Do you think Lego has changed its business model/strategy?

[llenroccc]

I wonder if Lego fans have noticed that Lego seems to have changed its business model/strategy?

After watching the major retailers in US were asked to sell "hard to find" sets at high prices as the official price for a few months (no discount policy: http://toysnbricks.com/no-discounts-policy-on-lego-exclusives-hard-to-find-items/), I haven't been able to get some large sets like 10240 star wars x-wings at a discounted price as how I used to buy 10188 death star and 10221 super star destroyer at 20% off from Amazon.

And Thanksgiving 2013, Lego (US) offered 3x VIP points to only VIP members, and it was only ONE DAY! On the contrary, last year 2012, everyone got almost a week to shop at the store or online at 10% off prices of everything.

To me, as a fan, I just feel like Lego is now focusing more on making money rather than "fan-friendly" business model (maybe they were never "fan-friendly" but I felt like that). I don't know if they just want to squeeze fans like me to get more profits or just want to suppress the second market (I don't even know if it makes sense). Or may I was just too spoiled by Lego before...???!!!???

Now, I start seeing the majoy retailers like Target, Walmart promote the large sets with bundle of gift cards e.g. 10188 death star + $50 target gift card. This perhaps is the first move of retailers to react to Lego's no discount policy, the next step I guess is either to keep offering gift card bundle, or just simply to stop selling the large sets.

I just want to open the discussion and see how other fans feel about this and perhaps shed some light on how/when Lego fans should buy our toys!!!

Merry Christmas!

llenroccc

[Lyichir]

I wonder if Lego fans have noticed that Lego seems to have changed its business model/strategy?

After watching the major retailers in US were asked to sell "hard to find" sets at high prices as the official price for a few months (no discount policy: http://toysnbricks.c...-to-find-items/), I haven't been able to get some large sets like 10240 star wars x-wings at a discounted price as how I used to buy 10188 death star and 10221 super star destroyer at 20% off from Amazon.

And Thanksgiving 2013, Lego (US) offered 3x VIP points to only VIP members, and it was only ONE DAY! On the contrary, last year 2012, everyone got almost a week to shop at the store or online at 10% off prices of everything.

To me, as a fan, I just feel like Lego is now focusing more on making money rather than "fan-friendly" business model (maybe they were never "fan-friendly" but I felt like that). I don't know if they just want to squeeze fans like me to get more profits or just want to suppress the second market (I don't even know if it makes sense). Or may I was just too spoiled by Lego before...???!!!???

Now, I start seeing the majoy retailers like Target, Walmart promote the large sets with bundle of gift cards e.g. 10188 death star + $50 target gift card. This perhaps is the first move of retailers to react to Lego's no discount policy, the next step I guess is either to keep offering gift card bundle, or just simply to stop selling the large sets.

I just want to open the discussion and see how other fans feel about this and perhaps shed some light on how/when Lego fans should buy our toys!!!

Merry Christmas!

llenroccc

I don't think there's been significant change in Lego's business strategy as of late. When it has, it's been largely to benefit end consumers over resellers and speculators.

Discounts exist largely to clear out overstocked or old merchandise. I think the main reason you're no longer seeing as many is simply that Lego is hitting its sales goals more consistently.

Regarding the no discount policy on Hard-to-find or exclusive items, that seems to have been implemented largely to cut down on resellers taking advantage of coupons by buying high-demand sets with them and then turning around and selling them at an inflated price once Lego no longer offers them. They HAVE been taking a hard stance against these sorts of speculators in recent years, so that is a concrete way in which their business strategy has changed.

Regarding the one-day triple VIP points, that was a better deal than we had gotten any other year. I completely missed out on the triple points because I had expected the double points in October to be the best deal of the year, and got all my purchases for the foreseeable future out of the way at that time. Offering a deal that we've never had before for a single day isn't miserly; it's a pleasant surprise on top of the typical sales. And a surprise sale like that has the bonus effect of catching resellers and other bulk purchasers by surprise and making sure they can't plan ahead to buy massive amounts of rare sets.

[biobacon]

I was big into lego pre 2007, Now that I have returned it appears to me that they have become more fan friendly then ever before. Alas I too have noticed the lack of discount or clearance items. but Knight is right, that means they are getting it right, and in the long run whats good for Lego is good for us right? Now to go collect that 10x vip bonus they promised me for saying that, LOL. But for real I think things are better.

[malkhaz]

I do not think that LEGO is controlling the pricing of big retailers. It is just a business for them and they try to maximize the profit by adjusting and testing several pricing strategies every year. so only thing we can do is to wait for discounts when it comes...

