Designing LEGO.COM/ Shop
Business Issues and Concerns
Jan Damsgaard
Dept. of Informatics
Copenhagen Business School
http://www.cbs.dk/staff/damsgaard/
This presentation is based on Damsgaard, Jan and Jens Hørlyck (2000).
Designing www.LEGO.com /shop: Business Issues and Concerns.
Content
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LEGO Company
The world market for toys
LEGO Company e-commerce opportunities
LEGO Company concerns
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Choice of countries
How to organize sales
Distribution and supply chain issues
Pricing
Legal and Brand issues
Tax and Import duty issues
IT issues
Marketing and traffic generating issues
Economic issues & ROI
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LEGO Company
 Founded
in 1932
 Well-established worldwide brand
 “Toy of the 20th century”
 Shift from wood to plastic in the 1950s
 Stagnating sales in the late 1990s
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– Reduction of staff
– BPR exercise
WWW.LEGO.COM
– Was 6-7-8 on the Top-Ten list of most popular sites for
children in USA
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The Global Toy Market 1998
 Traditional
toys
 Video games
 Total Sales
 USA
 Africa
 Globally
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$ 54 billion (-1%)
$ 14 billion (+19%)
$ 68 billion (+2,5%)
$ 341 per child annually
$ 2 per child annually
$ 35 per child annually
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The Global Toy Market 1998
 60
per cent of all units were sold at a unit
price below $5
– This percentage was growing
 More
than half was sold in the fourth quarter
– This percentage was decreasing with 2-4 per
cent annually
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The Global Toy Market, 1998
 Nintendo:
“The Legend of Zelda”
– Sales in 39 days: 2,5 million at a unit price of $50
 Nintendo:
50 million pieces
 Playstation: 50 million pieces
 Sega: almost 20 million pieces
 LEGO Company initial main focus was PC
games, starting 1999 also for Playstation and
Nintendo
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Options
 To
Sell or Not to Sell on the Internet
– That was the essential question for LEGO Company
 If
a decision to sell
– which products?
 Regardsless
of the decision LEGO products
were already sold on the Internet
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LEGO was for sale on the Internet
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1996
October 1997
Early 1998
November 1998
December 1998
1998
1998
June 1999
July 1999
latoys.com
etoys.com
toysrus.com
smarterkids.com
toysmart.com
robotstore.com
fao.com
kbkids.com
amazon.com
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LEGO MINDSTORMS
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WWW.LEGOMINDSTORMS.COM
A brand new and innovative product
 Back to experimenting
 Aimed at new customer segments
 A new image for the Internet generation
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– Building of a Internet community around the product
 Phased
introduction. Starting in the US (1998) and
the rest of the world 1999
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Lego World Shop
 Lego
World Shop department was set up as
a separate business unit that would answer
directly to the owner and top management
of LEGO
– It was believed that this was the only way that
LEGO Group could have a website and be
engaged in e-business in just three months
(prior to Christmas sale 1999)
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LEGO Company Choices
Choice of countries
 How to organize sales
 Distribution and supply chain issues
 Pricing
 Legal and Brand issues
 Tax and Import duty issues
 IT issues
 Marketing and traffic generating issues
 Economic issues & ROI
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How Many Countries
 Argument
for a few countries
– Number and length of distriution channels
– Adequate number of consumers with a PC
 Argument
for many or all countries
– LEGO MINDSTORMS can be difficult to
purchase in remote areas of the world
– New markets
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E.g. China – quite a few millions wealthy consumers
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How Many Countries
 LEGO
Company chose
– To limit sales to its 15 – 20 most important
markets
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Organizing Sales
 Keeping
existing sales organization
– Low initial share of total volume
– Low priority
– Differences in service levels
 Establish
new (central) sales organization
– Fast to establish
– Lack of local knowledge
– Language problems
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Organizing Sales
 LEGO
Company Chose
– A new independent sales organization
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Distribution Channels
 Use
the existing distribution channels
– Designed to handle bulk shipments
– Expensive to establish a fine grained network
 Setting
up a new distribution channel
– Designed to handle direct packages to
individual consumers
– Outsourcing a possibility
 Returned
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goods
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Distribution Channels
 LEGO
chose to outsource the distribution to
a freight handler
– Cost ineffective to build new channels
– Outsourcing was scalable and flexible
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Prices
 Traditionally
LEGO products has had wide
price differentiation across countries
 Above, below or in line with retail prices?
 Payment in which currency?
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Prices
 LEGO
Company chose
– Uniform prices in all markets
– Prices in line with suggested retail prices in the US
– All sales in US$
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Law and Ethics
 Many
countries had regulations regarding
commercials for children
 Marketing aimed at users (children) may
backfire from the buyers (parents)
 Differences in consumer protection
 Differences in laws about export of consumer
data and registering of consumer behavior
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Law and Ethics
 LEGO
chose
– To maintain high ethical standards
– To follow local legislation for each country
– To place data collection in Denmark under
Danish/EU legislation
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Tax and Import Duty
 Rules
for declaring tax and import duty
vary from country to country
 Central collection of tax and import duty
– Need to set up companies to handle VAT payments
in each country
 No
collection of tax and import duty
– Widespread laissez-faire like e.g. AMAZON.COM
– Delays due to inspection
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Tax and Import Duty
 LEGO
Company chose
– A high level of service
– VAT and import duty was collected by LEGO
Company and paid by a local subsidiary
– The calculation of import duty and VAT was
handled on a per transaction level by third party
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IT related issues
 IT
was designed and optimized for bulk shipments via
few dedicated distributions centers
 Direct interaction with individual consumers required
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Track and trace of individual orders
Many small orders from a high number of infrequent customers
Country specific invoices
Many small payments
 ERP system
(SAP) could not be changed within a few
months’ timeframe
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IT related issues
 LEGO
Company chose
– To outsource the IT systems
– To accept having two separate IT systems
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Marketing and sales
 Traditional
marketing on LEGO.COM
– Get LEGO products on the wish list of kids
– Supports local retailers
 But
– Kids don’t buy on Internet
– Kids don’t have plastic cards
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Marketing and sales
 LEGO
Company chose to completely separate
– Playground
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WWW.LEGO.COM
– Community
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WWW.LEGOMINDSTORMS.COM
– Shop
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WWW.LEGOWORLDSHOP.COM
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Financial Issues
 Open-ended
questions
– How much resources should LEGO Company
invest in e-commerce?
– How fast ROI?
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Other e-commerce Scenarios
 Do
nothing, ignore the Internet
 Make limited e-commerce for
– Obsolete products
– A specific product line
– Special accessories
 The
ultimate approach
– Wholesale prices + P&P
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Value Added Use of the Internet
 Scanning
of pictures
– bitmap conversion to LEGO brick-map
 Drawing
or constructing famous buildings
 Both can be implemented to support
existing retail outlets or to enhance ecommerce
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WWW.LEGOWORLDSHOP.COM
 Launched
March 1999
 Dedicated to LEGO MINDSTORMS only
 Closed after Christmas sales 1999
 Was to be re-opened Summer 2000
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LEGO 2004
Is http://www.lego.com/ a playground,
community or sales site?
 What are the steps involved in ordering
LEGO Mindstorms? http://shop.lego.com/
 How does the price of Mindstorms Robotics
Invention System 2.0 compare at
http://shop.lego.com/ &
http://www.amazon.com & in traditional
retail?
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