Competition

As we’ve learned in the class material this week, companies must go through a number of steps to create an effective marketing plan and strategy.  There are 2 steps that companies must follow in order to create an effective plan.  First, the company must conduct a S.W.O.T. analysis.  Next, companies must decide on which strategic alternative they will use to market their product or service. 

LEGO must reference their S.W.O.T. analysis in order to decide on which competitive advantage they will use within the toy market. 

           Strength:

·         LEGO is a global brand that incorporates educational features to develop skills within young children.

·         LEGO encourages goal oriented and problem solving play.

·         The LEGO brand has moved into video games, TV, and movie merchandise.

·         Extensive advertising and TV commercials continuously engage consumers.

Weakness:

·         Imitations of products and building pattern is a concern.

·         Intense competition.

Opportunity:

·         Strengthen their brand through school programs.

·         Target the girls category to the level that LEGO has done within the boys category.

Threat:

·         Outdoor/Seasonal toys.

·         Video games.

·         Companies whom imitate LEGO’s building pattern and theme based play patterns.

·         Outdoor games.

The next step is to determine what strategic alternative suits LEGO’s needs the best to market their product.  Looking at the definitions for market penetration, market development, product development, and diversification; I would say that LEGO does imply all four.  Market penetration is the most used by LEGO because they know the products they offer can continue to provide positive return on investments within the large retail chains.  Also, LEGO knows that if they continue to record positive comps from the previous year they are likely to increase their market share because the toy industry has not grown over the last few years.  Market development occurs when LEGO recently introduced their LEGO Friends line.  LEGO wanted to attract new customers to their existing brand lines.  The thought was to introduce a girl friendly product that would get them interested in the LEGO brand and in the future lead to cross purchasing back into the boys category with lines like City and Creator.  Product development occurs when LEGO creates new products.  Back when LEGO launched their Ninjago line two years ago, they also released an item called a Spinner.  This new item complemented the Ninjago line, but it was not the typical LEGO building set.  The Spinner involved LEGO bricks, but in a new concept that involved a spinning-top in which consumers could battle one another.  Lastly, diversification takes place when a company pushes their products into new markets.  LEGO is currently purposing the Asian market and putting a heavy push into China.  We have learned that consumer vary from country to country across the globe, but China is extremely challenging because we have experienced many knock-off brands that are offered at a much lower costs.  I believe that LEGO does cover all four of the strategic alternatives, however it depends on what the strategy is for that specific year and that is how LEGO determines to use market penetration, market development, product development, or diversification.

Sales Forecasting

The forecasting team at LEGO uses moving forecasting.  The forecasting department uses a system called Statistical Modeling which accounts for historical seasonality as well as similar item performance.  Forecasting for LEGO is very dependent on history.  We can imagine that a City themed item with TV commercials in Easter and Christmas in 2008 will have a similar seasonality to a City themed item with TV support during Easter and Christmas for 2014.  Now the number of units sold will increase as the business continues to grow, however predicting quarterly seasonal demand will not change drastically; if at all.   In addition to our sales forecast being used to send a demand signal to our manufacturing team, it is used to set budgets.  Annually we rely on our October sales plan for the following year to set the budget for that year.  For example, in Oct 2013 we have a monthly consumer and shipment forecast for 2014 that is used to set the 2014 budget.  An example of a budget relying on the shipment plan for 2014 is our in-store budget.  I need to know the shipment projection because a percentage of shipments for my account is allocated to my in-store budget.  This will allow me to plan model boxes or additional in-store visuals that could be placed on the store shelves.  On a monthly basis we revisit actual shipments and consumer from the previous month to see if we hit plan or not.  Based on this information, we re-look at the balance of year shipment and consumer plan to determine what actions to take.  If we take the plan down, budgets such as in-store, promotional support, or the field merchandising budgets could get reduced.

Answering a question from this week’s lecture, “In Chapter 6 of Lehman and Winer, it’s stated that the most frequent used quantitative method is the moving average despite the availability of more sophisticated methods.  Why might this be true?”  Moving average forecasting is used more often because it is easily understood, easy to compute, and provides a stable forecast based on historical data.  One of the advantages of using a moving average forecast is that it smoothes out peaks and valleys in the set of data.  Moving average forecasting provides stability for an organization.

