LEGO Case Study - Strategic Management Essay Example | Topics and Well Written Essays - 1500 words

LEGO Case Study - Strategic Management - Essay Example In the 80-year history of the company, the last fifteen years or so have been one of happenings periods in the history of company. From its peak in the mid 90s to a serious slump in the late 1990s and early 2000s and then from that to a period of recovery and dominance, the period of 1995-2009 has many stories to tell for Lego (Ireland, Hoskisson & Hitt, pp. 85-89, 2008). Problems for the company started somewhere in the 1990s but they did not made the headlines or even got the attention of the top management of the company till 1998 when the company incurred its first loss on its income statement in its entire history. Lego got back on the track of making profits during 2001 and 2002 but that was primarily because of the deals with Harry Potter franchise and when no Harry Potter movie was released during 2003, the company’s sales decreased by 26 percent and 20 percent in the subsequent year (The Lego Group, 2012). Furthermore, the company posted a record loss of over 240 mill ion US dollars and rumors started in the market that Mattel would soon takeover Lego (Lewis, pp. 21-23, 2011). There were many reasons behind the declining market share of the company. First, the toy industry was going through a similar revolution and competitive outburst as of the airline industry. Many competitors with low cost and claiming to be high quality, entered into the market to disrupt the equilibrium. For example, a Canadian toy company, Megabloks was instrumental in removing Lego toys from many shelves because not only it was of lower price to attract the customers but also even the retailers were paid with higher profit margins. Second, many of the customers of the company that were young boys were being more attracted to computer games and video games during that time thus decreasing the sales even further. Third, Lego’s main operations were in Denmark, which was high cost economy with long supply chains and many supplies. In fact, it at one point in time, Lego had more suppliers than Boeing had to build aircrafts (Ireland, Hoskisson & Hitt, pp. 85-89, 2008). Strategies In order to understand the strategies used by Lego during the period of 1995-2009, we will have to divide the period between two sub-periods of 1998-2003 and 2004-2009 since the company shifted its strategy during the period. First period (1998-2003) During the first period of 1998-2003 and even before that, Lego was following an aggressive policy of product development. Lego was constantly trying to improve its existing products with bringing new variations. The mindset of the company’s strategists was that by providing more product variations, they would force the customers to spend more and new variations would bring more and new customers into the loop (Bender, pp. 55, 2010). In fact, it appeared that somehow Lego was trapped in the product orientation, one of the five marketing orientations. In it, the prime focus and expectation of the company was on improving the current products, bringing more colour, designs and variations hoping that would make the customers stay and even become ready to pay a premium for Lego’s products (Ireland, Hoskisson & Hitt, pp. 85-89, 2008). Secondly, this was a period where Lego engaged in many strategic partners with Harry Potter, Disney and other franchises in an attempt to co-brand their products. In fact, this was the prime reason why Lego was able to show some profit during these years (The Lego Group, 2012). Second