As LEGO industry is continuously developing more innovated ideas to expand their product lines for their global buyers, it is my job to analyze their position in determining how to maintain market dominance in the building toy market as well in their financial success within the industry. By using Michael Porter’s Five Forces model, I was able to present the competitive set for LEGO building blocks and its recent product advancements.
Looking at LEGO in the competitive set as a whole, we note that LEGO is a globally operated product line for toys. Global toy sales represented over US $83.3 billion in 2010. One of the fastest growing toys was building creations which increased 13 per cent in 2010. LEGO products are provided to those buyers
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The company holds a household name and icon in the global toy industry providing the industry the leverage in bargaining power. Due to LEGO large distribution centers, they were located closer to retailers providing us better control over inventory. They introduced changes to create value and optimize sales such as the discount to smaller stores in exchange for placing orders early. To maximize the opportunities with large chain stores they work closely to provide joint forecasting, inventory management and marketing support. If they forward integrate about five years you would see that due to their increase in efficient production costs and employee distribution they will hold the supplier bargaining power still. The buyer’s bargaining power would still decrease based on their competitive set and the household name and durability of their products. Buyers will continue to pay what is posted for products as long as they withstand their buyer-supplier trust.
In their competitive set we find that they have had several competitors with close substitutes for their product. MEGA Bloks held license agreements with popular items such as HALO video games, Marvel Comics, Disney, Thomas the Train, Hello Kitty, Nickelodeon, and Caterpillar Construction Equipment. Their sales revenue was significantly smaller than LEGO, but still had posed a threat of paying less for a similar product. The new line of building blocks launched by Hasbro called Kre-O has presented