[Deathleech]

Regarding the one-day triple VIP points, that was a better deal than we had gotten any other year. I completely missed out on the triple points because I had expected the double points in October to be the best deal of the year, and got all my purchases for the foreseeable future out of the way at that time. Offering a deal that we've never had before for a single day isn't miserly; it's a pleasant surprise on top of the typical sales. And a surprise sale like that has the bonus effect of catching resellers and other bulk purchasers by surprise and making sure they can't plan ahead to buy massive amounts of rare sets.

How do you figure it was better than the year before? 3x VIP is 15% back. Last year it was 10% off, plus the normal 5% VIP which is also 15%? I would rather have the 10% off on the spot, and have it all week, than 10% back in VIP and only offered one day.

Edited December 28, 2013 by Deathleech

[Faefrost]

As various points in several economies change Lego, like any merchant will adjust pricing policies to compensate. The small changes we have seen in discounts or sales are most likely a mechanism to try and hold regular pricing constant without seeing any major increases.

As far as the no more discounts on the D2C stuff, this makes good business sense, and it's a wonder they did not implement it sooner. I'm sure their data showed that more and more the bulk of those type sets were being sold below the planned price point due to unpredictable discounts, and as such may not have been making profit targets. It's one thing to offer a couple of day discounts on sets like Ninjago where each set has been produced at around a million pieces. If you sell a few thousand at 20% off that doesn't hurt the overall product. But if you sell a few thousand of a modular, that only has a production run of 50,000 or so at deep discount. You have hurt the bottom line of the product needlessly. (And this is why other merchants like TRU always exclude Technics sets from their BOGO deals.)

At the end of the day TLG must make a profit. The types of sets we each like must make a profit. Otherwise they won't and honestly can't make more of the types of sets that we like. We, the fans, want TLG to make a profit. Yeah we want to pay less for Lego, but everyone ask themselves what is better, not getting the 20% discounts on D2C stuff? Or never seeing those types of sets again as they aren't worth the expense to produce.

[ShaydDeGrai]

With respect to the question of set scalpers/speculators, I think that concern may have been one part of the motivation behind the "no discount" policy but I don't know how well that's really worked out in that regard. Supply, demand and cost recovery theory says that the market will just simply adjust to new levels of asking price, timing and profitability. It might dissuade a few people looking to "flip" sets in the short term (right after a set it retired) but won't really impact serious resellers. I suppose if they really wanted to stick it to the speculators, TLG could establish an annual "Set Revival" kit tradition where they look at the most ridiculously over-priced eBay MSIB retired kits that sold in the past year and reissue a set at its original price, destroying the aftermarket price gouging. I'd think after a few years of seeing TLG flood the market with new Green Grocers, Emerald Knights and UCS MIllenium Falcons, to the point where AFOL collectors were waiting to see what next year's revival will be rather than paying top dollar for kit that could well be readily available in a few months time, a lot of speculators would think twice about making a storage locker full of retired sets the crux of their retirement planing. Then again, TLG would probably really tick off a lot of people who already own 20 Ewok Villages under the assumption that a decade from now they're going to double in value - even more than they did when they declared that they couldn't use their 10% off coupons...

But I don't think set scalping is the real issue here.

The greater "issue" TLG has to figure out from a marketing strategy is how to position its own storefronts without disrupting its relationships with major retail channels like TRU and Target. It's not a problem unique to LEGO; I can go to the mall, get an informed product demo from the guy at the Apple Store to figure out exactly which model iPod I want to buy, pop over to the Sony Store and pick out my new TV and then walk down to Best Buy and actually buy both items for less than what I would have spent at the "Factory Direct" single-brand stores. Sony and Apple, as corporations, still got my money, but the physical stores themselves incurred the expenses of maintaining a physical presence in the mall and of training qualified sales people to answer my questions in ways the holiday part-time help at Best Buy never could, but Best Buy got the sale because they had better discounts and promotional give-aways.

I think things like the PAB wall, VIP cards and poly-bag promotions are all attempts by TLG to show some value added to actually buying from a Lego Store rather than treating it as a showroom to figure out which kit you want and then going to Walmart or buying on-line from someone else. I suppose treating it as a showroom is fine if you're only looking at the total sales for the company, but in a rough economy, I don't think the physical store fronts can afford to be loosing sales (particularly at the high end) because 5% of a future purchase (VIP) and a tiny polybag set can't compete with 30% at Amazon. Some companies factor lost "local" sales right into the business model, (I think I read somewhere that Microsoft Stores are't actually expected to break even and fall under their advertising budget as a marketing expense rather than a direct revenue source) but I doubt that's the case with LEGO.

