What are Lego’s most valuable resources and capabilities at the turn of the century?
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The landscape of the current toy market with the proliferation of electronics toys and games is constantly changing. Children are now growing up in an entertainment economy saturated with play systems which are outcome driven . However, Lego, a traditional toy maker has stick to its core values of creativity, imagination, learning, fun and quality in it products. The threat of substitutes as a result of the many varying products means that children have more options to choose from in the growing toy market . In this paper, we will examine what are Lego’s most valuable resources and capabilities at the turn of the century?
Lego’s long standing history, stability of core values and their ability to bridge past and present offers both a psychological and professional advantage against new entrants to the toy market. Although tangible resources such as free cash flow from profits are valuable to the company, intangible resources such as Lego’s brand name and technology innovation are even more important in terms of their contribution to value added and as a basis for competitive advantage .
Customers are willing to pay a premium for Lego’s products over unbranded ones because the brand name can give comfort to buyers unsure of their decision by reducing their perceived risk and also because of its perceived quality. Lego can also use the advantage of brand equity advantages to give it leverage when introducing new products as brand name can give comfort to buyers unsure of their decision by reducing their perceived risk and offer a strong defence against new products and new competitors because of higher rates of product trial and repeat purchasing due to buyers’ awareness of Lego’s brand.
Constant product innovation from Lego’s four development centre as a priority within its core business give Lego the advantage of moving out new products in time to meet the changing needs of the toy market and to take advantages of new technologies and maintain the interest of children as they grow older. Through product innovation and differentiation, new market segment can also be captured as shown by Mindstorms where 40% were adults without losing profitability on the product.
The three guiding principles of Lego create a corporate culture which was attractive to the customers because of its emphasis on social issues and also to employees because of Lego commitment to be a good employer. Human resources were more effectively utilised by using Compass Management which created a more reactive organisation capable of quicker and better decision. Having the right personnel in place enabled Lego to streamline its operations through different cost cutting measures .
Marketing was a key capability of Lego, the partnerships with Disney and Lucasfilm enabled Lego to enter into the market of character themed products and further enhanced its brand name. Through its theme park, a larger than life outlet was created for children to get in touch with favourite characters which indirectly promote the sales of Lego’s kit set too. Since the toys would be based off popular cartoons and movie characters from the partnership, less money could be spent on advertising, therefore resulting high revenue increase and low cost. Finally, the co-promotion with MacDonalds pushed Lego into the mass consumer market which gave it a lot of exposure to different consumers groups.
Lego’s advantage as first-mover in the industry enabled it to have a profit flow that permits the firm to invest in extending and upgrading its resource base. Economies of learning also meant that Lego can build a cost advantage over followers as a result of greater experience . By making use of the supplier and distribution network that Lego built up in different countries throughout the years, it can do new launch of products such as software and identify new trends in different emerging market faster and to a wider base of customers than its competitors.
By identifying Lego’s core competences is in its core business, Lego decision to reduce or abandon certain non-core initiatives consolidates its resources towards the more profitable areas. Utilizing the strengths of the company, Lego can create many new and innovative products from which the company can achieve competitive advantage . Through this endeavour, Lego can utilize its strong brand equity and core business as a weapon to tap into the market share of Nintendo, Sega and Sony who are the leaders in the video game market segment. Extensive research and development projects already in place can only further Lego’s ability to expand out of the traditional construction toy sector and into other multimedia segments of the toy market.