Real World Marketing - Coursework Example

Real World Marketing.. Executive Summary The study will try to throw some light on role of innovation in business strategy LEGO Group. The study hasselected United Kingdom to conduct macro environment audit for the company. STEP and SWOT analysis will be important part of the study. In the second phase the author will try to shed light on purchase decision of consumers with the help of mean end chain analysis. In the last phase of the analysis the study will identify various value drivers for LEGO and describe their role in achieving excellence in the field of innovation for the company. Table of Contents Table of Contents 3 Macro Environment Analysis 5 Social 5 Technology 5 Economic 5 Political 6 Micro Environment Analysis 7 SWOT Analysis 7 Consumer Decision-Making Process 8 Mean End Chain of Consumer Decision 9 Consumer Decision Process 11 Problem Recognition 11 Information Search 11 Evaluation of Alternatives 11 Purchase decision 12 Post-Purchase Evaluation 12 Financial Crisis 12 Role of Innovation on LEGO’s Current Brand Positioning and Marketing Strategy 13 Innovation Model 13 Result 15 Marketing and Branding 15 Innovation Driver 19 Brand Value 20 Reference 21 Macro Environment Analysis UK has been selected to conduct STEP analysis in order to assess macro environmental opportunity for LEGO. Social Budget deficit of Government has slumped purchasing power parity of British people hence maintaining standard living style for them is becoming challenging day by day. Market line has predicted that PPP ratio will further decrease by 7.7 % within next few years hence LEGO will face demand crunch in the UK after 2012. Technology Toy companies in the country are using latest technologies such as ERP, electronic data exchange and RFID to achieve business excellence. Science and Innovation Investment Framework have forecasted investment in technology integration will decrease by 1% within next two years. In such situation LEGO needs to use their capital resources carefully in order to achieve product diversification in UK. Economic • Sovereign debt crisis and economic recession have slandered GDP growth to only 0.3% while industry growth rate has dropped to 0.8% in the year 2011. • Industry report shows that unemployment rate of the country will touch 8.3% within next one year hence LEGO will face stiff labour market challenges in the country within next one or two years. Fluctuating nature of economic growth of the country (read GDP) can be understood by following diagram. (Source: Marketline, 2012) Political • UK is one of the most important economies in the globe and plays vital role on deciding trade policy in North Atlantic Treaty Organization. • Government of UK has taken various budget cut steps in order to reduce financial deficits while the good news for LEGO is that government of the country has revised corporate tax rate up to 22%. This step will not only decrease tax burden on LEGO but decrease overall value chain cost also. Micro Environment Analysis SWOT Analysis Strength Weakness LEGO Group is sixth largest toy manufacturer in the world. The company has established its presence in more than 130 countries. Theme parks of LEGO are very much popular among young people while company has established LEGOLAND Discovery Centres in various countries. The company has established strong web presence within last few years with help virtual stores. Market penetration for the company is low in developing countries due to their premium pricing policy. Opportunity Threat LEGO group can increase market penetration in BRIC (Brazil, Russia, India and China) by adjusting their premium pricing policy. The company can use economies of scale to decrease production cost in order to face ongoing financial crisis of EU. Online games have decreased the demand of toys and other traditional playing instruments. Environment issues regarding plastic usage can hurt product demand in future. Consumer Decision-Making Process Solomon has segregated consumer decision making process into micro and macro divisions. Experimental psychology plays vital role on deciding dynamics of micro consumer behaviour while demography and macro economics decide the direction of macro consumer behaviour. Consumer decision making process can be understood by using following diagram. (Source: Solomon, Bamossy, Askegaard and Hogg, 2010, p. 24) VALS or “Value and Lifestyle” framework can be used to understand dynamics of purchase decision of consumer for LEGO products. Various research scholars have divided consumers into four distinctive segments such as “Actulizers” (patrons spending money on purchasing to show attitude and taste), Fulfilled (purchasing product after going through product performance review), Believers (customers purchasing product to satisfy need and family value) and Strivers (patrons purchasing stylish but low priced products) (Young and Pagoso, 2008, p. 116). Study shows that Actulizers and fulfilled purchase most of LEGO products. These customers prefer renowned brands therefore they choose LEGO over unknown brands (Ferrell and Hartline, 