 Both videogame hardware and software 11 The PEST-model and analysis of the Chinese market is seen in Appendix 5

4

having the biggest strategy-shaping impact typically pertain to the company’s immediate industry and

competitive environment.”12

2.1.1. A: Macroenvironment in the short run

Looking at the PEST factors, there are eight trends and conclusions that can be drawn that can have an

effect on the LEGO Group in the short run.

The one main and golden conclusion from the PEST analysis is that all figures and numbers show that China

is becoming richer, with increased GDP, consumption is increasing, and thus demand is increasing. This also

have an effect on the demand for toys and games. Thus there is opportunity for sales and profit in china.

From the PEST there are three threats to the LEGO Group. The first threat is that the Chinese government

does not completely enforce foreign intellectual property rights. The second threat is the governments

“one child per family” policy, which is decreasing the number of children in China. Third is the trend that

children are “getting older faster”, moving away from playing with toys.

Competitively it is a problem for the LEGO group – and other toys and games manufactures - if China does

not enforce foreign intellectual property rights. It makes the LEGO Group vulnerable to local manufacturers

producing similar products.

The government’s “one child per family” policy is decreasing the customer base. The customer base is also

getting smaller because of the trend of children are “getting older faster”.

Looking at the PEST, the LEGO Group must be aware of a demographic/economic challenge that appears in

china. There is a significant gab in income, “China is actually still poor when viewed on an income per person

basis, but increasing urbanization across inland as well as coastal China is ensuring continued growth in

prosperity, affecting increasing numbers of Chinese.”13 “The income gap between the vast interior rural

China and urban China is substantial, with urbanites’ average yearly disposable income in 2009 dwarfing

that of the rural population at US$ 2,700 versus the rural average of just US$ 700”14 Furthermore the rural

population is slightly larger than urban. For the LEGO Group, this means that there the population is

segmented into two very different groups, which calls for two different types of marketing and maybe even

prices.

There are also three opportunities that can be concluded from the PEST. The first is a rising middle class.

The second is a change in lifestyle and values, and the third is the increase of the use of e-commerce.

The middle class is rising, and “in 2013 China will surpass the USA with the highest number of middle-class

households.”15 A middle class income is defined as “an annual disposable income in excess of US$10,000. “16

With North America being the biggest market for toys, this may indicate that China is moving towards

American spending habits, and thus there is opportunity for increasing sales in China.

The Chinese values and lifestyle have changed17 to be more status, brand and luxury oriented. This change

in lifestyle can benefit the large global companies with strong global brands. Furthermore the Chinese

12 Thompson, Strickland and Gamle Crafting and executing strategy pg. 57 13 Euromonitor International: consumer lifestyle –China, December 2010, pg. 18-19 14 Euromonitor International: Consumer lifestyle – China, December 2010, pg 19 (and 15 Euromonitor International: Toys and games: how demographics and income shape demand oktober 2010, pg. 26 16

Euromonitor International: Toys and games: how demographics and income shape demand oktober 2010, pg. 26 17 Euromonitor International: consumer lifestyle –China, December 2010, pg. 1-5 and Euromonitor International country market insight, November 2009: toys and games –china. Pg 1

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consumers are getting more focused on the environment, safety and quality, but are still a pragmatic

consumer, that wants value-added to their purchases. The LEGO Group must take advantage of this

situation, especially because the LEGO Group can live up to that type of expectations. Another important

societal factor in the short run is the “small emperors18” and the “baby-boomer grandparents”19. A segment

where the children are being spoiled and grandparents are ready to spoil their only grandchild. In China,

one of the parental focuses is academic excellence. This is a fact that the LEGO Group can use, since it

believes it is very important to be “learning through playing” 20

In the short run technology gives the LEGO Group an opportunity, because it opens up for internet

distribution channels. E-commerce popularity may get a company’s market share to increase, by reaching

out to different types segments of the market. There is also a trend of networking online and blogging,

which is a trend manufacturer, can use to create customer groups, brand loyalty and network cultures.

