1B Assessment of the organisation’s performance within relevant industry
Key Industry Trends and Forces
The toy industry has experienced massive disruption as video games and smartphones become increasingly popular amongst children. Industry trends have forced toy companies to adapt from the traditional toy market to reconsider their direction and purpose. Though these are pre-existing trends that were accelerated by the pandemic, they are expected to continue in the long-term (Kestenbaum, 2021).
Industry Analysis
The toy industry is defined to be the industry that manufactures and sells playthings for children and youth. Looking from the perspective of this industry from the Porter's Five Forces framework (Porter, 2008), the most impactful force on the industry is the threat of new substitutes. These substitutes are driven by technological innovation and include digital games and other online sources of entertainment that can decrease demand for physical toys. Thus, Lego's strategy has to take into account this force.
Lego Performance
All statistics are for 2020 unless otherwise specified. Statistics and figures are from Statista (2022).
Revenue
£4.9 billion
16% from 2o19
Consumer Sales
21% from 2019
Outpacing industry growth by 10.4%
Net Profit
£1.1 billion
19% from 2o19
Total Revenue of the Global Toy Industry
Financial comparisons with Lego competitors can be found in the Competitors Analysis. Overall, due to the pandemic which caused parents and children to spend more time at home, toy sales spiked in 2020 and are projected to increase even further. Lego also has the largest market share in the toy industry (Statista, 2020).
Lego Market Share
Business Model Canvas Analysis
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Current Industry Trends
Technological Disruption
There is a growing demand for more technologically advanced toys (Transparency Market Research, 2021) and channels to purchase toys online (eMarketer Editors, 2019). Thus, toy companies have shifted to selling toys through both online and physical channels and are increasing their product range (Hensel, 2020).
Green Toys
The toy industry has historically been a problem for plastic waste as they are often composed of multiple materials that make it difficult for them to be recycled. Parents are now more conscious about sustainable toys and expect toy manufacturers to address these environmental concerns (Goldberg, 2017). Large toy companies such as Mattel, Hasbro and Lego have all made commitments to shift to more sustainable packaging (Howarth, 2022, Lego, 2020).. However, for all these companies, the toy products themselves will still be made out of plastic.
Intellectual Property
As the lines between toys and other forms of entertainment blur in the digital age, companies are leveraging intellectual property (IP), which has become a key driver in the toy industry (Rossolillo, 2019). Figures from early 2021 show that revenue from toys based on movie characters increased by 19% from 2019, whereas non-movie toys only saw single-digit increases (Howarth, 2022). Its impact are toy companies forming partnerships with other entertainment companies like Lego’s partnership for its Lego Batman series and their own Lego Movie franchise.
Business Model Canvas Analysis
To analyse whether LEGO’s business model is resilient to these industry trends, the Business Model Canvas (Osterwalder & Pigneur, 2010) was filled out.
From this, we can see that Lego has formed strategic partnerships to expand from the traditional Lego brick to engage customers through multiple platforms, effectively adapting to digital disruption in the industry. Through its strong brand image, Lego maintains a competitive advantage over their competitors. By creating value for a wide range of customer segments, they effectively target not just the children who play with the Lego bricks, but also those that are often the ultimate purchaser: parents.
Innovation Ambition Matrix Analysis
James Zahn, Senior Editor of The Toy Insider, believes that another key for toy companies to have competitive advantage is innovation (Kestenbaum, 2021). This is something Lego is well aware of and spends 937mDKK on Research and Development which makes up 3% of their costs (Lego, 2020). To assess Lego’s efforts in innovation, the Innovation Ambition Matrix (Nagji and Geoff Tuff, 2012) was filled out.
Lego Breakdown of Costs in 2020
Amount spent (mDKK)
Type of expense
From this framework, we can see that Lego has done extensive work in adjacent innovations through combining their traditional product of Lego bricks to offer more interactive and digital products and services. It is evident that Lego has the capabilities and resources in their organisation to create these innovative products, but they are also proactive in collaborating with other firms to target new customers and create more value. A potential whitespace is that they have not used technology to incorporate personalisation in their Lego products, which could increase customer engagement (Lindecrantz et al., 2020).
References
eMarketer Editors, 2019. The Challenge of Selling Toys in an Increasingly Digital World. Insider Intelligence. Available at: https://www.emarketer.com/content/the-challenge-of-selling-toys-in-an-increasingly-digital-world [Accessed March 8, 2022].
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Goldberg, E., 2017. There's a huge problem with kids' toys that no one's talking about. HuffPost. Available at: https://www.huffingtonpost.co.uk/entry/your-kids-toys-are-killing-the-planet_n_58ffa383e4b0f5463a1a9472 [Accessed March 1, 2022].
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Hensel, A., 2020. How toy retailers and brands are preparing for a whole new world. Modern Retail. Available at: https://www.modernretail.co/retailers/how-toy-retailers-and-brands-are-preparing-for-a-whole-new-world/ [Accessed March 2, 2022].
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Howarth, J., 2022. 7 trends driving the toy industry in 2022. Exploding Topics. Available at: https://explodingtopics.com/blog/toy-industry-trends [Accessed March 1, 2022].
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Kestenbaum, R., 2021. How the pandemic has changed the Toy Business and the latest trends in toys. Forbes. Available at: https://www.forbes.com/sites/richardkestenbaum/2021/04/20/how-the-pandemic-has-changed-the-toy-business-and-the-latest-trends-in-toys/?sh=6b051fc2441e [Accessed March 6, 2022].
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Lindecrantz, E., Gi, M.T.P. & Zerbi, S., 2020. Personalizing the customer experience: Driving differentiation in retail. McKinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/personalizing-the-customer-experience-driving-differentiation-in-retail [Accessed March 5, 2022].
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Nagji, B. & Tuff, G., 2012. Managing Your Innovation Portfolio. Harvard Business Review Home. Available at: https://hbr.org/2012/05/managing-your-innovation-portfolio [Accessed March 5, 2022].
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Osterwalder, A. & Pigneur, Y., 2010. Business model generation A handbook for visionaries, game changers, and Challengers, New York: Wiley & Sons.
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Porter, M.E., 2008. The Five Competitive Forces That Shape Strategy. Harvard Business Review, 86(1), pp.78–93. Available at: https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy [Accessed March 1, 2022].
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Rossolillo, N., 2019. In a digital-first world, what is happening to all the toys? The Motley Fool. Available at: https://www.fool.com/investing/2019/11/02/in-digital-first-world-whats-happening-to-toys.aspx [Accessed March 2, 2022].
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Statista, 2022. Topic: Toy industry. Statista. Available at: https://www.statista.com/topics/1108/toy-industry/ [Accessed March 1, 2022].
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The Lego Group, Annual Report 2020. Available at: https://www.lego.com/cdn/cs/aboutus/assets/bltdee53df07dda2287/Annual_Report_2020_ENG.pdf [Accessed March 5, 2022].
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Transparency Market Research, 2021. Smart Toys Market to Observe Stellar Growth in future with growth projected at whopping 36.4% CAGR for 2018 - 2026, Integration of Futuristic Internet of Toys Technology to open large Growth vistas . PR Newswire. Available at: https://www.prnewswire.com/news-releases/smart-toys-market-to-observe-stellar-growth-in-future-with-growth-projected-at-whopping-36-4-cagr-for-2018---2026--integration-of-futuristic-internet-of-toys-technology-to-open-large-growth-vistas---tmr-301266764.html [Accessed March 1, 2022].