Executive Summary
This paper aimed to investigate the effectiveness of the strategy of product diversification in granting Mega Bloks, Playskool, and Mattel Inc. a competitive edge over LEGO in relation to sales increase and maintenance. The paper accomplished this goal by reviewing the existing literature on peer-reviewed academic articles, company reports, and reputable academic website. The findings reveal that the three companies have competitive edge over LEGO in different areas associated with product diversification. Mattel Inc. has a robust global presence in the provision of diverse products and has managed to capture the market offered by infant and preschool children. Apart from the children market, Mega Bloks has captured the market segment associated with the older fans. Playskool has managed to capture the market segment for academic and baby care products. Diversifying into these areas will enable LEGO to have a comprehensive growth approach, which in turn will contribute to the increase and maintenance of sales. Currently, LEGO possesses the strategic assets required to venture into and exploit opportunities in these areas including competencies in the areas of services, outbound logistics, inbound logistics, marketing and sales, operations, and sales, as well as strengths such as robust global presence, robust brand presence, innovative concepts. The paper recommends that LEGO’s management should consider embracing the product diversification approach, as it will contribute largely to increasing and maintaining its sales.
Contents
2.0 External Environment Analysis. 5
2.2.4 Technological Factors. 9
2.2.5 Environmental Factors. 9
2.3 Porter’s Five Forces Analysis. 10
2.3.2 Suppliers’ Bargaining Leverage. 11
2.3.3 Buyers’ Bargaining Potential 11
2.3.4 Threats associated with Substitutes. 11
3.0 Internal Environment Analysis. 11
3.2 Threshold and Distinctive. 13
3.3 Dynamic and Redundant Capabilities. 14
4.0 An Overview of Mattel Inc., Mega Bloks, and Playskool, and Rationale for Selection. 16
4.1 Overview of Mattel Inc. and Rationale for its Selection. 16
4.2 Overview of Mega Bloks and Rationale for Its Selection. 18
4.3 Overview of Playskool and Rationale for its Selection. 19
5.0 Positive Features of Mattel Inc., Mega Bloks, and Playskool 20
5.1 Positive Feature of Mattel Inc. in relation to Product Diversification. 20
5.2 Positive Feature of Mega Bloks in relation to Product Diversification. 21
5.3 Positive Feature of Playskool in relation to Product Diversification. 22
6.0 Critical Evaluation of the Benefits Presented by Product Diversification to LEGO.. 23
1.0 Introduction
This paper aims to investigate the effectiveness of the product diversification in granting, Mattel Inc., Mega Bloks, and Playskool a competitive advantage over LEGO in relation to increasing and maintaining sales. The paper accomplishes this goal by executing external environment and internal environment analysis, and providing an overview of Mattel Inc., Mega Bloks, and Playskool. The paper also explains the positive aspects of the three comparator companies that establish the foundation of the product diversification approach to LEGO. The paper then concludes by providing a critical assessments of the benefits that could be presented by product diversification strategy to LEGO. The last section of the paper entails my personal reflection on these findings.
2.0 External Environment Analysis
According to Vasauskaite (2013), external environment assessment is an essential study and evaluation of the macro-environmental forces or factors affecting the operations of the organization within the business setting or industry. Gathering information from the external environment contributes significantly to creation of a competitive advantage for the firm (Chungyalpa & Bora, 2015). Some of the models employed in analysing the external environment in which LEGO executes its business operations are SWOT, PESTEL, and Porter’s Five Forces analyses.
2.1 SWOT Analysis
SWOT represents the acronyms employed to illustrate the specific strengths, weaknesses, opportunities, and threats, which are considered strategic factors, for an organisation (Reinhard, 2009). Nevertheless, this section will focus on the opportunities and threats to which LEGO is exposed, as it analyses the external factors. Strengths and weaknesses of LEGO will be addressed in the internal environment analysis section.
2.1.1 Opportunities
LEGO’s external environment presents several opportunities that can be exploited to grant the firm a competitive advantage. The emergence of the popular culture offers a suitable opportunity for the company to produce a range of products that appeal to this market. There also exist promising opportunities for the firm in terms of licensing agreements. Even though LEGO currently boasts several licenses at its disposal such as Minecraft, Star, Wars, Harry Potter, and Wars, the company is exposed to engage in extra licensing agreements, which can enable the firm to capture the markets presented by children with multiple interests (Schultz & Hatch, 2003). The increasing prominence of cinema also avails promising opportunities to LEGO. For instance, in 2014, the LEGO Movie was a significant success considering its grossing of approximately $470 million globally (Judit et al., 2017). As such, the company’s management should focus on exploiting the film popularity to its advantage by making sequels, as well as other films in order to match the interest of its larger consumer base. Great expansion opportunities are also available for LEGO in prolific markets such as Denmark, Hungary, and Mexico, as well as emerging economies such as China.