2.1.1. B: The macroenvironment in the long run

From the PEST analysis, there are also some factors that the LEGO group must be aware of. There are three

conclusions to note, that might affect the LEGO Group. in the long run there are two opportunities, and

one threat.

It is an opportunity in the short run that there is increased awareness of brands, status, and luxury. This

may cause the consumers to substitute the cheaper (perhaps local) products for the well known brand. In

the longer run, this may result in local and smaller manufacturers to run out of business. If this happens,

then there’s an opportunity to gain market shares for the LEGO Group.

The rise in urbanization will also create an opportunity in the long run. With people moving to the cities this

will also increase income and consumption. This can eventually increase demand for better products too

such as the LEGO products.

Technologically the LEGO Group is facing a big threat all over the world. The LEGO Group’s core products

are traditional toys and games, thus with in increased demand for technology and Video games this may

decrease demand for traditional toys and games. However game consoles are the most expensive form of

toy and with the current income levels in china this technology does not pose a big threat in the short run.

In the long run with increased income in China, it might become a big threat to the LEGO Group

2.1.2 Macroenvironment: Friend or Enemy?

In the short run there are both threats and opportunities. The opportunity for increasing sales and profit is

there, because of the change in lifestyle and the forecasted large increase in disposable income. The golden

opportunity probably outshines the threats, and does make the emerging Chinese market seem very

attractive.

In the long run, the technology threat is one thing the LEGO Group must be prepared to deal with. The

LEGO Group is already working on inventing video games, and has the LEGO Universe online trying to deal

with this threat. These products are however not the LEGO Groups core product, but perhaps it should try

gaining a competitive advantage with their brand name.

Furthermore there is still an opportunity for increasing market shares and sales in the long run.

18

A nick-name for” the only child”, that is being spoiled by the parents in China 19 Baby-boomer grandparents are from the large population, before the “one-child per family” policy. 20 Company profile: an introduction to the LEGO group 2010

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2.2 Immediate industry and competitive environment

2.2.1Dominating economic features of the toys and games industry:

2.2.1.a. Currently a small market with massive growth

In 2009, the Chinese market for toys and games was relatively small, with only 6% of the total of world

sales of toys and games coming from China (see appendix 7 and 8).

Taking a closer look at the numbers, they tell a very positive story – See appendix 9 and 10. The Chinese

market for toys and games is increasing in sales, and the percentage increase has been in double digits for

the past 5 years. There is a clear growth trend in the toys and games industry in China, and value sales are

increasing at a faster rate than world sales. In Total 9362,8 million US$ was spend on traditional toys and

games in China in 2009, with a forecast of a 84,7% increase in sales.

2.2.1.b. Very fragmented market, with high differentiation

Appendix 8 and 9 show one very important factor about the toys and games industry in China. The Toys

and games industry is a very fragmented market, with 82,9% of the market share belonging to other rivals;

this can be many domestic companies, but also many small niche businesses. This means it is a very

competitive market, fighting for a very large customer group – which is getting smaller.

The market is not just fragmented by the large number of companies; the industry is also differentiated

into many different niches of different types of toys. The traditional toys and games industry is divided into

nine different categories of toys21. The main markets in China in the traditional toys and games industry is

the market for activity/construction toys and for pre-school toys. This is an advantage for the LEGO Group,

as the LEGO Bricks is a construction toy, and it’s the LEGO Group’s core product and focus. Furthermore,

the LEGO Group also has the LEGO Duplo; a product line for younger pre-school kids. Thus the LEGO

Group’s product line is within the two most popular categories of toy.

The LEGO group only has a 0.2% market share in the toy and games industry in China in 2008, and ranks as

number 1922 Market shares are low in this very fragmented market, with Microsoft Ptd Ltd having a market

share of 2,3 in 2008 in China (in the toys and games industry), and Mattel23 having a market share of 1,3 in

the toys.

2.2.1. C. Innovation and technology

The toys and games market is a market very dependent on innovation. Kids want the newest gadget, or

must have toy24. Thus manufacturers must come up with the newest and coolest toy On top of this, the

market is affected by technology. The traditional toys and games compete with the Video games. Also with

an increased interest in “high-tech”, design and luxury the products must have an innovative look.

