Business Proposal LEGO

University of Phoenix
July 17, 2014
ECO/561

LEGO Lego first had it conception form the humble beginnings of products being produced only smaller versions of building products from a construction company. From 1932 till 1947 the company made Lego’s from wood as well as furniture. After 1959 LEGO would solely begin making LEGO’s from plastics. During the 60’s LEGO would enjoy success after success and even when competitors would emerge the name LEGO itself would become a name brand name that would describe the product worldwide. LEGO is among other companies to reach eponyms of name brand products such as Kleenex, Scotch Tape, Skillsaw, Windex, FED-EX, Sharpie, Xerox, and several other products. LEGO is continuing to expand the elasticity of its product and create demand on the products it creates. LEGO uses data to respond to the market and reinvent its products in order to remain the dominate firm in the building block toy industry.
Business Model of LEGO According to Essentials of Economics there are four types of business models; Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly (McConnell, 2009). * Pure Competition: Involves several firms producing of standard products. As an example of a pure competition product would be rubber bands, copy paper, and pens. * Monopolistic Competition: Has a number of firms making differentiated product such as furniture, producing books, televisions, and clothing. Entering or exiting the market is quite easy and a non-price competition. * Oligopoly: Only have a few firms. Those firms that are involved are interdependent of each other in prices other firms could easily become a price war. Prices for the product will determine what choices and direction the firm will take. * Pure Monopoly: in the market there is only one firm in the sole supplier of the product. As an example of a pure monopolistic firm is any local or state utility service.
LEGO falls into the category of Oligopoly category for these reasons: * Profit Maximizes Conditions: LEGO transformed their niche into the toy industry and in doing so created at first a monopolistic franchise no other companies were making building bricks as toys, LEGO was off the races. Lego started out as a lone company and created the demand of building blocks as toys. LEGO toys are an elastic product and partnering with other companies such as Star Wars, Marvel, and Harry Potter has made LEGO a power house in the toy industry. LEGO truly has created a demand in the market place for its products, and is doing very nicely in its industry. * Ability to set Prices: LEGO has dominated the market for so long LEGO has the ability to set prices. Of all the companies that are in the same market as LEGO, LEGO has the higher prices and profits have reflected the ability to set prices. Reason being LEGO has the majority of the market; LEGO can set the elastic prices for the market. * Entry and Exit: LEGO is an eponym, meaning the name itself describe describes the product. Entering the market of building block toys very hard, the toy building blocks market is mainly LEGO brand. LEGO’s competitors are Kre-o, Haba, Mega Blocks, Sluban, Battle Brick, Brictek, K’NEX and only a handful of other less know companies. Getting into this market for these companies has been a task through trial and error. In fact the competition has started to use the exact measurements to utilize LEGO blocks, but just out of specs in order to avoid copy right infringements. Doing so has enabled to shrink down the market. * Number of Firms: As mentioned before in the above section there is just a small number of firms that make toy building blocks. The other firms have adjusted their product to meet and look alike LEGO. * Lon Run Profits: LEGO has been around far longer than the other firms Profits have been a steady incline for LEGO. According to the finical statements from their annual investment report profits have gown about 60% over a 5 year period (2005 to 2009) revenue was at 7,027 to 11,661 (mDKK) and expenditures only have risen 31% from 6,605 to 8,659 (LEGO Financials, 2009).

* Product differentiation: The basic product is homogeneous (plastic) the basic building blocks are homogeneous, however; final completed product is differentiated. Lego has several differentiated products and themes, but all products share the basic configuring plastic blocks measurements. Just as the automobiles are made of plastic, metal, and have tires, the final product is differentiated. * Perfect knowledge: Lego being an Oligopoly has a perfect knowledge of the cost of raw materials and improvements of machinery and supplies of stickers and paint for finished product. Shown in the investment report of 2005 – 2009 break down of import shows figures relating to those identifiable costs. These costs are operating profit before special items, impairment of non-current assets, reconstructions expenses and other special items, financials and expenses, profit before income tax, profit continuing actives, and a total of net profit for the year. * Interdependence and Non-Competition: LEGO is interdependent and non-competition of its competition. Interdependence: LEGO relays on companies like Kre-o and Mega blocks to keep prices over all down. The rise of LEGO’s competition has brought attention to LEGO. Interdependent keeps prices down. Non-competition: With LEGO’s differentiated vertical platforms has changed, without changing the pricing of its product, created a loyalty system in the same process. During the extras from “The LEGO Movie” explained a competition from the LEGO family, LEGO loyalists, worldwide to make a short video that the winners would be placed into the new movie. Loyal LEGO owners were instructed, by LEGO, to make whatever their imaginations came up with then to re-brick another thing using the same bricks all on film (LEGO, 2013). Showing loyalty, core value, and purpose of LEGO’s to the masses. There were four winners and LEGO delivered on their promise and shown them in the movie. All prices in the market remained the same (Reality, 2013). Rebranding LEGO’s best clients are indeed children, so their core target audience gets phased out. While other children get introduced to LEGOS at the same age, interests and themes will change. Due to those unavoidable changes APX every 7 years LEGO must rebrand. In the current toy market LEGO has kept up with the fads from the movies, television, video games, and international media popularity. LEGO has chosen to go the route of Corporate branding, meaning they add their names to other companies’ products to sell more for them and for LEGO (De Mooij, 2009).
LEGO has rebranded by going into different markets. Other markets get LEGO more into the fore front of people minds. Currently LEGO is making video games, movies, and different board games in order to make vertical moves in a different market. By making these verticals into different markets LEGO’s competitors have done the same. Kre-o for example is currently making movies direct to DVD, and has partnered with Star Trek to make specialized themes, just as LEGO.
Business Cycle According to McConnell the business cycle has four components peak, recession, trough, and expansion (McConnell, 2009). Looking at LEGO financial reports a person can see the business cycle in the reported numbers. While LEGO is currently on the peak end of the cycle LEGO is continuing to look at the marketing trends and keep adjusting to keep the cycle from being too dramatic.
Conclusion
LEGO is an oligopoly company that has products in the toy, gaming, media, and is associated with other companies that are dominating in their collective markets as well. LEGO has solved numerous problems for now. To unsure the longevity of LEGO, LEGO must stay on the path they are on. Not to look for the short fix, or become complacent in the market when it comes to growth within the company. LEGO has not come out and declare all problems are solved because of the long term plans surrounding LEGO doing so would be unwise to every state such a thing. Constant valiance, determination, maintenance, and rebranding will assist in keeping issues at bay.

References
De Mooij, M., K., Global marketing and advertising: understanding cultural paradoxes, Sage,
2009, p. 19;
LEGO, Financials (2009). Financial Highlights, The LEGO Group. Retrieved on July 16, 2014 from http://lego.com/downloads/aboutus/annualreport2009GB.pdf
LEGO (2013). The Lego Competition with Rebrick. Retrieved on July 16, 2014 from http://rebrick.lego.com/en-US/BottomMenu/Blog/03182013-the-LEGO-movie-competition-with-ReBrick.aspx McConnell, C., Brue, S., & Flynn, S. (2009). 9 Pure Competition. Essentials of Economics .
Boston: McGraw-Hill/Irwin p177, 521
Reality Prose (2013). The price of a brick. Retrieved on July 17, 2014 from http://therealityp
rose.wordpress.com/2013/01/17/what_happened_with_lego/