2.1.2 Threats
LEGO is exposed to numerous threat within its business setting. One of the primary sources of threats is competition from other firms such as Mega Bloks and Playskool. For example, Mega Bloks aims to undercut or overshadow LEGO’s successes, particularly in the production of less expensive products. Even though LEGO’s rivals such as Mega Bloks produce bricks, which are less durable and of lower quality relative to LEGO’s products (Lin-Hi & Blumberg, 2017). However, LEGO’s prices are higher relative to those of its competitors, which in turn threats the company’s ability to capture the market offered by earners of low incomes (Judit et al., 2017). Advancement in technology also presents a significant threat to LEGO with many children becoming increasingly technologically savvy. For instance, technological advancements in video games has enabled rivals such as Minecraft to offer similar block building experiences in virtual realms. With the amount charged for LEGO’s large Classic Creativity Box ($65), a consumer can purchase about three licenses, which permit a player to establish entire cities, from Minecraft (Judit et al., 2017; Bartneck et al., 2016). The company also faces threats from the high costs associated with going green due to pressure from environmental agencies on firms to adopt environmentally sound production measures.
2.2 PESTEL Analysis
PESTEL is an acronym denoting the political, economic, social, technological, environmental, and legal factors affecting the operations of a business. The PESTEL analysis of LEGO is presented below:
2.2.1 Political Factors
According to Chungyalpa and Bora (2015), political factors take into consideration the country’s present political situation and global political situation and their impacts on businesses. Examples of such factors are government policies, taxes tariff and law, entry mode regulations, and stability of government. Since LEGO is an international firm, the company experiences significant influences from global political situations, especially in nations in which it executes its activities. LEGO has its presence in countries such as China and Denmark. Considering that LEGO conducts its activities about 130 countries, the local political issues in these countries will impact the company’s operations (Bartneck et al., 2016). For example, in the U.S. laws associated with the production of safer toy commodities for children can influence the company’s production activities. In nations like Denmark that are characterized by reduction in corporate tax, LEGO’s activities can be influenced positively. Other political matters that can also impact the company’s operations are sourcing of employment overseas.
2.2.2 Economic Factors
Chungyalpa and Bora (2015) assert that economic factors focus on all the economy’s determinants, as well as its state. These factors often dictate the direction to be taken by the economy, and take into consideration aspects such as interest rates, inflation rates, credit accessibility, buyers’ disposable income, unemployment rates, and fiscal policies among others. Prediction of increased household incomes and economic stability will positively affect LEGO’s business operations. It is also significant to note that LEGO’s key markets is in Europe. However, this region is still engrossed in enormous debt crisis that can negatively impact the company’s sales (Lin-Hi & Blumberg, 2017). Emerging economies such as China and the Organisation for Economic Co-operation and Development (OECD) are associated with increasing growth of the middle-class societal members, and this figure is expected to rise to 3.2 billion by the attainment of the year 2020 (Lin-Hi & Blumberg, 2017). Seasonal buying of toys, which often occurs majorly during holidays when children have closed schools, could also negatively impact LEGO’s sales when schools are in session.
2.2.3 Social Factors
Vasauskaite (2013) argue that social factors involve values and cultures within a society that influence business operations such as services and product sales. Examples of social factors are education levels, wealth distribution, social lifestyle, gender and related demographics, and cultural implications among others. With the intensification of campaign on family planning the number of kids born in families are reducing. Moreover, issues associated with low rates of fertility across countries owing to the engagement of women in labor markets coupled with increased education, and living standards have led to delayed pregnancies, which in turn have increased spending potential of populations, especially on educational toys (Judit et al., 2017). Moreover, the robust brand reputation of LEGO, which appeals to various societal members can also impacts the company’s sales in a positive manner.
2.2.4 Technological Factors
According to Vasauskaite (2013), technological advancements are increasing at an advanced rate within the gaming and toy industry, and this continues to impact companies in this sector in a significant way. Examples of technological factors that can impact a firm’s activities in any industry are novel discoveries, rate of advancements in technologies, technological obsolescence rates, and innovative technological platforms. Novel product development and technological advancements have a significant influence on LEGO’s operations. The emergence of the internet and video games on virtual platforms present a significant threat to LEGO’s sales, as many kids seems to be increasingly moving towards the consumption of online video game services. According to The Economist (2012), the novel 3D printing technology employed by LEGO can be imitated easily by its rivals, which further threatens the company’s operations. It is also significant to note that the high costs involved in the adoption of novel technological innovation also threatens LEGO’s sales.
2.2.5 Environmental Factors
Several environmental factors such as geographical location, waste disposal laws, weather and climate, attitude of individuals towards the environment, and energy consumption regulation among others (Chungyalpa & Bora, 2015). LEGO has often prioritised corporate social responsibility (CSR), which has informed the company’s implementation of numerous CSR initiatives (Progress Report, 2012). Nevertheless, materials scarcity, particularly plastic, threatens LEGO’s business operations. Wastages arise from overproduction of toys. In addition, carbon emissions from production exposes the company to conflicts with environmental groups or agencies. As such, the company is under immense pressure to focus on the production of environmentally sound toys.