2.2.2. Competition25

From the Porter’s five forces analysis, it is possible to get a view of the competitive environment for toys

and games in China.

21 See appendix 11 22 See appendix 9, 10, and 12 for the LEGO Groups market shares. 23 the world’s leader in the traditional toys and games industry Company profile: An introduction to the LEGO group 2010 24 Euromonitor International: Toys and games 2010: trends, development and prospects”, December 2009, pg. 64-65 25 Appendix 13: Porters 5 forces

7

Rivalry is usually the strongest force in the porters five force analysis. The strong forces in the market are

from the rivals, and from substitute industries. The weak forces are from the supplies, buyers, and from

new entrants.

In the industry there are low switching costs, making it easier for the consumer to change from playing with

construction toys, to playing with model vehicles. There are a large number of rivals all competing for the

consumer’s attention, wanting them to buy their product. Thus the competitive force amongst rivals is very

strong.

Nonetheless, there are high switching costs from traditional toys to video games, since it requires a game

console, or computers. Ergo there is a stronger competitive force between the different categories of

traditional toys and games, than between the traditional toys and games and the video games on the

Chinese market. However, has the game console first been purchased, then switching cost will be low.

Substitute products to toys and games are sports, hobbies, extracurricular activities, and school. “The many

only children are all encouraged to attain the highest levels academically, and excel in extra-curricular

activities such as music, art and sports.”26 This is a strong force in the competitive environment, because

the parents may prefer their children learning and being active rather than playing with toys and games.

The negative force’s magnitude is also increased when including a look at a Childs activities during a day

“The average primary school child will take home an hour’s worth of homework per night, increasing to a

recommended three hours for secondary school children…the school day begins at 8:00 hours and finishes

between 17:00 and 18:00 hours depending on class choices.”27Overall, this is a threat in the toys and games

industry in china.

The Chinese consumer’s buying bargaining power is very weak, since demand is growing rapidly, this is

creating a seller’s market in China.

There is no doubt that there is competition in the toys and games industry in China, with such a large

number of popular brands all competing for a bigger piece of the Chinese market cake. The two strong

forces in on the Chinese market are the substitute industries of sports, hobbies and school, and the strong

competition between rivals for market shares.

Collectively, the strength is towards a seller’s market, where brands and status is becoming increasingly

popular. Rivalry is usually the strongest force, and this is also the case on the market for toys and games.

Even though the competitive force of the substitute industries is strong, the collective strength is

conductive for creating a profit.

2.2.3. Industry driving forces

Currently there are three different driving factors affecting the industry in China.

Society’s strive for academic excellence, does affect the toys and games industry in China. The opportunity

cost of playing with toys might be doing homework, and thus with a preference for school, the playing part

can drive the market in a negative direction.

The other factor driving the market is technology. Along with the children getting more interested in other

things, video games, computer and high-tech technology becomes products children rather have28. Thus

26

Euromonitor International: Consumer lifestyle – Chine, December 2010, pg. 36 27 Euromonitor International: Consumer lifestyle – Chine, December 2010, pg. 36 28 Euromonitor International: Toys and games 2010: trends, development and prospects”, December 2009, pg. 64-65

8

the industry is moving away from the traditional toys and games29. The segment buying traditional toys and

games that used to be 3-14 years old might get smaller and smaller, with buying preferences changing. This

factor may not be large in China yet because of the low income levels; however there is a trend with

increasing income and buyer preference that could indicate that China will move in the same direction as

the rest of the world in the long run.

The last driving force is society’s change in behavior towards becoming more safety, quality and

environmentally oriented.

All driving forces can have a negative impact on the traditional toys and games industry, and the two

societal preferences can have a negative effect on the entire toys and games industry. Safety and quality

can increase production cost, if a company have to spend money on product safety innovation, and

complying with safety regulations. Demand can decrease, competition become more intense, and the

profitability may become lower.

