AME_sep2009_Lego_case_study.pdf

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Professional Certificatein Marketing (New Syllabus) 521 – Assessing the Marketing Environment

LEGO Group Case StudySeptember 2009

© The Chartered Institute of Marketing 2009


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© The Chartered Institute of Marketing 2009 All rights reserved. This assessment, in fullor in part, cannot be reproduced, stored in a retrieval system or transmitted in any form orby any means, electronic, mechanical, photocopying, recording or otherwise, withoutprior written permission of The Chartered Institute of Marketing.


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Assessing the Marketing Environment Case Study September 2009 – New Syllabus

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Important notes for candidates

The examination is designed to assess your knowledge and understanding of the Assessing the Marketing Environment syllabus in the context of the chosen case study.The examiners will be marking your scripts on the basis of questions put to you in theexamination room. You are advised to pay particular attention to the mark allocation onthe examination paper and plan your time accordingly.

Your role is outlined in the Candidate’s Brief and you will be required to recommend clearcourses of action.

You are advised not to waste valuable time collecting unnecessary data. The cases arebased upon real-life situations and all the information you will require about the chosenorganisation is contained within the case study. No useful purpose will therefore beserved by contacting companies in the industry and you are strictly instructed not to doso as it may cause unnecessary confusion.

As in real life, anomalies will be found in the information provided within this case study.Please simply state your assumptions, where necessary, when answering questions. TheChartered Institute of Marketing is not in a position to answer queries on case data. Youare tested on your overall understanding of the case and its key issues, not on minordetails. There are no catch questions or hidden agendas.

As part of your preparation for the examination, you need to carry out a detailed analysisof this case study. You will then need to condense your analysis into both a PESTEL andSWOT analysis (a maximum of FOUR sides of A4, no smaller than font size 11. Thecontent of tables, models or diagrams must be in a minimum of font size 8). Although nomarks are awarded for the analyses, you will be awarded marks for how you use them toanswer the questions set. The analyses must be attached, with a treasury tag, to your

answer booklet at the end of the examination.

The copying of pre-prepared ‘group’ answers, including those written byconsultants/tutors, or by any third party, is strictly forbidden and will be penalised byfailure. The questions will demand analysis in the examination itself and individuallycomposed answers are required in order to pass.

Important Notice

The following data has been based on real-life organisations, but details have beenchanged for assessment purposes and do not necessarily reflect current managementpractices of the industries or the views and opinions of The Chartered Institute ofMarketing.

Candidates are strictly instructed NOT to contact individuals or organisations mentionedin the Case Study or any other organisations in the industry. Copies of the case study canbe downloaded from the CIM student website www.cimlearningzone.co.uk


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PROFESSIONAL CERTIFICATE IN MARKETING

ASSESSING THE MARKETING ENVIRONMENT

CASE STUDY

Preparation

In preparation for the examination you will need to analyse the LEGO Group casematerial provided, in order to prepare both PESTEL and SWOT analyses of thecompany. You will be given a clean copy of the case study on the day of the examination,but you must bring your PESTEL and SWOT analyses with you into the examination.Your written analyses should not exceed FOUR A4 sides and must include your CIMmembership number on each page. The written analyses should be submitted asappendices on completion of the examination and attached with a treasury tag to youranswer booklet.


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CASE STUDY

LEGO Group

Background

LEGO is an iconic brand – both the very recognisable red and yellow logotype and theoriginal construction brick. Recognised at the millennium as ‘Toy of the Century’, theLEGO brick and range of construction products continue to engage, enthral and educatesuccessive generations of children and adults alike.

Source: LEGO.com

The LEGO Group is a privately held, family owned company, based in Billund, Denmark.The company was founded in 1932 by Ole Kirk Christiansen. He named the companyLEGO, taking the first two letters of the Danish words leg and godt , meaning ‘play well’ toform the word LEGO. At the time Christiansen came up with the name he was unawarethat one meaning of the word in Latin is I put together , and that concept perfectly reflectsboth the name and the idea behind the company’s core product.

The LEGO Group designs, manufactures and markets a line of construction toys andaccessories based around the original colourful, interlocking plastic brick. LEGO brickscan be assembled and connected in a multitude of ways to build any object: buildings,vehicles and now, with the advent of LEGO Mindstorms, even working robots. LEGObricks, once used, can be pulled apart and used to construct another design, makingthem a source of endless creativity and fun. The LEGO brick was patented in its currentform on 28 th January 1958, and bricks from that year are still compatible with the LEGObricks made today.