2.2.6 Legal Factors
Chungyalpa & Bora (2015) assert that legal factors involve the regulations or policies governing the business setting. The business environment is often subjected to regular changes, which always impact business operations. Examples of legislative transformations that can influence LEGO’s business activities such as sales are product regulations, competitive regulations, employment regulations, safety and health policies, and patent infringements. With the presence of patents and copyrighting policies, LEGO’s products are safeguarded from imitations. According to Ozanne and Ozanne (2011), stringent legislations in some nations such as the U.S also call for the production of safe toys for children .
2.3 Porter’s Five Forces Analysis
Vasauskaite (2013) argues that the model of Porter’s Five Forces enables the organisation to comprehend the competitive forces within the market, and the sources of profitability within the industry. This model also enables a firm to anticipate and handle competition in the future. This analysis is presented in the subheadings below:
2.3.1 Threat of Entry
Considering the fact that the toy industry has been associated with the entering of novel toy, as witnessed in new brands like Target and Wal-Mart, this industry is associated with a higher threat of entry (Judit et al., 2017). As such, LEGO faces the threat of novel entry. Nonetheless, its robust brand image still keep many interested company away from joining the industry.
2.3.2 Suppliers’ Bargaining Leverage
LEGO’s primary suppliers are Chinese subcontractors. Besides, there are other suppliers serving the industry. LEGO also executes most of the production process in-house. Thus, the bargaining potential of suppliers is low (Bartneck et al., 2016).
2.3.3 Buyers’ Bargaining Potential
Considering that many products LEGO offers are unique and their exchange with retailers having similar products is unattainable, the production of the company’s toys cannot be backward integrated by buyers (Judit et al., 2017). However, the presence of many firms in the industry still increases the bargaining potential of buyers.
2.3.4 Threats associated with Substitutes
Since many children are increasingly moving towards consuming digital games, the threat of substitutes such as virtual video games is high (Bartneck et al., 2016).
2.3.5 Competitive Rivalry
Most LEGO competitors are Mattel Inc., Playskool, Hasbro, Takara Tomy, and Mega Bloks among others (Lin-Hi & Blumberg, 2017). However, the major rivals are Mega Bloks, Mattel Inc., Playskool, and Hasbro. Despite LEGO being ahead of these firms, they are striving to catch up with it, and could accomplish this goal in case LEGO’s management slackens.
3.0 Internal Environment Analysis
According to Chungyalpa and Bora (2015), the success of an organizational strategy is dependent on the realistic evaluation of the company’s internal capabilities and resources. () add that an internal analysis offers a suitable platform on which the weakness that a company should overcome and the strengths on which the firm should be build are identified during the formulation of strategies. As such, the process of internal analysis takes into consideration the company’s resources, plans, policies, objectives, and the firm’s nature of business. Since the opportunities and threats were addressed in the external assessment section, this section will focus on addressing LEGO’s weaknesses and strengths, and then proceed to analyse the company using approaches such as threshold and distinctive, dynamic and redundant capabilities, and value chain analysis.
3.1 SWOT Analysis
3.1.1 Strengths
LEGO’s strengths lie in many areas. The firms boasts a robust brand presence, and has been competing with the world’s prominent brands. For instance, in 2015, LEGO managed to surpass Ferraris as the most powerful brand in the world. This success was attributed to the enormous success of the LEGO movie launched in the 2014 (Bartneck et al., 2016). Besides, the company is on record for surpassing other prominent brands like RedBull (Judit et al., 2017). LEGO through its products has managed to connect consumers with powerful and beautiful memories, which in turn has led to customer loyalty that the firm currently enjoys. The firm also boasts a robust global presence. LEGO has its facilities situated in various places across the world. According to Joel (2011), some of the countries in which the organisation executes its operations are Italy, Singapore, America, France, Japan, Poland, and Taiwan. LEGO has also managed to establish itself as a cross-generational brand, as it has been famous for several years across many generations. The organization remains popular for successful concepts that drive innovation, especially in popular culture. For example, the firm’s blocks can be employed to establish the Death Star (that is from The Star Wars movie series) and The Tower of Orthanc (that is from the Lord of the Rings).
