Facing a Loss, Lego Is Telling a Sad Story

LEAD STORY-DATELINE: The Wall Street Journal, January 22, 1999.

Did you play with Lego blocks as a child? Most people around the world can recall their proud creations of buildings and towers as young children. Today, however, children of all ages seem to spend more time watching TV, playing computer and video games, and killing aliens on portable Gameboys! Some people in the industry also believe that children today grow up more quickly and tire of toys faster than in previous generations. As a result, there is a greater pressure on toy companies to continuously innovate and reinvent their products. Despite being a fixture in kids' toy boxes for almost 70 years, the company is now expecting to report its first loss since its early days.

While Lego's bright plastic bricks are famous around the globe, it is rapidly losing market share to flashier toys. "We're competing with everything that can occupy the minds of children," says Peter Ambeck-Madsen, a Lego spokesperson. Not only is Lego facing competition from video and computer games, but also from other building toys. K'Nex Industries, for example, has succeeded with kits of brightly colored plastic sticks and joints from which bridges and windmills emerge.

To keep pace, Lego has initiated a series of new products and marketing tie-ins to project a more high-tech image. Last year, it began the Mindstorms line, Lego blocks with embedded computer chips and light sensors that can be programmed by computer. This line was extremely successful in the U.S. and sales far exceeded expectations. Even the traditional basic building blocks now can be found as specialty kits that allow kids to make anything from space stations to insects. In addition, Lego has struck deals with Walt Disney, Co. and Lucasfilm to market bricks and figures based on Pooh and Star Wars characters. The company also plans to open its first U.S. theme park in California this spring and add one new park every three years.


TALKING IT OVER AND THINKING IT THROUGH!

  1. Based on the information in this article, which stage of the product life cycle would you say Lego blocks are in? What environmental factors led Lego to this stage?

  2. What strategies can Lego use to extend its product life cycle? Give specific examples of how Lego's product decisions are helping maintain and revive the market for Lego products.

  3. Describe the competitive environment for Lego. What are the direct and indirect competitors for Lego's products?

  4. How would you define Lego's business in order to avoid the problem of "marketing myopia"?


SHARING THE NEWS WITH A GROUP!

Divide into groups and visit a local toy store. One or more groups should prepare a list of traditional toys (toys that your parents are likely to have played with as children). Prepare a presentation to the class that explains why these toys are still around and what (if any) adaptations the company is likely to have made to stay afloat in the changing marketplace. Another group or set of groups should prepare a list of new toys (toys that are unlikely to have been around when your parents were children). Prepare a presentation the explains the different environmental factors that have led to the creation of these toys. Which of them could have been conceived by the manufacturers of the traditional toys before these new toys were introduced?


THINKING ABOUT THE FUTURE!

This current event clearly highlights the important role of technology on the marketing of products that are originally not connected to technology at all. Traditionally Lego's building blocks are far removed from the computer game industry. However, as technological advances pervade every aspect of our daily living, only a foolish company could afford to ignore the possible changes caused by technology in its market. Lego suddenly found itself competing with a class of children's toys with which it had little experience. The company was smart enough to introduce a new line of toys (the Mindstorms series) that built on its traditional strengths while embracing the technological changes that were affecting how children played.

Managers in every industry need to be scanning the environment to see how the rapid changes in its environment are likely to affect its industry in the future. There is little doubt that these environmental changes will affect how consumers satisfy their needs. While their needs may remain relatively constant over time (for example, the need to buy toys that stimulate their children's creativity and imagination), the products that consumers buy to satisfy those needs may change away from your product if you are not alert to these shifts.


DIGGING DEEPER!

A quick search of the Internet will reveal a variety of companies that build toys that satisfy the play needs of children. Yahoo's listing of toy companies gives some idea of the vast range of products that compete for the limited money and time of children. Among building toys, the largest companies are Lego, Meccano, and K'Nex. However, even companies like Fisher Price have products that help children build things that enter their imagination.

Managing the product life cycle by tracking the company's position in a dynamic marketplace is a difficult task and there are companies that devote themselves to helping companies perform this task. Life Cycle Strategies, Inc. is one company that helps companies perform a market analysis and develop appropriate product planning strategies. Visit their web page and examine the services they offer as well as the implementation task to get a basic understanding of the complexities of product management. This will illustrate why it is difficult for even large and well-known companies like Lego to maintain their market position as their marketing environment changes.


PERTINENT WEB SITES!

http://www.knex.com/
K'Nex Industries

http://www.lego.com/
Lego

http://www.lifecycl.com/
Life Cycle Strategies, Inc.

http://www.meccano.com/
Meccano


SOURCES:

Frank, Robert. "Facing a Loss, Lego Is Telling a Sad Story", The Wall Street Journal, January 22, 1999, p.B1,B2.


- Rajiv Vaidyanathan