Looking at 2 of my classmate’s blogs I would like to call out Jacob’s week 2 blog and Jennie’s week 1 blog.  Week 2 Jacob did a great job relating Drucker’s idea of the difference between the needs of the seller and the marketer to real world examples.  I appreciated the JCPenny and Macy’s ad difference.  JCPenny took more a sales oriented approach as they focused on selling the consumer this one particular shirt.  On the other hand, Macy’s was more focused on selling the Macy’s brand to the consumer and ultimately letting them decide what to buy but ensuring that it was at Macy’s.  JCPenny offers consumers a button-up shirt, but Macy’s offers their consumers a full 360 degree experience offering many different products endorsed by celebrities.  Macy’s took a marketers approach on selling the Macy’s brand value to consumers.  Week 1 Jennie discussed something that companies deal with every day, the ethical dilemma around maximizing profits at the expense of safety.  In addition to this topic, I also thought it was interesting to read her experience the first week reading Drucker since her background is pharmacy and not business.  In the week 3 class videos we reviewed political and legal environments of marketing.  In this video there were federal, state laws, and regulatory agencies that protect consumers from organizational decision.  In Jennie’s blog, she mentioned that New England Compounding Center bypassed legislative decisions in order to maximize their profits.  Many safety tests were overlooked as the only concern was to sell the most units to consumers.  The end result was NECC produced a lackluster product that got many people sick and they lost all of their consumers.  Ultimately legislation protects consumers from companies, but as in NECC’s case legislation would have protected the company from itself.

We were asked this week to determine what the percentage of our research cost was to our total marketing budget within PharmaSim.  I ran 6 years worth of simulations and found that the research costs rose as a percentage of my marketing budget year over year.  In Period 0, 1, and 2 the research costs were 1.2% of my marketing budget ($440K of $34.2M, $460K of $37.9M, and $481K of $38.9M respectively).  This total dollar value of research continued to rise regardless if my sales or profits were positive or negative for that year.  As we moved into Period 3 research rose to 1.4% of my marketing budget.  Period 4 was 1.6% of the marketing budget.  Lastly, Period 5 accounting for 1.8% of my marketing budget.  For these last 3 years my sales fluctuated from positive and negative from the previous years, but the research costs rose and my marketing budget began to decrease.

Marketing Planning Process

LEGO’s approach to marketing is that of a top-down planning process.  In top-down planning, the marketing plans are formulated by either senior or middle management with the aid of staff and product management and then implemented by the later.  In LEGO’s case, the marketing direction typically would come from the global headquarters to determine what each brand’s goals are for the season or year.  Brand could either block competition, replace other high-performing themes (called big bangs), or simply continue throughout multiple years.  From the direction given by global headquarters, the next step is for each BU (business unit) to tailor it towards their specific consumers in an appropriate manner.  For instance, the Americas BU will be different than the European BU as children in Germany prefer to build products with more engineering capabilities than American children who prefer to build something than they’ve seen within a movie or TV show. 

In order for LEGO to continuously improve their marketing efforts, they have a planning process in place.  As we’ve read, the marketing planning process involves 8 steps:  (1) update the facts about the past; (2) collect background data; (3) analyze historical and background data; (4) develop objectives, strategies, and action programs; (5) develop pro forma financial statements; (6) negotiate; (7) measure progress; and (8) audit. 

To walkthrough how LEGO incorporates these 8 steps, I will give an example of one theme.  How would LEGO create a marketing plan for our Hero Factory line through the lens of the 8 step process?  In order to determine how to accurately plan for 2013 marketing, we need to understand how the theme performed in 2012, 2011, etc.  How did Hero Factory perform overall, within particular accounts, did we use new marketing techniques that would drive sales or did we anniversarize the same promo levers?  These are all questions that need to be answered.   Collecting background data involves understanding if the items within the Hero Factory theme bring the same uniqueness as previous years or if the content behind the property is something on a larger scale then in the past.  Steps 1 and 2 would then be combined to determine what the base is (step 1) and what is changing to create an increase or decrease in the proposal plan (step 2).  Now that we have the sales/marketing activity from previous years we must analyze and fully understand the information.  Step 3 would bring to light if there were any competitors that limited sales in previous years or economic conditions that would have prevented consumer demand.  For instance, if Hero Factory’s main competitor launched a major campaign with TV support in 2012 but is not in 2013, perhaps Hero Factory’s plan should increase knowing there is less of a risk of competition.  Another perspective LEGO takes in is the economic factor.  For example, did a government budget cut or tax increases affect the consumer’s shopping behavior? 