3.1.2 Weaknesses
Despite enjoying massive strengths in numerous areas, LEGO has weaknesses in certain areas. One of the primary areas of LEGO’s weaknesses is the inability of the company to diversity its products to meet the level of its competitors such as Mattel Inc. The company focuses majorly on the production of plastic construction blocks, and when compared to its rivals the variety of products it produces are limited (Judit et al., 2017). Another area of LEGO’s weakness is the prices charged for its commodities. LEGO has been successful in the provision of quality products. As such, the firm’s products are priced high relative to its rivals’ prices. For instance, while the company prices a tubs having 480 blocks at $29.99, Mega Bloks prices a tub with 500 pieces at $26.99 (Bartneck et al., 2016). Even though this price margin appear marginal, LEGO could experience challenges capturing potential consumers in the underdeveloped economies or markets. LEGO’s weakness also lies in the area of patency. According to Trautman (2013), core patent associated with LEGO’s bricks was terminated in 1988. As such, major rivals such as Mega Bloks, Mattel Inc., and Playskool can manufacture products identical to LEGO’s, which in turn increases competition levels in the industry. In addition, LEGO’s weakness lies in the segment of consumers that its products serve. The firm’s items majorly focus on children aged between five and twelve. As such, the video game industry aims to fill the gap existing between grown-up parents and small children.
3.2 Threshold and Distinctive
LEGO boasts several distinctive and threshold competencies that enable it to accomplish a competitive edge over its rivals. Examples of these competencies are large capabilities associated with installed production facilities, creativity and innovation, creativity in designing products, extensive knowledge, and efficient supply chain (Bartneck et al., 2016). Other competencies are efficient leadership and management organisation, high quality standards, and robust brand.
3.3 Dynamic and Redundant Capabilities
According to Chungyalpa and Bora (2015), the Dynamic Capabilities Theory enables companies to analyse the way in which they acquire and deploy their resources, with the aim of meeting effectively the demands of the market. In relation to this, LEGO’s dynamic capability refers to its capacity to create purposefully, expand, and modify its base of resources (Bartneck et al., 2016). On the other hand, LEGO’s redundant capabilities were demonstrated in 2004 when the firm announced a seven-year rebranding process (Lauwaert, 2009). In the same year, the company’s management sold its LEGOLAND parks in order to acquire extra financial support to rescue the firm. Moreover, other LEGO’s redundant assets, which were not in line with the organisational strategy were sold. LEGO’s dynamic capability lies in its flexible backbone framework, which is a hybrid strategy providing support and low-cost messaging to organisational consumers. This model also fosters collaboration with consumers and enables LEGO to provide offers tailored to customers’ needs. According to Cross and Smits (2005), these capabilities potentials assist the company in the areas of logistics, education, novel product development, technical issues, and augmentation.
3.4 Value Chain Analysis
Johnson (2001) and Chee et al., (2005) define value chain analysis as a vital management tool employed in uncovering and highlighting ways in which companies add worth or value to their items with the assistance of manufacturing processes. LEGO’s value chain analysis is presented below:
3.4.1 Inbound Logistics
Considering that the Lanxess German Company supplies LEGO’s raw materials and the firm produced standard goods, LEGO is not vulnerable to bottleneck situations that can hinder its future production. It is also vital to note that the future pricing of raw materials can be impacted by 3D printing since similar raw material would be employed to produce LEGO bricks (Sarason et al., 2014).
3.4.2 Outbound Logistics
LEGO employs many large hub centers situated closer to retailers in regulating inventory in an effective way and creating limited stock shortages. Besides, discounts are provided to small retail outlets who place early orders (Sethi et al., 2011; Judit et al., 2017). The firm also work closely with retailers when it comes to forecasting and managing inventory.
3.4.3 Operations
According to Judit et al., (2017), LEGO is effective in the projection of its future demand using sophisticated software and analytical approach. All the company’s commodities are in line with the European CE-labelling, which ensures that production methods and products are in accordance with the European Union’s legislation (Judit et al., 2017; Sethi et al., 2011). The firm also promotes quality and safety standards in the production of toy, as it has membership in many Toy Industry organisations.
3.4.4 Service
According to Sarason et al., (2014), LEGO possesses an online customer retention scheme, which is available on its website, where consumers acquire VIP points whenever they make online purchases. Such a plan grants online buyers reductions in terms of online currency in future purchases they make. Moreover, the company’s clubs are established globally and they host annual events. LEGO also focus on the maintenance of community blogs.
3.4.5 Marketing and Sales
The company adheres to a portfolio comprising licenses and themes, which are extremely successful. LEGO also established strategic alliance with Lucas Arts and Warner Bros whose Harry Potter and Star Wars respectively contributed largely to the rescue of LEGO during crisis (Judit et al., 2017). The firm also adheres to the strategy of top-pricing, but this approach faces intense rivalry from the low-pricing technique employed by LEGO’s rivals such as Playskool, Mega Bloks, and Mattel Inc. (Bartneck et al., 2016).
4.0 An Overview of Mattel Inc., Mega Bloks, and Playskool, and Rationale for Selection
4.1 Overview of Mattel Inc. and Rationale for its Selection
Mattel Inc., which was incorporated in the year 1968, is involved in designing, manufacturing, and marketing of a range of toy items across the work (Reuters, 2017). These products are sold to its buyers and directly to its consumers. According to Reuters (2017) Mattel Inc. boast three primary segments including American Girl, international, and North America. The firm’s portfolio of products and brands are categorised into about 4 categories of brands including Fisher-Price Brands, Mattel Girls & Boys, Construction and Arts & Crafts, and American Girl Brands.