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Mindstorms - AlphaRex

Source: LEGO.com

The LEGO philosophy is that ‘quality play’ will enrich a child’s life, and provide a keyelement in the growth and development of young minds, stimulating the imagination andencouraging expression and creativity in all things. This philosophy has led the companyto work closely with educators around the world and develop a system of LEGOEducation – learning through play – that forms a key part in the company’s activities.

The LEGO Group motto – ‘Only the best is good enough’ is demonstrated by thecompany’s approach to quality, and it constantly works to develop innovative products tomeet the challenge made by the electronic toy and games market.

Market Trends According to the Toys and Games Key Note Market Report for 2008, the UK market fortraditional toys and games has grown steadily since 2003 and is now valued at £2.3billion (2007). This sector of the toys market includes infant/pre-school toys and games;activity toys; games and puzzles; outdoor and sports toys and games; dolls; action toys;vehicles; and plush toys. LEGO is a key brand within this sector, which is dominated by asmall number of internationally recognised brands of which LEGO is ranked fifth. Its keycompetitors are ranked as follows:

• Mattel• Hasbro• Bandai• MGA Entertainment.

Globally, LEGO pre-tax profits for 2008 reached £197 million compared with £139 millionfor 2007, and £126 million in 2006.

The market currently benefits from a positive trading environment, with per capitaspending on children remaining high. However, the competition for market share remainsstrong. As well as competition from more traditional electronic games, consoles, video,PC games and systems, there are other products now high on the wishlist of manychildren, including mobile telephones and laptops.


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Company Structure

The LEGO Group has a worldwide workforce of approximately 4,500 people, employed inone of four business areas, each of which is led by an Executive Vice President:

1. Markets and Products – worldwide responsibility for new product development,marketing, sales and distribution to retail

2. Community, Education and Direct – responsible for direct contact with consumersvia retail stores, online sales and mail order shopping. In addition, this area alsohas contact with the fans of LEGO and works on the development of newbusiness concepts, as well as the development, marketing and sales of all LEGOeducational materials

3. Corporate Centre – responsible for administration, corporate finance, IT, HR,corporate communications, corporate governance and legal affairs

4. Global Supply Chain – responsible for the company’s supply chain, consisting ofprocurement, production, shipping and distribution.

The LEGO Group Corporate Management Team comprises the Chief Executive Officer,and the four Executive Vice Presidents, with overall responsibility for the areas describedabove.

LEGO Products

The concept and development of LEGO products are still primarily undertaken at thecompany’s headquarters in Billund, Denmark. In order to stay in touch with currentmarket trends, however, the company also has what it calls listening posts located in

Munich, Barcelona, Los Angeles and Tokyo. These are local offices providing a serviceto the centre reporting on issues related to the market environment of the respectivecountries or regions. LEGO employs a creative team of 120 designers, from over 15different countries worldwide.

The LEGO range comprises 2,200 different elements (such as bricks, wheels, gears, etc)featuring 55 different LEGO colours. Each element is produced in a wide variety ofcolours, bringing the total number of combinations to more than 6,000. LEGO toys aredeveloped and marketed to suit all ages and stages of development, from toddlers toschool children and teenagers, from one and a half years old to 16 plus.

The key LEGO product ranges are:

• LEGO Bricks• LEGO Creative Building• LEGO Duplo• LEGO Technic• LEGO Mindstorms.

LEGO Duplo products have been produced for the very youngest LEGO fans –encouraging creative play and developing good motor skills. Creative Building Setscontain traditional LEGO bricks and special parts such as windows, doors, wheels, rooftiles and other building components. In addition, LEGO produce Play Themes comprisingsets that allow children to develop a story during play, such as Castle, Agents,

AquaRaiders and Fire Station.


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Evolution of the Product

Over the past 75 years, LEGO products have gone through an evolutionary process,keeping pace with the demands of the market and the desires of the consumer.

The first era of toys focused on the construction brick, and creative building was thecentral element of play. The classic interlocking LEGO brick was introduced in 1958. In1962, the second era introduced wheels, motors and gears allowing LEGO elements tomove. In 1966, the first LEGO train was developed, and in 1977, gears, beams andgearboxes were added to enable older children to develop vehicles and other morecomplex machinery to mirror their real life counterparts. The third era of developmentrecognised the importance of role play and themes and LEGO figures were developed.The fourth era recognised the importance of intelligence and behaviour and inpartnership with the Massachusetts Institute of Technology, robot technology wascombined with the classic LEGO construction systems, resulting in LEGO Mindstorms.Children were able to create and programme the first intelligent LEGO model.

