Lego.Com Case Study Lego Mindstorms The non-commercial website Lego.com has been an enormous success providing Lego with a strong presence on the Internet. However, implementing a website capable of handling sales transactions requires a great deal more than a non-commercial site. The firm has implemented an ERP system which may provide some technical support for the website. The details of the ERP system are unknown at this time; however, the goal of implementing the system was to optimize the supply chain from production to distribution, which will be a significant opportunity for the E-Commerce project. Another important consideration is incorporating the ERP system into the E-Commerce transactions so that separate systems and processes are not necessary.
The Lego company enjoys worldwide brand recognition; ranking 5th in the global toy market behind such giants as Mattel Hasbro Sega and Nintendo. The Lego.Com website is among the top 10 sites for children. Both of these factors represent a significant strength for the firm over competitors. The firm has traditional sold to retailers and other middlemen and has little experience in direct consumer sales. This has been the case in the past the typical buyer of Lego’s products are not the consumers’ of the product.
The firm currently generates 5 % of total sales from the catalog sales of its products. The catalog operations may provide supporting resources for direct sales logistics and experience in direct consumer sales. The firm has both financial and employee resources to support the E-Commerce implementation. Lego’s philosophy underlies all company activities and supports to a large degree their branding strategy. The Lego vision “Idea, Exuberance and Values” requires that all Lego products stimulate children’s imagination, creativity, and are high quality products.
The LEGO MINDSTORMS products as all products in Lego’s offerings align with the firms overall philosophy and represent a strength for the company. However, the E-commerce site must handle sales in a way that supports the firms’ philosophy; such as quality service, creativity, and the belief that “children are the vital concern.” The LEGO MINDSTORMS product line already meets the standards; however, the website and the entire process including marketing to order fulfillment must be carried out in the traditional Lego philosophy. Throwing away the ideas, the philosophies and the definition of the Lego company which has in the past proven very successful for the company in any Lego E-Commerce website or operation is a mistake. This strength separates Lego from the other 2 billion sites on the web that could sell blocks of some type of Lego’s own products. Lego has a global supply chain already in place and includes processes of planning, production, distributing and logistics. The E-Commerce project will impact distributing and logistics because of the differences in delivering to consumers versus delivering to retailers and other distributors.
Delivering the product on time and correctly is a main priority of the E-Commerce site and can prove to be a strength or a weakness. Currently Lego, Inc. has companies and offices in 30 countries and covers 6 continents providing a great deal of resources needed for both the selling to consumers and perhaps some of the infrastructure existing can support the Lego Mind storm’s e-commerce sites. Many issues arise from Lego’s target market being largely children. The first problem is moving from a child wishing to buy a Lego product to a parent paying for the product. Many ethical and legal issues must be addressed when marketing to children.
One possible way of dealing with these sensitive issues is to allow parents to customize the web site and pre pay purchases using gift cards. Two advantages result from this strategy; the first is giving parents control over what products and information is available to the children. For example, a parent may decide to restrict the product catalog to the lower cost products and products that offer more of an educational experience. The other advantage is that this strategy will address payment issues. A further advantage coming from allowing the children to do their own shopping on the Internet is providing a fun experience to the child.
The American market should be the starting point for the firm’s e-commerce efforts because of complexity of infrastructure in terms of logistics, marketing, legal issues, currency and many other factors. The firm should use the American market as a test bed and because of the three month deadline Lego will have trouble reaching into all the markets. After some E-Commerce experience has been gained the firm can begin to move the American website into each of the other 3 markets. Some modifications such as currency and language issues will require the site to be tailored to the different markets. The general feeling is that the E-Commerce site will result in an integrated market; however, the website must address issues related to particular cultures.
Additional technical advantages are gained from splitting the sites geographically such as performance and load balancing issues. An important consideration relates to the use of the Internet in traditional areas of business such as procurement and distribution. These areas could be handled in a single country, locally, or a host of other combinations. Shipping and distribution probably is best handled locally. The process of integrating the supply chain into an E-Commerce and traditional business can be technologically complex and probably at this time will provide further complications.
Pricing issues must address the consumers’ additional information in terms of price and quality that the Internet provides. The pricing information available to consumers often drives the purchasing decision in an Internet situation. Many retailers and other current customers of Lego Products will already be selling close to retail price. One advantage and problem to be considered is direct competition with traditional buyers. Pricing below retail is possible and would certainly pull traditional customers out of the stores and on to the company’s website.
With the brand awareness that the company enjoys consumers who want to purchase a gift for their children will not think some “type of blocks” but will immediately think of the brand Lego’s leading the technical savvy customer to the site. Another advantage the company will have over the traditional type of retail is service. The site will provide a user community that allows children to share ideas of building robots and uploading and downloading programs for their robots. The company should post programs and ideas as well; this is perfectly in line with the firm’s enticing children by providing a playground for the children. LEGO.COM should appear to house the Mindstorm site because the site is already well known.
Because of the time constraint, the total integration of the E-Commerce operations with the existing operations is not possible. The distribution and LEGO.COM will be used to support the new efforts as well as existing employees. In the future, efforts will be made to integrate the traditional with the E-Commerce efforts in most of the aspects of business. In particular the catalog sales operations will provide a great deal of support for E-Commerce operations. This decision reduces costs initially and allows the firm to move into Europe Asia and other markets and address the new issues for each location one by one in a thorough manner instead of jumping head first with little experience in E-Commerce. However, using the Internet to handle the entire process of sales from procurement to delivery to the consumer is the ultimate goal and if implemented correctly pays for itself.
A single strategy for all products and regions is not possible. Clearly, each market in terms of location and different markets require their own strategy. The one fits all strategy will not work and ignores the cultural aspects and does not address the specific needs of the consumer. For example, a customer may be annoyed and intimated by the Lego website if the product is sold in another currency and may well find another retailer who does accommodate the local currency. Integrations efforts should initially focus on taking the order from the consumer and getting this order to the distribution center as soon as possible without requiring human intervention. The obvious benefit is fast service to the consumer that will provide the firm with another service and the cost benefits are enormous.
The firm’s initial priorities should be to first set up a model in America with full the capability of parent personalization of the site and then begin to move to the other markets. After a successful strategy for the E-Commerce operations has been established the firm could begin to integrate the entire process and other business aspects (flow of information). In conclusion, the Lego’s strengths include brand awareness, significant resources that are already in place all over the world, and experience in terms of the catalog operation and the issues arising from selling to children. Weaknesses include concerns of selling to an international market (marketing, legal, language, and currency), lack of experience in the area of E-Commerce, handling the logistics of distributing and direct sales to the consumer, and as for any firm the added complexity in terms of business and technical considerations. Obvious opportunities arising from the E-Commerce operations are increased sales, new markets, integrating other areas of the business such as billing and distribution, and offering more an more of the products online. Threats such as customer’s having a great deal of pricing information, lacking the ability to meet the order to fulfillment speed expected, technical problems, and the problem of enticing customers away from the firm’s traditional buyers.