Mattel Inc.’s American Girl Segment happens to be a direct children’s publisher and marketer, as well as a retailer for its line of BeForever, which comprises accessories, books, and historical dolls. Other brands in this line are Bitty Baby, Girl of the Year and Truly Me (Reuters, 2017). In addition, American Girl publishes non-fiction and fiction titles, as well as American Girl magazine. According to Reuters (2017), this segment (American Girl) sells commodities directly to customers via its website, retail stores, and catalog with the United States. These sales are also executed in specialty boutiques, which are found at Indigo and Chapters shops or stores and El Palacio de Hierro localities within Canada and Mexico City respectively.
Mattel Inc.’s international segment focuses majorly on marketing products, which are generally similar to those the segment of North America manufactures and markets. However, some products in this segment are adapted or developed for specific international markets (Reuters, 2017). The firm’s products are often sold directly to wholesalers and retailers within Latin American, Asian, and European countries, as well as New Zealand and Australia and via distributors and agents.
The company’s North America segment focuses on the marketing and selling of toys within Canada and the United States via Construction and Arts & Crafts, and Fisher-Price, and Mattel Girls & Boys categories of brands (Reuters, 2017). In the brand category of Girls & Boys, Barbie takes into consideration Barbie accessories and fashion dolls. Besides, other Girls are Ever After High, Monster High, Polly Pocket, and Little Mommy. Wheels brand includes play sets, Matchbox vehicles, and Hot Wheels. Entertainment brands are Disney Planes, CARS, Toy Story, BOOMco, Halo, Teenage Mutant Ninja, Halo, Ninja Turtles, games and puzzles, and WWE Wrestling. The brand category of Fisher-Price comprises BabyGear, Little People, Fisher-Price, Imaginext, Laugh & Learn, Dora & Friends, Thomas & Friends, Shimmer and Shine, Blaze and The Monster Machines, Blaze, Minnie Mouse, Mickey Mouse, Power Wheels, Octonauts, and Clubhouse (Reuters, 2017). On the other hand, the brand category of Construction and Arts & Craft consists of Board Dudes and RoseArt.
Considering the review above, it can be noted that apart from Mattel Inc. enjoying a wider market coverage, the company has excelled in the diversification of its products across all of its three market segments. The effectiveness of Mattel Inc.’s employment of the diversification strategy accounts for its selection.
4.2 Overview of Mega Bloks and Rationale for Its Selection
Mega Bloks, which currently known as Mega Brands Inc., is a children’s toy company with its headquarter in Canada. The company is presently owned by Mattel. The most prominent product line for this firm is the Mega Bloks. However, the company owns other brands including Mega Puzzles, Rose Art, Board Dudes, and Mega Construx. Mega Bloks often focus on the distribution of a range of construction puzzles and toys, as well as craft-based commodities. Under the novel umbrella known as the Mega Brands, the organisation inspires preschool builders aged between one and four years. Mega Blok also provides older fans with immersive packages featuring authentic characters, as well as varied brick shapes having endless colors. Teipen (2016) and Joel (2011) add that Mega Construx isolates itself from the rivalry with bizarre character figures that allow the brand to offer authentic appearances for prominent licenses like Despicable Me, American Girl, Destiny, Barbie, and Halo among others. Mega Blok has also managed to align or connect itself with the pop culture. The brand has featured in several commercial ads related to pop culture. Moreover, the company presently possess licensing rights for various franchises. Mega Bloks has licensing rights for video gam franchises, Thomas the Tank Engine, Call of Duty, Barbie, Halo, Power Rangers, Hot Wheels, Monster High, American Girl, Destiny, Pokemon, Despicable Me Franchise (Teipen, 2016). The company also picked up licensing rights for Teenage Mutant Ninja Turtles, SpongeBob SquarePants, and Nickelodeon, which were discontinued by LEGO.
The above overview indicates that Mega Bloks bears a robust competition potential against LEGO considering that it is currently owned by Matte Inc. which boasts great excellence in product diversification strategy. Influenced by Mattel Inc., Mega Bloks managed to embrace the product diversification approach, which has seen it pick up license for various franchises including those whose licenses were discontinued by LEGO. This company also managed to diversify its products to capture the markets provided by older fans contrary to LEGO that oly focuses on the market provided by young children. As such, the selection of Mega Bloks was founded on its great potential for product diversification.