This technological development has continued with the launch of LEGO Mindstorms NXT – a system that allows the consumer to build and programme a robot in just 30 minutes.These robots can see, hear, move and speak.

Licensed Products

The introduction of an exclusive licensing agreement was another key development inthe growth of the LEGO brand. Character licensed products, featuring recognisablecharacters from children’s literature and films, are major drivers within this market. TheLEGO Group recognised this developing trend in the late 1990s and now offers a rangeof such licensed products, beginning with an exclusive agreement with Star Wars® in1998.

Star Wars

Source: LEGO.com

Lucasfilm Ltd gave LEGO the right to develop, manufacture and market a series of LEGOsets based on themes from its original Star Wars films, as well as the rights to the threeprequel films. The Star Wars themed sets have been followed by a succession of otherlicensing deals with Batman, Thomas the Tank Engine, Bob the Builder, SpongeBobSquarePants and, in 2008, Indiana Jones. Also in 2008, LEGO and Warner Bros agreeda licensing deal to market four construction racing playsets under the LEGO Racer

brand, featuring characters from the new film Speed Racer .


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The development of an increasingly sophisticated range of toys has become part of theLEGO ethos. Each element of new product development is monitored to guarantee thehighest possible quality, in accordance with the company’s motto, ‘Only the best is goodenough’.

LEGO Education

The 2008 Key Note Market Report states that the largest sector of the UK market fortraditional toys and games was infant/pre-school toys, with a 19.7% share of the totalmarket. Children in the sector are aged five and under, and the emphasis on purchasingdecisions is developmental learning and licensing. LEGO licensed products recognisethat children will be more engaged with their toys due to their attraction for charactersthey recognise.

At the very heart of the LEGO Group is the belief that children learn and develop throughgood, creative play. The positive, long-term effects that LEGO play has on consumershave been clearly demonstrated, and the Group has been working in this area for the last

25 years, developing new concepts for the use of LEGO bricks for educational purposes.This work is undertaken by the LEGO Education business unit, and consists of conceptsfor children from one and a half years old to 16 plus.

The LEGO Education products are based on the LEGO brick. They comprise a widerange of options for both teachers and pupils, providing the basis for learning everythingfrom science concepts to the environment and technology. All the products have beenproduced in collaboration with education specialists and teachers, as well as inconjunction with local education authorities.

There has been increased interest in the products developed to stimulate learningthrough play. For example, in Scandinavia, nearly 150 schools have dedicated

classrooms for the use of LEGO products. In America, LEGO Robotics is starting toreplace the old Design and Technology subject in schools. The LEGO MindstormsEducation products form a basis for the development of teamwork skills, as well as beinguseful in subjects such as nature and technology.

As well as LEGO Education Centres in the USA and Asia, education is also high on thepolitical agenda in Brazil, China, Russia, Malaysia and other countries. In addition, by theend of 2007, samples of new LEGO Education products were introduced in countrieswhere education is limited and often restricted to only those who can afford it.

Product Safety

The issue of quality is central to the mission of the LEGO Group, and its stated aim is tobe the best in all areas of business in which the company participates. The very minimumacceptable standard is that all toys and games produced by LEGO must satisfy allnational and international safety standards.

During 2007, toy safety became a high profile issue, with a number of product recallsreceiving much adverse publicity in the media, resulting in extensive attention amongstcustomers and legislators. Following a meeting in Brussels in April 2008, it was revealedthat major toy manufacturers favoured an independent global standard on toy safety,although the industry has expressed a concern over how the standard would beenforced, and emphasised the need for an independent regulator.

On the basis of these developments, LEGO Group undertook a review of all the systemsand procedures it had in place to ensure toy safety, as well as implementing a series of


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new tests. No problems were identified under these measures and no LEGO productswere withdrawn from the market in 2007. With this clear focus, the LEGO Group has aprocess of on-going testing and monitoring of all elements of LEGO products and rawmaterials, and testing is an integral part of all product development.

All LEGO products carry the EU CE symbol, guaranteeing that all toys comply with theEuropean Toy Directive. Products made for the US market are required to satisfy theCode of Federal Regulation and ASTM standard F963. The LEGO Group is also anactive member of Toy Industries of Europe (TIE) and Toy Industries of America (TIA),chairing the European committee for standardisation of toy safety.