2008, pp. 173-174). Mean End Chain of Consumer Decision Mean end chain value model was proposed by Tolman in the year 1937. The model emphasizes on consumer decision process in response to marketing activities of companies (Laaksonen, 1994, pp. 101-105). Terminal values created by the model create link between consumer behaviour and consumer decision process. LEGO Products Attribute LEGO designs their product in order to inspire Kids to nourish their creative instincts. The toys are not only manufactured to deliver immediate pleasure to children but help them to get future career guideline also. The LEGO group tries to deliver five key values such as fun, creativity, care, quality and learning with products. The company focuses on ’Playful Learning’ to increase acceptance of their products among customers (Lego, 2008). For example, LEGO DUPLO is product created by the company to encourage children to experiment with plastic bricks, design formation and buildings. Products offered by the company are complemented by various plastic bricks, strategic combinations and designs. Functional Level Products offered by LEGO decreases effort of parents to give learning lessons to their children. Children get learning while playing with LEGO products. Psychological Level LEGO is a renowned brand hence buying LEGO products show social class and economic status of purchaser. Parents feel proud of seeing their children doing something creative with LEGO products. Value Level Increase in social status and personal satisfaction level of parents. Consumer Decision Process Problem Recognition Toymakers use integrated marketing communication to generate brand awareness among customers. Parents might generate need of buying toys after going through TV commercial or POS display in a store. It has been observed that parents feel the need of buying toy product after hearing the demand from their children. Information Search Customers get information regarding toy products from TV commercials, print ads, POS and POP displays, internet forums and most importantly opinion leaders (it can be friends, Teachers or neighbours. Generally customers search information through triplet sources such as public (mass media), personal (primary social group) and commercial (company salesman). Evaluation of Alternatives It is the third stage of consumer decision making process and in this stage consumers evaluate brands in accordance brand image, product differentiations, advertisement penetration and various other factors. Philip Kotler has pointed out that consumers evaluate alternatives in accordance to expectancy value model (Kotler, 2009, p. 164). According to this model, customers allot value point on different attributes toy products and then sum up total points. Generally customers chose those brands which have high value points (FitzGerald and Arnott, 2000, p. 107). Purchase decision Study shows that customers assign higher value points on LEGO products due to its brand name, flexible product options, diversified product portfolio and good word of mouth. Higher value points automatically decreases confusion of customers regarding choice of the product. Generally it has been observed that customers take final purchase decision for LEGO products due to factors like attitude, unanticipated product benefits and situational product benefits. Integrated marketing communication strategy of LEGO has helped them to communicate product benefits to customers. Post-Purchase Evaluation In the post purchase stage consumers evaluate their purchase decision by comparing benefits of purchased item with its cost. This process is known as post purchase cost benefit analysis. Positive result after doing cost benefit analysis leads to satisfaction while the opposite leads to dissatisfaction among customers. LEGO offers product return facility to customers in order to decrease extent of dissatisfaction created due to poor product quality. Financial Crisis UK has been selected by the study to do macro environment analysis hence the study will financial impact of economic recession on LEGO from the view point of UK. Economic recession has decreased GDP growth of the country to only 0.3% while average industry growth rate of UK has mitigated to 0.9% in the year 2011. Economists have forecasted that research and development cost in the country will rise up to 12% hence it is obvious that LEGO will incur more costs in comparison to previous years. LEGO will decrease in demand due to dwindling purchasing power parity of British customers caused by recession and sovereign debt crisis (Lynn, 2010, pp. 93-102). Role of Innovation on LEGO’s Current Brand Positioning and Marketing Strategy Innovation Model Functionality Increase LEGO focuses on developing new applications in the product and also increases external functionality of toys. Reconfiguration They reconfigure the existing model and incorporate new values like fun, creativity, care, quality and learning in the toys. Radical Innovation LEGO emphasizes on incorporating radical innovation in toys. Radical innovation in the field of product communication, product