4.3 Overview of Playskool and Rationale for its Selection
Playskool, which is an American manufacturing firm, focuses on the production of toys. The company is headquartered in Rhode Island, particularly in Pawtucket, Playskool functions as Hasbro Inc.’s subsidiary. This firm markets its commodities under various brand names including Wheels Pals, Weebles, Ion, Tinkertoy, Gloworm, Mr. Potato Head, and Coolcrew (Joel, 2011). Playskool also provides baby care accessories and products, and markets its commodities via its retail outlets and Website. Playskool was originally referred to as The Playskool Institute. In 1938, the firm altered adopted a new name known as Playskool Manufacturing Company (Teipen, 2016). The firm is involved in the production of numerous lines of games for children and educational toys. Examples of the firm’s signature toys and brands are Sesame, Elefun, Aplhie, Tonka, Weebles, Mr. Potato Head, Gloworm, and Street boys. Playskool also focus on the creation of products for a range of children including newborns and preschool-aged children. Examples of products aimed at establishing the babies’ motor skills are the Tummy, Step Start Walk ‘n Ride, and the Kick Start Gym. In addition, the firm created many toys such as Go Go Gears, Busy Basics, and Pipeworks to enable children to demonstrate their creativity (Teipen, 2016). This organisation also creates several action figures and dolls including Kota the Triceratops and Dolly Surprise. Other brands are Cool Crew, Clipo, Glo Friend, Baby Einstein, Boohbah, Geoger Shrinks, Bob the Builder, Chuck and Friends, and Bragnam among others.
The above overview reveals Playskool’s effectiveness in the diversification of its product lines. The company has managed to identify and capture markets provided by newborns and preschool and develop products that meet the interests of consumers in these categories. Playskool has also managed to diversify its product line into the academic segment or niche. Considering Playskool’s enormous potential for product diversification, its inclusion in the list of the three comparator firm was appropriate.
5.0 Positive Features of Mattel Inc., Mega Bloks, and Playskool
5.1 Positive Feature of Mattel Inc. in relation to Product Diversification
Mattel Inc. is prominent for its effectiveness in diversifying its products across various product lines and market segments, while still managing to offer commodities at affordable costs even to the low-class societal members. According to Reference for Business (2017), supports this claim by asserting that Mattel Inc.’s success lies in the fact that the firm is not a hot-item company. Business for Reference (2017) add that Mattel Inc. often focus on the establishment of toy line meant to meant to meet the long-term goals. Mattel Inc.’s effectiveness in the employment of the product diversification approach is evident in many ways. For example, the firm has managed to isolate and established its presence in three market segments including American Girl Segment, international segment, and North America segment (that is Canada and the United States). In each of these segments, Mattel Inc. offers various commodity lines, which meet the interests and needs of consumers in these regions. For instance, in the segment of American Girl, and BeForever among others, while the North American and international segments focus on brands like Ever After High, Monster High, Polly Pocket, and Little Mommy, Polly Pocket, Monster High, and Ever After High among others. Besides, the company has excelled in the establishment of a robust brand presence in the preschool and infant lines. Contrary to LEGO that focuses on children between the ages of 5 and 12 years (Judit et al., 2017), Mattel Inc. has diversified its products to capture the market presented by infant and preschool children. As such, the firm manages to attract consumers from diverse backgrounds, which in turn adds to its sales volumes.
5.2 Positive Feature of Mega Bloks in relation to Product Diversification
Mega Bloks has also demonstrated significant efforts in diversifying its products. Contrary to Mattel Inc. and LEGO that focus majorly on the market segment offered by children, Mega Bloks focus on exploiting the markets provided by older fans. As such, the company has diversified its products to include other extra lines such as the adult puzzles and adult games. Mega Block has accomplished this goal by tying its adult products to the famous movie version based on the bestselling novel known as The Da Vinci Code (Morotte, 2017). In addition, Mega Blok’s effectiveness in exploring various product lines is evident in its picking up of licenses for franchises such as Nickelodeon and SpongeBob SquarePants, which were previously owned by LEGO. These approaches have enabled the company to continue generating more revenues and profits. For instance, of the company registered a profit rise of $18.7 million from 13.7 million in September of 2017 (Morotte, 2017). Mega Bloks has been more effective maintaining its sales and revenues over the years relative to LEGO, as shown in figure I below:
Figure I: Mega Blocks versus LEGO
Source: (Ghemawa, 2007)
In figure I above, it can be noted that while MEGA brands have been experiencing steady increase in sales in the past years, LEGO’s commodities have been witnessing sharp declines with a sharp rise. However, the rise in sales in LEGO brands in the past years has not matched that of MEGA Bloks.
5.3 Positive Feature of Playskool in relation to Product Diversification
As in the case of Mattel Inc., Mega Bloks, Playskool has also succeeded in diversifying its products. The company has employed the similar approach employed by Mattel Inc. in capturing the preschool and newborn markets. As such, the company is more effective in exploiting the market provided by children of all ages including the infants, which is not the case in LEGO. Contrary to LEGO, Mega Bloks, and Mattel Inc., Playskool has gone further to diversify its lines into baby care products (The Product, 2017). Besides, the company has succeeded diversifying its product into the academic niche. In this manner, the company enjoys a competitive edge over LEGO in terms of attracting sales from various markets segments, which in turns increases its sales volumes.