Retailing

LEGO products are sold through a wide variety of specialist retail outlets, among themToys“R”Us and the Early Learning Centre as well as smaller, independent toy stores. TheLEGO.com website also enables online purchasing, and there is now a LEGO Club thatoffers the user the ability to create a virtual LEGO construction online, and order the

pieces to make it, for delivery to their home address.

It is anticipated that the toy market will continue to rise in the short to medium term, withthe 12 weeks from the beginning of October until Christmas seen as the most importantsales period of the year.

Purchasing Behaviour

Within the UK market during 2007, the Key Note Market Report states that overall,consumer penetration was highest amongst adults purchasing toys and games forchildren aged between two and four.

As with numerous other household markets, the traditional purchasers of toys and gameslike LEGO are more likely to be women than men, as women tend to manage themajority of the household shopping, including purchasing gifts and educational materials.It is also the case that women are the prevalent parent in the majority of single parentfamilies.

With regard to the age of buyers in this market in the UK, Key Note 2008 tells us thatpenetration peaks among those aged 25-34 and 35-44. However, it should beremembered that there is a very loyal global market for LEGO amongst adults (AFOL,

Adult Fans of LEGO), who account for a significant percentage of sales worldwide.

As may be expected, households with children spend more money on toys and gamesthan those without. However, over 25% of adults in households without children still buytoys and games, either for themselves or as gifts for other people’s children. The amountof spend tends to drop as the age of the children within the household rises. Mosthouseholds with children regard spending money on toys and games as a vital part oftheir child’s development and education, and only 10% of households with children spendno money at all in this sector.

Sponsorship/Partnerships in the UK Market

During 2007 and 2008, the LEGO Group in the UK has developed a number ofpartnerships with organisations to help promote and familiarise its target audience withLEGO products.


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In September 2007, LEGO entered into an agreement with a UK children’s televisionchannel, Jetix UK, to promote their Bionicle brand. The concept was developed tofamiliarise children with the Bionicle characters and encourage them to participate in anonline game and win a weekly prize. The campaign was run over a 14-week period.

For a period of one week in October 2007, LEGO became official sponsor of allprogramming on the UK children’s channel, CiTV. During the week, LEGO endorsed thechannel’s entire children’s output and appearances were made by characters from theLEGO range.

During 2008 LEGO agreed a deal to promote LEGO brands throughout Pearl & Deanand Vue cinema venues. The deal allowed LEGO to screen short films of 30 secondstailored to the individual films, prior to the trailers, and display LEGO advertising in thecinema foyer along with LEGO literature and information.

With ‘education through play’ as one of the key drivers for the LEGO Group, LEGO in theUK also teamed up with two major children’s associations: the Scouts Association and

the National Schools Partnership. During 2007, in a campaign designed to boostawareness of the Technic range of toys, LEGO offered 1,000 of its LEGO Technic Off-Road sets to Scout groups who were participating in the organisation’s model-makingbadge scheme. The partnership between LEGO and the National Schools Partnershipdeveloped the LEGO Technic Club – an after-school club for 9-11 year olds – designedto expose children to design, technology and engineering skills.

Consumer Marketing

As a company, the LEGO Group recognises the importance of consistent interaction withits consumers. As a global brand, LEGO is determined to maintain its position in themarket and sees this form of direct communication as key to its success. In some cases,

consumers interact intensely with the company and are increasingly becoming involvedin the design and direction of future LEGO products. The Community, Education andDirect division of LEGO was set up specifically to ‘create premium value to allstakeholders by identifying, developing and implementing new business opportunitiesbased on consumer insights and community interaction. The driver for this activity is todeepen the emotional belonging of our customers by delivering and co-creating relevant,personalised and unique LEGO experiences consistently across all LEGO Touchpoints.’

The results of this strategy can clearly be seen as, three years on from theimplementation of the idea, the number of visitors to the LEGO website has almostdoubled. The LEGO online community has over 250,000 creative products on Flickr andthere are almost 100,000 LEGO movies on YouTube. Sales through LEGO brandedstores worldwide are enjoying strong growth.

LEGO.com is the official LEGO website. As well as being an online shop, the siteprovides a virtual universe in which users can play and learn about the LEGO Groupthrough games and stories. In 2006, LEGO.com was one of the top 25 Lifestyle andChildren’s websites in the USA. Also in 2006, the website experienced traffic of up to8,137,062 visitors a month, spending an average of 28 minutes online.

