In this Lego SWOT analysis for 2021, you will see what makes this Danish company one of the biggest toy companies in the world.
In this Lego SWOT analysis for 2021, you will see what makes this Danish company one of the biggest toy companies in the world. Lego, well known for its toys based on interlocking bricks, was founded in 1932 in a carpenter's small workshop in Denmark.
Ole Kirk Kristiansen, founder of Lego, started by making simple wooden toys. But in 1958, he patented the interlocking bricks design. The patent changed Lego's fortune. In the course of the next 85 years, Lego became a multi-billion-dollar company.
Voted the "Toy of the Century" twice, Lego is a giant in the toy sector. So, what's Lego's strength? What propelled Lego to the top? And what is helping Lego stay there? Let's find out.
Jim Makos
Lego's Strengths
Before we get into what are Lego’s strengths, let’s look at what “strength” means in the context of SWOT analysis. Strength is an internal quality that helps the company grow. It’s different from “opportunity.” In SWOT analysis, an opportunity is an external quality that helps the company prosper. With those definitions and distinctions clear, let’s look at Lego’s strengths:
Global Presence
Lego sells its products in 130+ countries. The company has 570 branded stores worldwide.
Innovation
Every year, Lego refreshes 60% of its product catalogue. New products keep the children excited about their next Lego set year after year.
Licensing Deals
Licensing deals with franchises such as Star Wars, Harry Potter, DC Comics, Marvel, Lord of the Rings, and, most recently, F.R.I.E.N.D.S. helped Lego ride the pop-culture wave to profits.
E-Commerce
One in three toys bought are bought online. In addition to its retail stores, Lego also has a strong eCommerce platform. This year, Lego saw a 27% increase from the last year in traffic to its platform.
Community
Lego created a platform called Lego Ideas to promote Lego enthusiasts to showcase their creative skills. The platform host activities and contests. It also allows fans to submit product ideas to Lego. Involving their audience in product building is a masterstroke in growing engagement and loyalty.
Lego's Weaknesses
Just as the word strength has a specific interpretation in SWOT analysis, so does the word weakness. In this case, Lego’s weaknesses are internal situations that are bringing Lego down. Weakness, in SWOT analysis, is different from threat. A threat is an external situation that opposes the company’s development. With these aspects addressed, let’s scrutinize Lego’s weaknesses:
Pricing
The downside of all the licensing deals is that Lego passes the licensing cost on to the customer. This makes Lego’s interlocking bricks much more expensive than generic toys of the same kind. So, price-conscious buyers may ditch Lego in favor of cheaper brands.
Video Games
Bandai Namco’s video game catalogue is almost 4 times larger than Lego’s video game catalogue. To stay competitive in the market, Lego must strengthen its video game offerings.
Kids TV
Recently, Hasbro acquired the entertainment network eOne. Through this move, Hasbro looks to popularize its products through channels in the network meant for kids. At the same time, Hasbro also wants to use popular franchises under eOne’s umbrella to boost sales.
Lego Clones
Lego has been unsuccessful in stopping Lego clones from biting into its share. Most of Lego’s business revolves around a patent that expired in the late 1980s. Since the patent expired many companies jumped on the chance to imitate Lego’s success. So far, Lego has not succeeded in suing these companies.
Protecting IPR
Lego’s products are vulnerable to copycats. Although the knock-off products are far inferior in quality, these counterfeit products are cheap. Lego has not been able to put measures in place to stop competitors from copying its products. Lego has also not succeeded in establishing and enforcing legal protections for its products.
Lego's Opportunities
The biggest advantages Lego has over its competitors include its global reach, innovative products, and licensing deals. However, Lego has far from exhausted all its avenues of growth. In this section, you will see some areas Lego can venture into to solidify its position in the toy industry.
New Geographies
Lego’s annual report for 2019 shares that by 2032, 90% of the 2 billion children in the world would be living outside Europe and North America. What’s more, three quarters of these children would be living in Eastern Asia. This makes spreading to these regions a priority for Lego.
Virtual Reality
Currently Lego has a few augmented reality games. The games require children to view toys through Lego’s augmented reality app to trigger interactions. However, these games are far from virtual reality games that enable greater immersion.
Subscription Business Model
Lego can try a subscription box service like Loot Crate. Lego could send boxes to subscribers every month and leverage the Lego Ideas platform to build engagements and interactions around the month’s crate.
Personalization
Lego’s interlocking bricks already provide a mindboggling array of creative expression. But what if children had the choice to personalize their Legos? The Warhammer franchise has built a great business and fandom around personalization. Perhaps, Lego could borrow a few good ideas.
Education and Learning
Through its initiatives Lego Education and Lego Foundation, Lego is pursuing a vision to foster learning through playing. This initiative is in line with Lego’s vision to inspire and develop the builders of tomorrow.
Lego's Threats
Lego’s biggest competitors are Bandai Namco, Hasbro, and Mattel. While Lego has its winning product – interlocking bricks, its competitors have a few tricks up their sleeves. At the same time, elements outside the toy industry are throwing Lego off its game. So, let’s investigate what are some of Lego’s threats.
Copycat Products
Lego’s copycats do not just copy Lego’s toys; they also use Lego’s branding to drive sales. For instance, companies promote toys stating that they are “compatible with Lego.” These copycats will severely undercut Lego’s growth, especially in emerging economies.
COVID-19 Restrictions
Lego has been a big believer in letting children experience the joy of playing with Legos. It promotes this vision through its 570 retail branded stores. However, due to the COVID-19 restrictions, foot traffic to these stores is slow.
Environmental Groups
The principal raw material Lego uses is plastic. And the raw material for manufacturing plastic is crude oil. The direct reliance on petroleum has put Lego at odds with environmental groups such as Greenpeace.
Online Games
With mobiles becoming increasingly ever-present, children are increasingly moving to mobile games. This exodus from traditional toys to mobile games could threaten the demand for toys.
Competition
The top players in the market are running the race neck and neck. One runaway success could topple the leaderboard. So, Lego must consistently out-innovate, produce, market, and sell its competitors.
Lego SWOT Analysis: Conclusion
On one hand, Lego's biggest weakness is to protect its intellectual property rights. On the other hand, Lego's greatest strength is its innovation, high-quality, and licensing deals.
Looking ahead, Lego has many opportunities to explore. Entering new geographies is the biggest of these opportunities. At the same time, the chief threats to Lego come from copycat products.
Considering the stiff competition in the toy industry, Lego as well as its competitors are trying to capture the attention, interest, and patronage of children. Each company has laid out its own strategy. And for now, Lego remains competitive.
PESTLEanalysis Team
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