The LEGO Group must be able to prepare for these changes by being innovative. The LEGO Group must

focus on their innovative products with technology, along with their corporation with Microsoft, and the

LEGO Network is a way to reach out to the “older” segment, and continue to giving them interesting

products. Social networking has become very popular, and with the internet creating the LEGO network is

one way to promote its products, but also reaching out to new or lost customer groups. For the LEGO

Group, the societal changes in preferences is an opportunity, because the LEGO DUPLO Brick is safe for

youngest children to play with, and the LEGO Group’s value chain is restructured to sustainability. The

LEGO products are for teaching creativity and has a “learning” outlook, thus with partnering with schools,

academic excellence may even be a positive driving force for the LEGO Group.

2.3 The external environment strategically: Opportunities and threats For the LEGO Group there is no doubt there is opportunity on the Chinese market. Increasing demand, and

brand awareness gives the global brands possibility for increased profits and increased market shares. It is a

big threat for the LEGO Group that the market is very fragmented with many rivals to compete against. The

LEGO Group must find a way to cultivate a loyal customer base, which needs to grow faster than the

average growth for the industry in order for them to increase market shares.

Specifically in China and for the LEGO Group, one clear opportunity is the Chinese’s focus on education for

the children. The LEGO Group is in a Niche with regards to the LEGO Brick, and in comparison to the

competition the LEGO Group can focus on teaching the children creativity, and imagination. The LEGO

Group is facing a tradeoff between focusing on the learning part of playing, and being a “luxury” brand

from the western world.

Currently it seems that the LEGO Group is executing a think global, act global strategy. The LEGO group is

using the same niche products all over the world, and same marketing for the countries. With a different

lifestyle in china, than in the western world, this is a place for the LEGO Group to employ think global, act

local strategy. In this situation, the LEGO Group should continue its niche differentiated generic strategy on

a global level. The local strategy in China should be a nation strategy for the LEGO brand with emphasis on

academic excellence, having fun while learning. Furthermore the LEGO Group might need different

strategies to the urban population, and the rural population.

29 Euromonitor International: Country market insight, November 2009: Toys and Games – China, pg. 3

9

The LEGO Group may focus on the learning attributes of the toys, getting into alliances with schools. The

LEGO Group may also take advantage of the Chinese being pragmatic, and have a focus on value-added

attributes to a product. The LEGO Group needs to make the consumers aware of their corporate culture,

and the feeling of corporate social responsibility it has. The Chinese - and the world- population is

becoming increasingly aware of what type of world we leave behind for the children. Since the LEGO Group

has this as a corporate culture, this needs to be communicated to the consumer.

A threat -and an opportunity- for the LEGO Group is the increased innovation and technology that drives

the market for toys and games. The LEGO Group is already in licensing agreements, with figures the

children know from movies30 etc., and they also have the LEGO Mindstorm,31, the new video games, and

the LEGO Universe an online game. The LEGO Group needs to focus on such product innovation, in order to

keep the products being interesting for the children. Furthermore the LEGO Group must focus on their

video games, and the virtual world of networking. These factors along with the increase in e-commerce is

somewhere for the LEGO Group to place focus, because it has come to stay, and may just evolve further.

3: The internal environment: strength and weaknesses

3.1. The LEGO Group’s Strength and weaknesses

3.1.1. Strengths

Recently the LEGO Group has focused on restructuring the company, enabling the company to optimize its

cost base.32 The LEGO Group has through this created a focus on its core products and advantages,

streamlining the company, and outsourcing the parts of the value chain and production not part of the core

products. This along with a very popular product line makes the LEGO Group very focused on who it is, and

where it is going, and knows people are enjoying the product. The LEGO Group has also created a value

chain that is focused on sustainability and the stakeholder relations.

A very important strength for the LEGO Group is a much focused management on a cooperate culture,

along with increasing net profits33.