Over 2.4 million children aged between 6 and 12 are members of LEGO Club. The clubenables them to show their favourite LEGO models or drawings to other members, andalso gives them access to an exclusive LEGO Club website. Every two to three months,members receive a magazine published in English, German, French, Swedish or Dutch.


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In 2004, LEGO Brickmaster was launched in the USA, aimed at children aged sevenyears old and upwards. Members can access an even greater range of LEGO activities,including having LEGO products delivered regularly to their home. They also receivespecial behind-the-scenes stories and information, and have the opportunity toparticipate in special LEGO competitions.

LEGOFactory.com gives children the opportunity to build virtual LEGO models on theircomputer using professional software (LEGO Digital Designer), and then order andreceive the bricks for the model by post. The site gives consumers an added dimension,as children can look at the site for advice or ideas and gain inspiration from the designsposted by LEGO designers or adult fans.

The LEGO Group has recognised the growing number of adult LEGO enthusiasts and inresponse has established Adult Fans of LEGO. There are many AFOL groups across theglobe, with members developing their own websites, organising public events and takingpart in LEGO development projects. In 2005, LEGO announced the formation of theLEGO Ambassador programme, designed to capture and expand the relationship

between the LEGO Group and its most committed and loyal consumers.

Another key area of customer interaction and brand loyalty is the development ofLEGOLAND Parks, where children can enter a world of adventure built entirely of LEGOBricks. The LEGO Group sold its LEGOLAND Parks division in 2005 to MerlinEntertainment, and a new company was created as part of the deal – MerlinEntertainments Group. This group owns a number of family attractions around the world,including LEGOLAND Parks, Madame Tussauds®, SEA LIFE®, London Eye®,Gardaland® (Italy) and Heide Park® (Germany).

There are currently five LEGOLANDs internationally: Billund (Denmark), Windsor (UK),California (USA), Deutschland (Bavaria, Germany) and LEGOLAND Discovery Centre

(Berlin, Germany).

Corporate Social Responsibility

In a world where globalisation sets the agenda for growth and prosperity, it is important torecognise the need for that growth to be sustainable and not to have a negative impacton future generations. The LEGO Group puts the development and education of childrenat the centre of its mission, and one of the main challenges of globalisation is to ensureaccess to education and learning in all countries of the world.

The impact of manufacturing on global climate change is primarily attributed to theconsumption of fossil fuels. The plastics that are a vital raw material to the LEGO Groupare polymers, produced from fossil raw materials such as crude oil and natural gas. Theproduction of plastics accounts for roughly 5% of the fossil raw materials used on anannual basis to produce 100 million tons of plastic. The LEGO Group uses approximately20,000 tons of plastic a year, manufacturing approximately 36,000 LEGO elements aminute. This constitutes only 0.2 per mille (0.02%) of global plastic consumption – andLEGO recognises the need to continue working to reduce the impact of this productionon the climate.

The protection of human rights and compliance with labour standards form the basis ofthe LEGO Group’s Code of Conduct – a document that sets the standard for the way inwhich the company operates and the standards which suppliers, employees and otherbusiness partners are expected to meet.


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The LEGO Group was the first toy company to join the UN Global Compact in 2003. Theprinciples of the Global Compact set out the framework for companies such as LEGO toassume a share in the responsibility for helping to solve major global issues such ashuman rights, labour standards, the preservation of the environment and the ongoingfight against corruption.

Sustainability

The LEGO Group believes that in order to ensure a long-term sustainable future for thecompany, it needs to recognise and meet the expectations of all its stakeholder groups.These stakeholder groups have been defined as follows:

• consumers• customers• employees• business partners, suppliers, stockists and retailers• shareholders•

society at large.

In turn, the expectations of these various groups have been divided into three areas:value creation, brand and responsibility. The company believes that by meeting orexceeding these expectations, it can deliver long-term, sustainable growth.

1. Value creation: this is different for each stakeholder group. Consumers expectquality and value for money, retailers expect to make a reasonable profit,shareholders expect a return on their investment, and so on.

2. Brand: LEGO is an iconic brand. It has a strong reputation, built up over 75 years.The brand values are demonstrated in everything the company undertakes:

learning through play, creativity, fun and quality. Therefore, for consumers theexpectation is for high quality, innovative products, and for retailers the brandpresents an opportunity for increased sales in stores.

