Fast industry growth rate LEGO When industries are growing revenue quickly, they are less likely to compete, because the total Bargaining Power of Suppliers Diverse distribution channel LEGO The more diverse distribution channels become the less bargaining power a single distributor will
This blog entry does not claim to be a complete analysis or completely correct. It is meant to be a sample and all ideas are my assumptions. I never worked for lego… It is an extract from my work at university. Lego is a toy maker in Europe and produces plastic brick stones, which is a niche in the overall toy market.
The following paragraph will determine the strengths of the different competitive drivers within this industry. Porters 5 Forces Analysis Substitutes pressure very high: The highest pressure for Lego comes from substitute products.
Substitutes are everything that rivals with Lego about children playtime, such as other traditional toys or computer games. Children get bored fast and switch to substitutes. They prefer to play with more sophisticated toys. Substitutes come from the entire toy industry as well as the electronic gadget market.
There are no switching costs for substitutes and the prices of substitutes vary, the barrier to switch is therefore low. The Lego porter s from customers is high. These have the bargaining power over lead times and price.
For example, if Lego does not provide the toys quickly enough at Christmas, Wal-Mart could take Lego out of the shelves. Lego brick stones are made of plastic. Plastic is produced with oil and there is no chance for Lego to bargain with oil companies. Competitors within the brick stone market pressure low: Both compete with lego by low prices.
Lego has a strong brand image and brand loyalty among customers and can charge premium prices. Parents know Lego because they played with it themselves.
Lego has therefore a critical competitive advantage over its competitors, as they can not look back on such a long history. New market entrants pressure low: There are low market entry barriers.
As the oil prices collapsed during the financial crisis init was easier for new entrants to get resources. In addition, the product is easy to copy.
As the economic condition in the traditional toy market is harsh due to a variety of substitutes, the likelihood of new entrants is low. Value disciplines For lego it is hard to directly reach the children. The sales process happens in the retail stores, usually not with Lego itself besides a few dedicated lego stores.
The relation to retailers is mainly based on price and lead times. Lego is focused on a product leadership strategy and brand image. Lego has an alliance with Disney to improve its Lego themes.
Kids like to play with what they see in the cinema, such as with Lego Harry Potter. Lego is focused on an increased speed of product theme retirement and birth to avoid boredom of children. It is important to keep the portfolio simple, as different Lego themes cannibalize each other.
Technological innovations change the capabilities and features of toys. Toy producers such as Lego are therefore forced to produce higher quality, more sophisticated products at lower costs. Lego is clearly innovative in product design.
Lego mindstorm robotics is used in schools and colleges worldwide. Lego is therefore clearly pursuing on a product focused strategy.
A strength of lego is clearly its product quality. Chinese products are often not as thoroughly controlled for quality.Porter’s Five Forces Model: an overview Porter’s Five Forces Model: an overview Abstract Porter’s Five Forces Model is a structured framework for analyzing commerce and business establishment.
It was formed by Michael E. Porter of the Harvard Business School between and the mid ’s. Using Porter’s generic strategies, identify examples of organisations following strategies of differentiation, low cost or low price, and stuck-in-the middle or hybrid.
Historically, Lego’s have been a top rated toy for children and when that quickly changed Lego was not expecting it and furthermore not prepared. The company began. WikiWealth’s comprehensive five (5) forces analysis of lego includes bargaining power of supplies and customers; threat of substitutes, competitors, and rivals.
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Lord Porter, chairman of the LGA, will demand at the group’s annual conference in Birmingham on Tuesday that councils are at the “front of the queue” for new funding if “ austerity is. Deriving from Porter’s Five Forces model it can be concluded that LEGO is facing a number of strategic challenges.
For example, the power of buyers is significantly high as the company needs to tailor product lines to specifically fit consumer segments’ needs and preferences.