6.0 Critical Evaluation of the Benefits Presented by Product Diversification to LEGO
Considering the assessment of LEGO’s external and internal environment, it can be noted that the company’s management can exploit the product diversification to its advantage. LEGO has a history of experiencing significant declines or reductions in sales. The primary resources that LEGO’s management can employ to accomplish this goal is its strategic assets. Chungyalpa and Bora (2015) assert that the presence of strategic assets contribute largely to the success of strategy implementation. LEGO has the necessary strategic assets needed to accomplish or execute the product diversification strategy. LEGO’s strategic assets exists in its competencies in the areas such as marketing and sales, services, operations, inbound logistics, and outbound logistics, as well as strengths such as robust brand presence, robust global presence, and innovation-driving ideas. Currently, LEGO boasts a robust marketing and sales potential, excellent service delivery and efficiency in executing its business operations. However, the company has not diversified its products to address the needs of varied consumers within the market, as it only focuses on limited market segment (that is the children aged between 5 and 12 years). As such, the company’s management should consider diversifying its products to capture novel segments of the prevailing market. Diversifying into novel products will provide LEGO with an effective path to the realisation of fast growth arising from increased and sustained sales. Presently, LEGO experiences the challenge of stabilising its sales. Nevertheless, there exist a range of opportunities for LEGO to diversify its products such as the academic, infant, older fans, and baby care products niches. There exists an opportunity in the academic sector where academic toys or materials are required to address the learning needs of children of school going age. Infants also provide a great markets for toy products. Recently, older fans have also began focusing their attention on the consumption of toy products, as seen in the case of puzzles. Baby care products also offer a profitable market for toy production companies. Therefore, by diversifying its products to these market niches, LEGO will have a competitive advantage in terms of selling more commodities to the existing consumers and establishing novel markets. It is vital to note that while LEGO’s rivals such as Playskool, Mega Bloks, and Mattel Inc. have competitive edges in these areas, they have note manage to integrate all these areas in their growth strategies, as each of them focuses on specific market niches. For instance, Mega Bloks has diversified its items to cover other additional lines associated with older fans such as adult games like puzzles, while Playskool has diversified its product lines into baby care commodities. On the other hand, Mattel Inc. has focused on the diversification of its commodities to capture the market segment comprising preschool children and infants. As such, integrating all these areas and producing commodities that meet the needs of consumers in each of these market segments will enable LEGO to have a comprehensive growth strategy added to its robust brand and global presence. As a result, LEGO have a competitive edge in terms of presenting significant challenges for its rivals to outdo it in the market in relation to sales. Focusing on single product lines in the toy industry can make a company vulnerable to sales decline that can result from the seasonality of buying or consuming certain products (Joel, 2011). For example, some items such as play toys for children are often on high demand when schools are closed or during holidays, and experience sales reductions when schools are opened. Thus, by diversifying into numerous product lines, the company will manage to address the issue of seasonality in buying in that some products such as the academic products or toys will attract sales even during school sessions, while play toys can attract sales during holidays. On the other hand, producing products for adults such as puzzles will maintain sales throughout the year. LEGO’s approach of focusing on the market segment presented by children consumers limits its ability to maintain sales across the year. Contrary to children who majorly consume toy products during holidays, adult consumers can consumer commodities such as puzzles at any time of the year. Thus, by producing commodities that meet the interests of older fans, LEGO will manage to ensure that its sales volumes are sustained. Therefore, the company’s management should consider diversifying its products into novel product lines identified in this section.
7.0 Conclusion
This paper aimed to investigate the effectiveness of the strategy of product diversification in granting Mega Bloks, Playskool, and Mattel Inc. a competitive edge over LEGO in relation to sales increase and maintenance. The three companies have competitive edge over LEGO in different areas associated with product diversification. Mattel Inc. has a robust global presence in the provision of diverse products and has managed to capture the market offered by infant and preschool children. Apart from the children market, Mega Bloks has captured the market segment associated with the older fans. Playskool has managed to capture the market segment for academic and baby care products. Diversifying into these areas will enable LEGO to have a comprehensive growth approach, which in turn will contribute to the increase and maintenance of sales. Currently, LEGO possesses the strategic assets required to venture into and exploit opportunities in these areas including competencies in the areas of services, outbound logistics, inbound logistics, marketing and sales, operations, and sales, as well as strengths such as robust global presence, robust brand presence, innovative concepts. Therefore, LEGO’s management should consider embracing the product diversification approach, as it will contribute largely to increasing and maintaining its sales.