3. Responsibility: the strong brand values demonstrated by LEGO are echoedthroughout the company. All stakeholders expect the same values to bedemonstrated through corporate social responsibility. For example, consumersexpect LEGO products to be safe and manufactured to high standards;employees expect to work in safe and comfortable working conditions, but also tohave the opportunity to develop their competencies in order to progress in theircareers.

The LEGO Group has identified five themes for corporate social responsibility goingforward:

• protect natural resources for the benefit of future generations• reduce climate impacts• inspire children to care for sustainable development• children’s development, health and safety• employees’ health and well-being.


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Charity

The LEGO Group also recognises the need for additional assistance for children, whothrough illness or social deprivation have limited access to play experiences. For thisreason, the company focuses its charitable activities on helping those groups by donatingLEGO products to as many children as possible. To date, more than 5,000 LEGO setshave been distributed via Save the Children in Denmark and SOS Children’s Villages,and more than 10,000 LEGO sets have been used as gifts to children confined tohospitals and other care institutions.

Growth Strategy and Future Trends

The Future

The LEGO Group is currently implementing a seven-year strategy, Shared Vision, whichcommenced in 2004, following six years in which the company saw market share andprofits fall. In an article that appeared in the Financial Times on 2 April 2004, Kjeld Kirk

Kristiansen, the main owner of the business and the grandson of its founder,acknowledged that LEGO was so busy chasing the fashion of the day that it had taken itseye off its core brand, becoming over-dependent on licensed products such as HarryPotter and Star Wars – losing sight of its most critical target groups, young children.

The Shared Vision strategy was implemented in 2004 to redress this balance, and aimsto reinvigorate the LEGO brand as creative and fun. The strategy up to 2010 will alsocontinue to focus on the company’s profitability. From 2006 to 2008, the company hassought to build a profitable and sustainable core business from which it can push forgrowth. This second phase had three main priorities:

• transition of the supply chain• improving product portfolio productivity• preparation for growth.

As part of this strategy, in 2006, the LEGO Group announced that it would be relocatingthe majority of its production sites over the subsequent three years. This is beingachieved by outsourcing production to partner companies, mainly an electronicsmanufacturing company, Flextronics. With facilities in Eastern Europe and Mexico, thesesites provide close proximity to LEGO’s key markets in Europe and the United States.However, the most specialised and skills-based manufacture of LEGO products willremain at the Group’s Danish plant at Billund. A new research and development unit, or‘concept centre’, has also been established, with the production facility at Billund.

In order to meet the challenge facing all toy manufacturers from consumers, customersand competitors, LEGO Group is determined to engage with its consumers and retailersto an even greater degree. The Group continues to improve and develop its productrange in order to meet the competition from the multitude of electronic productsappealing to younger children. These new product lines are centred around classicLEGO products and themes, such as Castle, Pirates, Viking and City, and the process ofdevelopment and production from initial concepts to delivery to retailers’ shelves hasbeen cut dramatically. New product development is now achieved in approximately 12months.


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At the core of the Shared Vision strategy are the LEGO Group values:

• LEGO must be the best at creating value for customers and sales channels• LEGO must re-focus on the value it offers to customers• LEGO must increase operational excellence.

The Shared Vision strategy has enabled LEGO to focus on its core product and corevalues, with a significant improvement in the company’s results since 2004.

Growth

Key Note 2008 forecasts very slight growth in the UK GDP in the period from 2008 to2012, and although this may have an adverse affect on confidence in the toys and gamessector, it is believed that the larger and more established toys and games manufacturerswill be better positioned to survive the downturn. It is anticipated that the cost ofmanufacturing and raw materials will rise in the period 2008-2012 and that this will resultin an increase in prices, as some of these cost rises will need to be passed on to

consumers.

It is also anticipated that, following the rising birthrate since the beginning of thismillennium, there will continue to be a positive environment for the sales of toys andgames as the volume of consumers continues to increase. The trend towards laterparenting in many countries also continues and contributes to a higher spend per capitaon toys.

Future Trends in the UK Market

Within the UK, the child population is forecast to grow, thus increasing the target marketfor toys and games. It is anticipated that with many of the products in the technology,

electronics and video games market selling at higher prices, the market for moretraditional toys, such as LEGO, will be more appealing.

