Lego: The Crisis Harvard Case Solution & Analysis

External Environment Analysis

The external environmental analysis for LEGO will include industrial analysis using the Porter’s Five Forces that shape strategy for a firm in the industry.

PORTER’S Five Forces

Bargaining Power Of Suppliers

The major supplier of the company is a german company Bayer AG, which provides LEGO with the plastic ABS, which is considered as the main ingredient for LEGO’s brick. As ABS is produced from using petroleum and the by-products of it; the company Bayer AG holds the exclusivity for it that means that in this scenario the supplier has the power.

The company can easily shape prices for the raw material provided by the company and any change in oil prices can also result in increased prices that may affect the profit margins of LEGO. Therefore, it is obvious that the supplier’s bargaining power is quite high and the supplier can also threat Lego by doing business with Lego’s immediate competitor or rival in the industry.

Bargaining Power Of Buyer

Lego is using different retailers as the major distributors of its product that makes these distributors the prime Buyer of Lego’s products. The largest buyers include large retail outlets like Wal-mart and Toys”R” Us, who are established players in the industry and have a well-reputed name. These retailers can easily shape and set the retail prices and delivery times as they are directly interacting with the consumer.

Since they have a well-reputed brand name which gives them high power to bargain and can threaten the company by replacing the company with a competitor or can give way to new entrants. Losing the shelf space will be a great loss for the company and indicates that buyers in this industry have high power to bargain.

Threat Of New Entrant

The company has lost its patents long time ago, which made the entry of new entrants in the market quite easy with almost zero barriers to entry. Although the initial cost requires setting the business and establishing as a brand is very high, but piracy is still causing a great damage. The threat of new entrants is getting intense with the passage of time as many small firms in developing countries are taking advantage of the low cost which led them to start manufacturing the replicas of Lego’s products.

Although the company has an established brand name and positioning and is well established in the market, but this new threat has caused a great damage to the company in the form of loss in sales and profits. New entrants can also enter the market as direct competitors with new products and innovative strategies, and retailers can also start manufacturing toys in order to eliminate their dependency.

Threat Of Substitute

The major audience for toys are children who use toys as a source of entertainment and joy which can easily be replaced by many things. The substitutes that can be used as a source of entertainment are readily available, whereas, toys are not readily available which increases the threat to some extent.

Competitive Rivalry

The rivalry in the industry is intense due to low switching cost and minimal barriers for consumers to select the best possible alternative. The company is facing direct competition from competitors like Mattel and Hasbro while indirect competition from makers of console games like Sony and Nintendo. One factor that favors the company is pricing that makes the indirect competition less intense, but direct competitors and manufacturing of pirated products makes the threat intense.

Critical Success Factors

A key success factor in a toy industry is a clear brand identity that enables a brand to differentiate itself from competitors in the mind of the consumer. Several factors that are important for a brand to establish a clear identity for itself includes the logo of the brand that generates esthetic branding. Secondly, brand personality is a key factor which defines the brand to the consumer and helps them make an association.

Furthermore, the values a brand delivers is also important. In order to establish a clear brand identity, the most important factor to be considered is competitive positioning that gives the company a clear route ahead. (Clear Brand Identity Is Key For Success In Toy Industry, 2012).......................

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