Once the analytics and background data is updated, it is now time to approach step 4 which is to develop objectives, strategies, and action programs.  This step involves setting objectives for the Hero Factory theme, developing strategies and promotions within the accounts in order to meet the Hero Factory objectives, compare the level of promotional support within each account to determine if they are adequate enough to hit the theme’s targets, and setting realistic goals for this particular theme.  Hero Factory will not produce the same sales volume that a big bang theme does, so we wouldn’t want to produce a marketing plan similar to that of a big bang.  The next step in the marketing plan process is to develop a budget in order to execute your proposed plan.  The brand manager would present their information to the Marketing VP in order to be allocated the necessary funds to execute promotions on TV, magazines, and secure off-shelf features within specific accounts.  The negotiation step would involve a collaborative discussion involving the brand manager, a member from the operations department to determine if what our theme forecast should be, and a member from the sales department to see if we can secure promotional features within the particular account.  This might involve some pushback as the sales member may think the operation’s forecast is too high or low within their respective account, or marketing would need to increase their budget so the account can secure the necessary promotional vehicles to make sure Hero Factory hits plan.

Once the prep work is complete we now have to see how well our marketing plan is performing.  Step 7 is to measure our progress and this is done at LEGO by researching NPS data.  This, on a scale of 0-100, will rank how well the theme is received by consumers on a number of different levels.  Also within step 7, the brand manager can work with their operations counterpart to raise or lower Hero Factory’s forecast based on performance and reviews.  Lastly, the marketing department would audit how Hero Factory performance is tracking and how the marketing budget was spent.  If it seems to be working, this data will be inputted into steps 3 and 4 in the following year so we can continue to improve the marketing planning process.

Simulation Reaction:

It was very interesting to see how my actions affected my stock price as I moved from period to period.  I was not expecting such drastic changes as my work experience is only with a private organization and we do not need to answer to public interests in order to provide shareholder returns.  I saw the influence promotions have on sales in both the short and long term.  Promotions boost sales in the short term, but erode margin and are not long lasting.  In order to be compelling, the advertising needs to change across periods to block competition and keep consumer demand relevant.  Additionally, price needed to increase over time to allow the margin necessary to advertise and run promotional activity.  It seemed to negatively affect the business when I kept prices low as my other costs rose.  As I continue to run simulations, the more comfortable I’ll understand what the consequences of some decisions are as well as what the best tradeoffs are in order to operate within my budget.

Drucker in the Workplace

When I signed up for this class I was expecting to learn more about the 4 P’s and looking for ways to better collaborate with my marketing colleagues.  However, as a member of the Sales Department at LEGO, I learned from Drucker that Marketing and Selling are not the same thing and in fact not even complementary.  In addition, Drucker mentioned that all businesses depend on two functions, marketing and innovation.

As I took this in and realized how important the Marketing Department is at LEGO, I wanted to take a look at how LEGO’s innovation has created a customer.  Drucker believed that the ultimate purpose of any business was not to make a profit; rather it was to create a customer.

First LEGO Wooden Toy

LEGO started in Denmark in the 1930s by a master carpenter, Ole Kirk Kristiansen.  He manufactured stepladders, ironing boards, stools, and wooden toys.  In the 1940s, LEGO was the first in Denmark to buy plastic injection-molding machines for their toy production.  This was innovative at the time as the competition was producing wooden toys and the plastic material allowed LEGO to be more durable than other toys.  In addition, in the 40s they introduced their trademark look and play of the binding brick pattern.  This allowed consumers to create and build as they wish, which was innovative in Denmark at the time.  This new play pattern created new customers to the toy market, which grew the LEGO brand.

Within the 1950s LEGO fine tuned their brand in order to market a larger audience.  LEGO wanted to stay innovative and ahead of consumer demand.  Thus, they started to create new sets that allowed free-build capabilities instead of providing a book with instructions on how to build a set.  This allowed creativity to flow within customers and inspired customers to build real-life cars, buildings, etc., out of LEGO.  Also, in the 50s, LEGO turned into a global brand selling to their first foreign accounts and creating customers outside of Denmark. 

As LEGO continues to grow and inspire builders of tomorrow, they still understand how important innovation is to their success.  Over the last three years LEGO has produced two play lines called Ninjago and LEGO Friends.  Ninjago has been extremely successful and for the first time LEGO partnered with Cartoon Network to create a TV series, which became the highest rated TV series in Cartoon Network history.  LEGO Friends has seen its share of critics, yet it remains a strong category for Girls.  LEGO research concluded that Girls wanted to play with LEGO just as much as their brothers, so they created a line tailored for them.  This again was innovative for LEGO as it was the first line produced for Girls that was a building set.  The typical Girls toy is a doll or a plush animal, so being innovative here created a need within Girls and thus created new customers.  As Drucker mentioned, being innovative is one function of a successful business and I can clearly see that working at LEGO.

Intro

Hi All.  My name is Adam Wopschall and I have created this blog for my Marketing Management class towards the MBA program at Western New England University.  I will be posting material once a week relating to topics discussed in class.