3.1.2. Weakness

A weakness for the LEGO Group is that they are in a market niche position with differentiated niche

products. The LEGO Group’s weakness is only a weakness in regards to trying to obtain market shares on

the world market. According to the above analysis a market niche generic strategy can be strength on the

Chinese market, especially if the LEGO Group succeeds in gaining loyal customer group, which is growing

faster than market sales.

The product line for the LEGO Group is design for the western wealthier countries. However with more low-

cost brands appearing, the LEGO Group does not have anything cheap to compete with.

3.1.3 Overall the LEGO Group’s internal environment

The LEGO Group is a very strong company, with strong values.

30 See appendix 4 for the LEGO Products, and licensing products. 31

Robotics for the older children segment 32 Euromonitor International: LEGO Group – toys and games – world, april 2010, pg. 6. 33 See appendix 2 for financial highlights

10

With very impressive financials for the LEGO Group, there is room for spending money on a focus strategy

on China. The money can be spend on marketing the LEGO brand.

3.2. Think Global, act local strategy. In order for the LEGO Group to satisfy the Chinese buyer preference, the LEGO Group has to think Global,

act local. They need to do this since the Chinese customs are different than in the western world. As the

analysis shows the main difference of the Chinese consumers is the focus on academic excellence.

It is important that the global generic strategy of focused differentiation is kept, however the

differentiation in the products may vary some from the western products. The LEGO Group may consider a

special Chinese product, perhaps local Chinese popular figures. Furthermore there needs to be a different

focus on learning in the LEGO Groups marketing.

What the LEGO Group needs to change on a local level, in comparison to the global strategy, is to focus on

two things in China:

1)The Chinese children are the “little emperors” and nothing is good enough. This sound somewhat like the

LEGO Groups’ spirit of: “only the best is good enough”.34 For the Chinese parents, this is a matter of

excelling to the highest level academically and in extra-curricular activities. The LEGO Group needs to focus

on school alliances, and marketing to reeducate the parents and teachers.

2) The Rural vs. the urban population: The large income gap between the two populations. Thus this is a

part where the LEGO Group must address this issue and change strategy for the urban and rural population.

This part of the strategy requires different actions. The Rural population cannot afford and prefer just

owning toys for the child to play with. Strategically the LEGO Group needs to choose between: 1) remaining

an all “luxury” brand and thus forgetting the poorer rural population, or come up with a discount product.

3.3. Recommendation The LEGO Group must craft a think global act local strategy for China. With the global strategy still being a

niche differentiation generic strategy.

The LEGO Group should focus on aggressive marketing for the parents and teachers. Reeducate them, by

teaching them that the LEGO products are so much more than just a toy; it is a way of learning. This focus

needs to be marketed to the Chinese consumer. Along with this the LEGO Group should emphasis on the

“value-added” that there is with the LEGO Bricks. Furthermore emphasize that the LEGO brick can be used

again by many generations, and the LEGO Group’s corporate culture of sustainability means that buying a

LEGO product equals buying a product that is being produced and distributed environmentally correct.

The LEGO also needs to focus on technology creating the network for “the builder of tomorrow”.

With regards to the trade-off between either being just a “luxury” brand, or perhaps develop a product for

a lower income group – a discount toy – the LEGO Group should keep branding itself as a “luxury” and

quality product. With an increasing urban population and income, there is demand for quality and brands in

China.

34 The LEGO Group’s progress report 2010.

11

3.3. Goals and results35 The LEGO Group needs to increase their marketing spending in China. The marketing focus should be both

towards the parents and teacher, but also in regards to working on the network for the “builders of

tomorrow”

With the current low market position, the LEGO Group should strive for an aggressive marketing, and thus

with a goal for increasing market shares with 25% per year. This is realistic, because of the Chinese

consumers spending habit has changed with an increase for brand awareness. This may cause market

shares to open up to the LEGO group, also if the domestic manufacturers are going out of business. With

this, the LEGO Group should have a market share of 0,76% in 2014.