diversification helps the company to achieve marketing objectives. The innovation road was not smooth for LEGO because many of their innovations such as theme parks, Galidor (supported by TVCs) and Clikits craft (for girl Child) had failed during 2003-2004. In the tumultuous period LEGO took a chance and created strategic coordination committee to drive innovation. Innovation committee of the company was supervised by Executive Innovation Governance Group. The company incorporated innovation in not only product diversification but other field of management such as community building, pricing plans, distribution channel, business intelligence and value chain also. The company had distributed innovation responsibilities among four strategic groups. Mission Concept Execution Community LEGO Games 2.0 The executive board asked top level managers to develop product portfolio in an innovative manner. Customers must say after seeing the product “Obviously LEGO but never seen before”. LEGO lab invented new toys after consulting with customer communities complemented by CED. The committee had pointed out that LEGO gamers are enjoyed by whole family instead of any particular family member. Supply chain and manufacturing team of the company has created toys complemented with interchangeable faces and soft sided dice. CED helped the company to build online community while offline retail sales channel offered loyalty card to customers. In the next level LEGO used PMD model to gather product innovation idea from users. Connecting product innovation with user community helped the company to achieve diversification in portfolio. (Source: Robertson and Hjuler, 2009) Result Innovation Community concept was a grand success for LEGO and the initiative helped the company to achieve 19% jump in revenue and 30% rise in profit margin during 3rd Quarter of 2009. Marketing and Branding Executive Innovation Group Functional Group Concept Lab Product & Marketing Development (PMD) Community, Education and Direct (CED) Product They direct to top level management to incorporate innovation in NPD or new product development. They reinforce and allocate resources necessary to achieve product diversification. This group synchronize every steps of value chain in order to incorporate innovation in product development. They develop new products complemented with joyful playing experience. Price Executive Innovation Group decides price of toys after doing rigorous cost benefit and COGS analysis. Place This group supports the offline sales channel to achieve marketing objectives. They help customer communities to gain product knowledge at POS and POP. They manage activities of various components of distribution such as retail chain, online sales channel and educational marketing channel. Promotion Promotional campaigns made by PMD group. They create exciting play and advertising themes such as “pirates” to engage customers with LEGO toys. Innovation Driver Areas of Innovation Executive Innovation Group They incorporate innovation in process map and value chain Functional Group They incorporate innovation in core processes such as operation, sales and financial planning Incorporating innovation in marketing planning and sales forecasting Concept Lab Designing new packaging style for product and building technology platform for next generation products Product & Marketing Development (PMD) Incorporating innovation in integrated marketing communication and social media marketing Community, Education and Direct (CED) Increasing scope of customer interaction through communities, sales channel and customer service Incorporating innovation in distribution channel complemented by retailers, traders and licensed shops Brand Value LEGO uses value ratio model to understand impact of innovation in brand equity of the company. Positive brand image of LEGO has been created in the mind of consumer after deducting positive value by subtracting total cost rudiments from total benefit elements. Reference Ferrell, O. C. and Hartline, M. D., 2008. Marketing Strategy. Stamford, Connecticut: Cengage Learning. FitzGerald, M. and Arnott, D., 2000. Marketing Communications Classics: An International Collection of Classic and Contemporary Papers. Stamford, Connecticut: Cengage Learning. Kotler, P., 2009. Marketing Management. 13th ed. New Jersey: Pearson Education. Laaksonen, P., 1994. Consumer Involvement: Concepts and Research. London: Routledge. Lego., 2008. Progress Report. [pdf] Available at: [Accessed 29 November 2012]. Lynn, M., 2010. Bust: Greece, the Euro and the Sovereign Debt Crisis. Hoboken, New Jersey: John Wiley & Sons. Marketline., 2012. Country Analysis Report: United Kingdom, in-depth PESTLE Insights. [online] Available at: [Accessed 29 November 2012]. Robertson, D. and Hjuler, P., 2009. Innovating a Turnaround at LEGO. [online] Available at: [Accessed 29 November 2012]. Solomon, M., Bamossy, G., Askegaard, S. and Hogg, M. K., 2010. Consumer Behaviour: A European Perspective. 4th ed. London: FT Prentice Hall. Young, F. C. and Pagoso, C. M., 2008. Principles of Marketing. Cebu: Rex Bookstore. Read More