CKB Solutions
  • Home
  • Meet CKB
    • Greg Kovacic, CFA
  • Expertise & Experience
  • Case Studies
    • Corporate Finance
    • Doing Business in China
    • Market & Feasibility Studies
    • Marketing Communications
    • Operations & Organization
    • Strategy & Execution
  • Insights
    • 'Do' Diligence
    • Asia Marcoms M&A3
  • CKBlog
  • Contact Us
  • 中文
    • 关于CKB
    • CKB介绍 >
      • Greg Kovacic, CFA 简历
    • 专业知识与经验
    • 客户案例
    • 联系CKB

Strategy: Licensing with a dominant indirect competitor is smarter than trying to compete head-to-head in non-core areas with brand extensions

2/22/2013

 
Picture
Family-owned single-brand Lego has come a long way from being the poorly managed and stagnant business in 2003.  It is now the 2nd largest toy company in terms of revenue behind #1 multi-brand Mattel and ahead of #3 multi-brand Hasbro.  What is impressive is while Mattel's and Hasbro's revenue has largely been flat from 2008 through 2012, Lego's has grown 150%.  The toy business is facing many challenges:
  • Competition from consumer-electronics with hand-held devices is changing the way children play in and between offline and online worlds
  • Tough economic conditions are cutting discretionary spending
  • Intense retailer competition (especially in the U.S.) and e-commerce is driving prices and value down

Not surprisingly, revenue growth of the overall U.S. toy market was flat in 2012 from 2011.  What is surprising is the building block sector grew 20%.  Lego's U.S. building-block market share is 85%.

Understandably, competitors are looking to enter Lego's domain and create and sell their own versions of construction building block toys.
  • In 2011, Hasbro launched its Kre-O Transformers construction sets which are compatible with Lego
  • In 2012, Mattel teamed up with Canada's Mega Brands to launch a line of Barbie construction toys, directly challenging Lego Friends and trying to reinvent the Barbie doll, which itself saw sales decline in 2012.
  • In 2013, Hasbro plans to launch Kre-O G.I. Joe.

Will they be successful?  Hasbro and Mattel have plenty of brands.  But Lego is one of those rare iconic brands which defines an entire category.  Think Xerox, Kleenex, Q-Tips, Band-Aids, Coke, Swiss Army Knife, FedEx, Ziploc, iPod, Skype, Google, etc., which enter common usage as either a verb or noun to describe all competitors.  

For Lego, the block is core.  For Hasbro and Mattel, the block is simply an extension of their main toy brands.  Lego has history.  Many generations have grown up playing with Legos, who then encourage their kids to play with Legos and so on in a virtuous cycle.  Some kids who grew up playing with Legos remain customers of much high-priced collector edition sets, which is a big part of Legos turnaround over the last decade.  Lego is the dominant product, with everyone else being looked at as a copycat.  If you are invested in huge Lego sets, you do not want to play with blocks which are not compatible.  Would Hasbro and Mattel not be better off entering licensing agreements with Lego so all the big brands can integrate into the Lego platform?  Habsro and Mattel would sell more.  Together, Lego, Hasbro and Mattel could create an even stronger incentive and attraction for kids to put the video games down.  This is a good example of where instead of turning an indirect competitor into a direct competitor, cooperation would yield better results for all. 

Source: "Lego Shrugs Off Toy-Market Blues", Wall Street Journal, February 21, 2013.
http://online.wsj.com/article/SB10001424127887323549204578317603729616028.html?mod=ITP_businessandfinance_3

CKB Solutions is all about real solutions for the real world.  To learn how we can help your business, contact Greg Kovacic in Hong Kong.



Comments are closed.

    Author

    Greg Kovacic is a Director with CKB Solutions in Hong Kong. He advises senior executives and entrepreneurs on strategy, corporate finance, operations and marketing with a focus on crafting real solutions for the real world.  
    You can contact Greg at: greg@ckbsolutions.com

    View my profile on LinkedIn

    Categories

    All
    Accounting Shenanigans
    Bad Marketing 101
    Brand Building 101
    Bright Ideas
    China Business
    China Business
    China Facade
    China Food Scandal
    Continuous Improvement
    Corporate Finance
    Digital
    "Do" Diligence
    Economics
    Emerging Market Business
    India Business
    Indonesia Business
    Industry: Airlines
    Industry: Appliances
    Industry: Auto
    Industry: FMCG
    Industry: Food
    Industry: Healthcare
    Industry: Hotels & Hospitality
    Industry: Insurance
    Industry: Mobile Games
    Industry: QSR
    Industry: Retail
    Industry: Smartphones
    Industry: Toys
    International Expansion
    Marketing
    Other
    Smart Social Business
    Strategy
    Waste Of Taxpayer Money

    RSS Feed

Powered by Create your own unique website with customizable templates.