INDG 401 Lecture Notes - Lecture 5: The Lego Group, Walmart, Tacit Collusion
9 Jun 2018
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Department
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Professor
Lego Case
• What is Lego's main problem?
o Use the situation, complication, question and answer structure
▪ Situation
• Building on 100 years of experience in toys and pioneering capabilities in injection
molded colorful construction bricks, Lego has grown to be one of top 10 global
toymakers, with inter-connectable toy brick lines for 4 age groups
• High customer (parents) willingness to pay for superior building and play experience for
kids
• Growth prospects in central Europe and emerging markets
o rising disposable income
o Innovative development of construction kits
o Good reputation
o Experience with in-licensing kits linked to Star Wars and Harry Potter
• Diversification opportunities to exploit Disney-like brand in amusement parks, video
games, board games, clothing
▪ Complication
• Efforts to grow geographically and organic growth via diversification have led to stalled
growth
o Profits turn to losses
o Poor inventory management
o Inability to forecast fill-rates, determine costs
o Product profitability
• Consolidation of toy retailers (Toys R Us, Walmart) with high bargaining power
o Strong competition for retail space
o Inventory problems lead to stock-outs that alienate retailers and customers
• In-licensing requires revenue sharing with film studios
o But also volatility in roll-out of in-licensed films and short life-cycle
• Declining birth rates, children with shorter attention span, less time for unstructured
play
o Shorter childhood and longer teen-hood
o Rise of substitutes (video games, outdoor sports)
• Complexity: proliferation of brick shapes and colours, including unique complex bricks to
speed child's ability to assemble a kit
o Challenges in managing sprawling diversification (theme parks, board games,
clothing)
▪ Question: how to manage or reduce complexity and return to growth and profitability?
• Outsource manufacturing to Asia? Shift design from DK to Milan, London, SF?
• By-pass powerful retailers with on-line sales and LEGO retail stores in Europe?
• Rotate managers every 6-12 months to identify and develop strong general managers?
• Slash costs: layoff of employees and managers? Reduce dependence on volatile in-
licensing revenue?
▪ Hypothesis for answer
• Narrow diversification to focus on brick-based play systems (DUPLO LEGO, Technics
& MindStorms, online complements) and LEGO community
o Deepen understanding of user by observing children play at home
o Focus diversification on LEGO learning and development
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Lego case: what is lego"s main problem, use the situation, complication, question and answer structure. Inability to forecast fill-rates, determine costs: product profitability, consolidation of toy retailers (toys r us, walmart) with high bargaining power, strong competition for retail space. Inventory problems lead to stock-outs that alienate retailers and customers. Reduce dependence on volatile in- licensing revenue: hypothesis for answer, narrow diversification to focus on brick-based play systems (duplo lego, technics. Short childhood/longer adolescence: declining birth rate, consolidation of retail buyers, rise of substitutes. Internal factors: massive indirect costs that extra components generate in entire supply chain, hard to manage so many different components going through the factory, things get ugly when combine component proliferation with errors in sales forecasts. In-licensed products require a lot of unique components. Fall of barriers to entry: mediocre control and forecasting systems. Frequent job rotation: what is your assessment of management moves during.