8.0 Personal Reflection
According to Knipfer et al., (2013) and Jordi (2013), reflective learning takes into consideration conscious thinking by focusing on the examination or absorption of an issue or issues that trigger past experiences and contribute to the acquisition of fresh insights into novel skill or knowledge. In my view, I believe that undertaking this learning experience has granted me a great insight into the impact and significant of having a robust organisational strategy in developing a competitive edge in the market. This learning experience has equipped with adequate knowledge and skills in the execution of thorough research on real world corporate issues and establishing solutions, development of corporate strategy to address organisational issues. Some other areas in which the course has enlightened me are external environment analysis, internal environment analysis, overview of corporates in the real world context and synthesizing critical management information about them, identification of positive aspects in organisational strategies, and critical assessment of the benefits organisational approach.
This learning process has exposed me to range of skills needed to conduct thorough or critical research on corporate challenges that call for strategic measures. By undergoing this educational experience, I have managed to acquire the knowledge required to identify, synthesise, and apply critical information from reputable academic articles and website, and organisational website, and company reports in solving real world corporate matters. For instance, I have managed to establish the effectiveness of employing the product diversification strategy in addressing the issue of reduced sales affecting LEGO. This goal has been accomplished by researching and identifying product diversification approaches employed by LEGO’s key rivals such as Mega Bloks, Playskool, and Mattel Inc. According to Lara et al., (2012), having a robust organisational strategy is a significant step toward the acquisition of a competitive edge in any industry. This educational experience has enlightened me on how LEGO’s competitors employ their product diversification approach to accomplish a competitive edge in the market. For example, Mega Bloks’ product diversification approach focuses on children and older fans to who the organisation offers puzzles. Playskool’s product diversification strategy focuses on the children’s academic niche and newborns, while Mattel Inc.’s approach for product diversification focuses on infants and preschool children, as well as older children. Moreover, Mattel Inc.’s product diversification approach focuses on the proviso of different product brands to different segments such as North America and international markets. By employing these product diversification approaches, these three firms have managed to acquire a competitive edge in the concerned areas.
Chungyalpa and Bora (2015) argue that the business environment in which an organisation executes its business operations has a significant influence on the corporate strategy. This educational process has not only equipped me with adequate knowledge concerning how the macro and micro environmental factors influence organisational strategies, but has also provided me with a suitable platform on which I could employ such knowledge in addressing real world corporate problems. For example, I have learned how external environment factors like politics, economy, polices, social-cultural practices, and environment aspects influence business operations, as in the case of LEGO. In relation to this, the learning experience has provided me with an opportunity to employ management concepts such as SWOT analysis (that is opportunities and threats), PESTEL analysis, and Potter’s Five Forces analysis in establishing how the external environment factors affect organisational operations. Moreover, this educational experience has enlightened me on the impacts of internal environment factors. Some of the management concepts that I managed to employ in the determination of how internal environment factors influence business activities are value chain analysis, SWOT analysis (that is strengths and weaknesses) and models such as distinctive and threshold, and dynamic and redundant capabilities. In relation to this, learned how organisations can leverage their competencies and strengths in accomplishing a competitive advantage in the industries in which they execute their activities. For instance, LEGO can employ its robust brand, robust global presence, and innovative ideas in diversifying its products into niches such as the academic, older fans, baby care, infants, and preschool children. LEGO can also leverage its competencies or capabilities in the value chain process in various areas including inbound logistics, marketing and sales, outbound logistics, operations, and services. Currently, LEGO is struggling to increase and maintain its volumes of sales. Thus, I believe that embracing the product diversification approach by focusing on the areas in which its rivals such as Playskool, Mega Bloks, and Mattel Inc. have diversified their commodities will enable the firm to address this problem. This process of learning has contributed significantly to my identification of the positive aspects associated with product diversification approaches employed by the three LEGO’s rivals.
According to Chungyalpa and Bora (2015), embracing product diversification often presents numerous benefits to firms in terms of growth. Considering the findings of the study that I conducted, I established that adopting the identified product diversification techniques (those employed by LEGO’s rivals) will benefit LEGO in many ways. The company will manage to address problems associated with seasonality in sales by ensuring that it offers products that can sell through the seasons. For example, producing commodities that serve the adults niche will ensure that the firm’s products continue to sell, as opposed to the focus on children products, whose sales are influenced by schooling. Focusing on various product lines with also enable LEGO to access novel consumer and increase its market share, which in turn will translate into sales rise and maintenance.
In conclusion, this educational process was a significant contribution to my acquisition of skills and knowledge on the employment of organisational strategy in addressing corporate challenges. The process has enabled me to establish how the practices of rival firms can be employed by a company to acquire a competitive advantage within the same industry in which the firm and its competitors execute their business operations. Apart from contributing to my acquisition of knowledge and skills, this experience has also provided me with an opportunity to contribute to addressing strategic issues affecting organisations in the real world context such s LEGO, which presently grapples with the issue of sales.
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