The LEGO Group should expect spending around 50million US$ on the aggressive marketing project. The

project should last until the year 2014. If the LEGO Group succeeds, and reaches the goal, it may increase

expected sales in China by 296%, and expect an income of around 64,23million US$ (in 2009 prices). With

this for expected income over a period of three years, it is clear that a lot of money and time must be spend

in order for the LEGO Group to increase its profit substantially. However, the LEGO Group is a strong

company, and has the brand and financials to do so.

Since there is estimated an income, the project is expected to be profitable, and the LEGO Group should go

for an aggressive marketing approach. The project should be up for evaluation at the end of each year, to

see if the LEGO Group is living up to the estimated sales and market share estimates.

4. Conclusion China is currently a market with great promise for growth, with a fast expanding middle class, and

increasing urbanization. This is an opportunity for growing profits in China for the LEGO Group.

The market for toys and games in china is currently a small, but growing market. The market is very

fragmented and differentiated, with many small rivals, making it a very competitive environment.

Substitute industries are also strong competitors to the toys and game industry. However currently, with

increased in consumption and demand it is a seller’s market in China.

Strategically in order for the LEGO Group to expand its market shares in China, it must execute a think

global act local strategy. The LEGO Group must remain a niche company, however with different marketing,

and perhaps products in China. With the different lifestyle and values in China the local part of the LEGO

Groups think global act local strategy should focus on academic excellence and “learning through playing.”

This should be done with an aggressive marketing approach. Reeducating the Chinese consumers to learn

that the LEGO Products are much more than just a toy, it is learning and creating: “inspire and develop the

builders of tomorrow.”

The LEGO Group must also emphasize its marketing on how the LEGO Group adds value to its product by

being environmental friendly throughout its value chain. Last but not least, the LEGO Group must focus on

being innovative and reaching out for new consumers through its webpage, and expanding their network

for the LEGO users.

There is demand for luxury and brands in China, thus the LEGO Group does not currently need to come up

with a product line of discount products. “only the best is good enough”

35 See appendix 14 for assumption, numbers, and calculations.

12

Bibliography

Books

Crafting and executing strategy: The quest for competitive advantage: Concepts and cases

Thompson, Strickland, Gamle. Seventheenth Edition, McGraw-Hill International edition 2010

International Directory of Company histories.

Ed. Jay P. Pederson. Vol. 40. Detrout: St. James Press, 2001

Articles and reports Euromonitor International reports and articles:

Country sector briefing Traditional toys and games – China

Euromonitor International, November 2009

Country market insight: Toys and games – China

Euromonitor International: November 2009

consumer lifestyle –China

Euromonitor International: December 2010

Toys and games: how demographics and income shape demand

Euromonitor International: October 2010

Lego Group –toys and games- world

Euromonitor International: April 2010

Toys and games 2010: Trends, Development and Prospects

Euromonitor International, December 2009

OECD

OECD –Economic outlook

No. 88, November 2010

Encyclopedia

Encyclopedia of Global industries: Toys and sporting goods

4th ed. Detroit: Gale, 2007

The LEGO Group’s information

Company profile: An introduction to the LEGO group 2010

Annual Report 2010

The LEGO Group

Progress Report 2010

The LEGO Group

13

Online sites and databases China Compulsory Certification mark

http://www.ccc-mark.com/

GMID: Global market information database (Euromonitor International)

http://www.portal.euromonitor.com.esc-web.lib.cbs.dk/Portal/Magazines/Welcome.aspx

The LEGO Group’s online site

www.lego.com

14

Appendixes Appendix 1: The LEGO Group value sales shares by region 2008

Appendix 2: Financial highlights

Appendix 3: Negative growth for overall toys and games in 2009

Appendix 4: The LEGO products

Appendix 5: PEST

Appendix 6: Market data China: Toys and games

Appendix 7: World sales of toys and games in comparison to sales in China.

Appendix 8: sales of toys and games

Appendix 9: Market shares for the toys and games industry in China

Appendix10: Market shares for the traditional toys and games industry in China

Appendix 11: different categories of traditional toys and games

Appendix 12: The LEGO Group’s market shares and estimated sales in China

Appendix 13: Porters Five Forces

Appendix 14: Goals and calculations