Five Forces Analysis of the Toy Industry
Threat of New Entrants
The toy industry has a relatively low risk of the appearance of new players for several reasons. First, a common outlook is that toys gradually seize to be the primary entertainment products because of the advance of videogames and digital media (Gilliard et al. 53). Second, the existing toy manufacturers have practically divided the market between themselves (Insights on the Toy Global Market to 2025). Therefore, the fear of loss of consumer interest and domination of existing toy corporations minimize the threat of new entrants to the industry.
Threat of Substitutes
As communications and entertainment become digitalized, classic toys become less relevant. The NPD Group reports that in 2018, “Youth Electronics was the fastest-growing supercategory in the market (U.S. Toy Industry Grows its Sales by 7 Percent). It stands reason to predict that electronic products will continue to rise in popularity, further substituting typical toys.
Bargaining Power of Customers
Consumers rarely purchase from manufacturers directly. Therefore, the major customers are the retail companies, such as Amazon, Target, and Walmart (Winkler et al. 25). Considering that major companies are unique manufacturers of specific types of toys, it is unlikely that the situation will change in the future, and the customers’ bargaining power will increase.
Bargaining Power of Suppliers
Suppliers have an advantage over toy companies because of the materials. In order for toys to retain quality over long periods of time, the manufacturers need specific plastic, fabric, and other materials, which are difficult to find. Therefore, the suppliers have a high bargaining power, which is only likely to weaken if the demand for these types of materials decreases in the future.
Competitive Rivalry
The toy industry is divided between major manufacturing companies. As companies produce specific products, the competition is determined by the demand for these types of toys. For instance, Mattel produces dolls for pre-school children, while Hasbro manufactures action figures (Insights on the Toy Global Market to 2025). However, the most likely winners will be the companies, which produce toys based on videogames, which are on the rise.
Strategic Recommendations for LEGO leadership
Threat of New Entrants
Although the overall threat of new entrants is low, it would be advisable for the LEGO Group to uphold brand loyalty. For example, the company can launch a program financially incentivizing constant customers to purchase primarily LEGO’s toys. Thus, it will ensure that new entrants will not win over LEGO’s customers.
Threat of Substitutes
In the face of the rising threat of electronic means of entertainment, the LEGO Group uses the popularity of videogames to boost sales of toys. The key is designing action figures of characters and models, which appear in games. Thus, substitutes will actually help LEGO in its sales.
Bargaining Power of Customers
The LEGO Group could use the availability of retail services as the bargaining tool against them. It is possible for LEGO to persuade retailers to buy their products at a higher price in exchange for their uniqueness. For example, Amazon can sell only LEGO action figures, while Target can exclusively get LEGO building sets.
Bargaining Power of Suppliers
Considering the waning demand for toys, LEGO could revise the quantity of the manufactured products. LEGO specializes in a certain type of plastic known as acrylonitrile butadiene styrene (Olivera et al. 3658). While qualitative, it is also expensive, which gives the suppliers an advantage. A possible way for the LEOG Group to change the status quo is to accentuate the falling demand for plastic toys and either arrange a discount or switch to cheaper materials.
Competitive Rivalry
The LEGO Group can outsmart its competitors by heavier marketing of video game-inspired action figures. Modern generations become acquainted with computers and consoles at such an early age that there is little chance that classic toys will be used in the leisure time. Therefore, in order for LEGO to stay competitive, it should advertise its toys as unique venues for better immersion in favorite games. This way, consumer interest in LEGO’s merchandise might invigorate, bringing the company the advantage over the rivals.
References
Gilliard, Debora J., et al. “The Toy Industry Is Declining? How Can Mattel, Inc. Survive?.” Journal of Marketing Development & Competitiveness, vol. 13, no. 3, 2019. pp. 53-67.
“Insights on the Toy Global Market to 2025.” Business Wire, 2020.
Olivera, Sharon, et al. “Plating on Acrylonitrile–Butadiene–Styrene (ABS) Plastic: A Review.” Journal of Materials Science, vol. 51, no. 8, 2016, pp. 3657-3674.
Pasierb, Steve. “Toys“R”Us is Gone, Yet the Toy Industry Demonstrates its Resilience.” The Toy Association, 2018.
“U.S. Toy Industry Grows its Sales by 7 Percent in the First Half of 2018, Reports The NPD Group.” The NPD Group, 2018. Web.
Winkler, Matt, et al. “Toy Safety Surveillance from Online Reviews.” Decision Support Systems, vol. 90, 2016, pp. 23-32.