Key Note 2008 also states that products for the under fives will be the fastest growingsector in the UK market. This is particularly true of toys and games that educate anddevelop motor skills in young children, such as LEGO.


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APPENDIX ONE

Table 1 Retail distribution of toys and games by sales value (%), 2007

Mixed retailers (including department stores)Toy storesCatalogue showroomsOnline and mail orderOthers (including supermarkets)

282522

817

Total 100

Source: Key Note Ltd 2008

Table 2 Purchasing of toys and games (including computer games) in the past 12months (% of adults), 1996, 2001, 2003, 2007

1996 2001 2003 2007

% of adults 49.9 49.7 45.1 43.0

Source: Target Group Index (TGI) © BMRB International Ltd 1996, 2001, 2003, 2007.Key Note Ltd 2008

Table 3 Expenditure on toys and games in the past 12 months, by age of children(% of adults), 2007

Less than£50 £50-99 £100-199

£200 ormore

Children aged under 2 yearsChildren aged 2-4 yearsChildren aged 5-7 yearsChildren aged 8-9 years

Children aged 10-12 yearsChildren aged 13+ years

8.97.67.04.5

3.83.6

3.24.03.82.7

2.73.1

1.72.82.92.0

2.52.3

1.21.82.11.4

1.82.5

Source: Target Group Index (TGI) © BMRB International Ltd, 2007. Key Note Ltd 2008


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Table 4 Purchasing of toys and games (including computer games) in the past 12months by gender (% of adults), 2007

Male

Female

35.8

49.8


Table 5 Purchasing of toys and games (including computer games) in the past 12months by age (% of adults), 2007

15-19

20-2425-3435-4445-5455-6465 +

35.0

37.460.068.338.034.221.5


Table 6 Purchasing of toys and games (including computer games) in the past 12months by presence of children (% of adults), 2007

Children aged 1-4 yearsChildren aged 5-9 yearsChildren aged 10-15 yearsNo children in household

90.389.366.825.8



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APPENDIX TWO

Strong growth in the LEGO Group Press Release February 23 2009

For the LEGO Group, 2008 was a successful year with considerable increases in bothsales and profit. This was announced when the LEGO Group presented its AnnualReport 2008 at a press conference today in Billund, Denmark.

• Profit for the year before tax reached DKK 1,852 million against DKK 1,414 millionin 2007.

• Net profit for the year amounted to DKK 1,352 million against DKK 1,028 million in2007

• The Group’s equity increased from DKK 1,679 million at the end of 2007 to DKK2,066 million at the end of 2008

• Revenue amounted to DKK 9,526 million against DKK 8,027, an increase of18.7%

Global sales increasesNearly all the LEGO Group’s markets reached two-digit growth rates in 2008. Especiallythe English-speaking markets saw extraordinarily high sales increases, which resulted inconsiderable increases of the LEGO Group’s shares of these markets. In Central Europe,the LEGO products increased their market leadership through continued growth, and inNorthern and Eastern Europe, the strong position of the LEGO products was furtherstrengthened during 2008.

Classic play themes such as LEGO City are still among the largest product lines. LEGOStar Wars also achieved extensive growth in 2008, and moreover the launch of thelicensed product LEGO Indiana Jones was very successful.

The global market for traditional toys saw a slight decrease in 2008. A moderatedecrease was seen on the American toy market, whereas the world’s second largest toymarket, Japan, saw extensive decreases. On the other Asian markets and on the EasternEuropean markets, toy sales were increasing, whereas markets stagnated in WesternEurope in its markets.

Expectations for 2009 The development in 2009 is subject to great uncertainty. Already under pressure, the toymarket is expected to be increasingly affected in 2009 by the worldwide recession.Nevertheless, the LEGO Group expects moderate sales increases in 2009. In order tosupport this growth, the LEGO Group is planning to continue its investments in thedevelopment of the markets and products as well as production capacity. On this basis,satisfactory results are expected for 2009.

Comments “Our results for 2008 have been extraordinarily good”, says Mr Jørgen Vig Knudstorp,President and CEO. “And this applies not only to the financial results. During 2008, wealso took over two factories in the Czech Republic and Hungary, and we began theconstruction of a factory in Mexico. The successful change to increased own production,combined with strong sales increases, is attributable to the impressive performance by allour employees. “Despite gloomy economic prospects, we feel well prepared for growth in2009 as well, and our optimism is supported by the results seen in the first two months ofthe year,” says Mr Knudstorp.

Source: LEGO.com April 2009


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