Brief Analysia of Lego Strategy

Topics: Costs, Management accounting, Strategic management Pages: 10 (3473 words) Published: January 3, 2013
1. Strategic management accounting
According to the market competitors and customer needs, I have three different strategies for LEGO’s three strongest-selling product lines. First LEGO City faces the competition from MEGA’s high similarity but low price MEGA Bloks. The market situation is that competitor’s products price lower than LEGO but still capture low market share. That means LEGO has significant customer loyalty and good brand image. Even LEGO has most of the market share (LEGO’s sales revenue is 3.7 billion in 2010 and MEGA’s sales revenue is 0.368 billion almost 10% of LEGO), but the customers are price sensitive because the MEGA Blocks had seen 17 years sales revenue growth. According to economies of scale and learning curve, I suggest LEGO City use cost leadership strategy to compete the MEGA Company because LEGO has 2400 different brick shapes and more than 50 years production experience so that they can produce lower cost than competitors at the same quality. Thus LEGO should maintain price parity with MEGA by doing this it can prevent the MEGA from expanding the market share and reap the higher profit premium from the cost advantage. Second, the licenses product lines represented by LEGO Star War is one of the most prevail products. However the production of license toys needs to pay a large advance of money to the licensor as well as a percentage of the net sales for a licensed product. After acquiring Marvel Entertainment, the Walt Disney Company owned a large amount of entertainment licenses. The additional economic profit that results from owning the licenses is transferred to the Disney. What’s more LEGO’s main competitor in this segment is Hasbro who had an existing license agreement to produce Marvel toys and games until 2017. The above analysis shows that LOGE has no competitive advantage in this segment, as a result, the profit and profit rate will not high. Although the license toys not have sustainable profit, which make contribution to LEGO’s brand reputation and attract a large amount of customers. To sum up, LEGO should maintain this segment and increase profit by cross selling the company’s other products. In addition, the professional sports like NBA, Soccer and Hockey are new source of license agreement, which LEGO will earn significant potential profit if it can make a long term contract with licensors. Finally, the DUPLO is a new segment and has no strong competitors. The incumbent LEGO should make high barriers by patent and long term license agreements to prevent new entrants.

Lord (1996) describes
SMA as a six-stage process as follows:
(1) Collection of competitor information.
(2) Exploitation of cost reduction opportunities.
(3) Matching of accounting emphasis with strategic position. (4) Collection of competitor information.
(5) Exploitation of cost reduction opportunities.
(6) Matching of accounting emphasis with strategic position. A unifying link between these various views and definitions of SMA (and SCM) is that SMA entails taking a strategic orientation to the generation, interpretation and analysis of management accounting information, and competitors’ activities provides the key dimension for comparison. A range of techniques have been included under the umbrella of SMA, and some commentators define SMA in terms of its techniques. These include target costing, life-cycle costing, strategic cost analysis, competitor cost analysis, activity-based costing, activity-based management (sometimes called activity-based cost management), attribute costing, life cycle costing and strategic performance measurement systems. The emergence of SCM is described by Shank as the third stage of the development of the management accounting discipline: from cost accounting to managerial accounting to SCM. Cost accounting transformed into management accounting in the period 1945 to the 1960s. While management accounting emphasized the role of financial information in decision making...
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