Now if there were just _a_ physical Lego Store (or just the gift shops at a Lego theme parks) TLG could probably offer _real_ discounts that Amazon and Walmart couldn't match without selling things below cost; TLG could probably get away with that on a limited basis without endangering major retail channels. A trip to LegoLand is made extra special by getting a great price on some souvenirs, but such a scenario is no real threat to Amazon because 99% of their customers can't or won't be able to take advance of it and those that do probably won't be doing it very often. But back in the real world, TLG is opening more stores every year. There are four in Massachusetts (population 6.6M, median age 39.1 years, median family income 101,000 USD, average price of a cup of coffee $2.63 ) alone, so if TLG did too much to entice sales at its storefronts, I'd bet they tick off more than a few business partners in their overall distribution chain. On the flip side, there a huge swarths of the US where the nearest Lego Store may as well be in Denmark, where Walmart and on-line ordering are the only game in town.

So where do you draw the line between supporting your own stores and cannibalizing your partners' sales? I think this is a question TLG has yet to figure out for themselves. Things like the changing face of Brick Friday and special VIP invite only events, as well as "exclusive set" price fixing are just symptoms of them trying to explore the solution space. Personally, I think the store fronts need to do more to attract actual sales (better incentives, truly exclusive "exclusives", etc.) but I certainly don't know enough of the big picture to know what the answer is, I can just sympathize with the complexity of the problem.

[62Bricks]

... but I certainly don't know enough of the big picture to know what the answer is, I can just sympathize with the complexity of the problem.

You give a pretty thorough description of the issue. I think "set scalping" really is a large part of the issue because it affects TLG's long-term marketing strategy. That strategy - which is shared by most large retailers - is to build up a large base of return customers. TLG knows that once a person has one LEGO set, they will probably want another one - to add pieces to their collection, complete a series, etc. From a long term perspective, then, LEGO would much rather sell 10 sets to 10 different customers than sell 10 sets to a single person because those 10 individuals are going to expand their base of customers meaning more sales in the long run. The immediate profit to LEGO is the same in either case. When Amazon sells a set at a discount, it is Amazon - not TLG - that is reducing its profit margin. LEGO receives the same amount of money for the set whether it's put on sale or sold at full price.

When Amazon sells a set at 40% off the full price, Amazon may actually be losing money (especially if it has to ship it free). Amazon is willing to do this because it builds up return business. Once a person signs up for an Amazon account, enters in their credit card information, etc. it's very easy to come back and buy other things. Amazon is not taking any money from TLG's pocket, but it is taking away a potential return customer, which is much more valuable to TLG.

So by restricting discounts, TLG is trying to ensure that more unique individuals are buying LEGO products. It is the same reason it places purchase limits on some sets at its own retail outlets.

[Deathleech]

Personally, I think the store fronts need to do more to attract actual sales (better incentives, truly exclusive "exclusives", etc.) but I certainly don't know enough of the big picture to know what the answer is, I can just sympathize with the complexity of the problem.

I completely agree with this. While I love going into the Lego store and looking around, I rarely buy anything there. Why would I buy a $100 set at Lego for 5% VIP back and a 5 dollar polybag (and only at certain times) when I can wait, go to Amazon within 3 months of a set's release, and get it for 20-30% off? That's easily double or triple the incentive Lego offers. I am sorry but no matter how great the experience is you can't win most people over with that big of a difference. Sure Lego can make sales to kids and parent's unaware of the huge Amazon savings, but I think more and more are becoming aware of places like Amazon and their deals.

I think Lego needs better incentives for sure to help close to gap. If they offered 10% VIP back all the time and some other incentive I could see myself buying directly from them more often. Maybe they could offer the 10% VIP, a polybag related to every theme all year round on $50 purchases, and on $100+ ones you get the smallest set in the wave free (or two polybags if you would rather that)? That means you basically get 15% back on $50 purchases and 20-25% on $100+ ones. I think this would defensively even the playing field with other big retailers like Amazon and Wal-mart, while not cutting into Lego's profits too much nor under cutting and ticking the other retailers off.

[Lyichir]

I completely agree with this. While I love going into the Lego store and looking around, I rarely buy anything there. Why would I buy a $100 set at Lego for 5% VIP back and a 5 dollar polybag (and only at certain times) when I can wait, go to Amazon within 3 months of a set's release, and get it for 20-30% off? That's easily double or triple the incentive Lego offers. I am sorry but no matter how great the experience is you can't win most people over with that big of a difference. Sure Lego can make sales to kids and parent's unaware of the huge Amazon savings, but I think more and more are becoming aware of places like Amazon and their deals.

I think Lego needs better incentives for sure to help close to gap. If they offered 10% VIP back all the time and some other incentive I could see myself buying directly from them more often. Maybe they could offer the 10% VIP, a polybag related to every theme all year round on $50 purchases, and on $100+ ones you get the smallest set in the wave free (or two polybags if you would rather that)? That means you basically get 15% back on $50 purchases and 20-25% on $100+ ones. I think this would defensively even the playing field with other big retailers like Amazon and Wal-mart, while not cutting into Lego's profits too much nor under cutting and ticking the other retailers off.

A big problem with your suggestion is that it is in Lego's best interest if they DON'T even the playing field with other retailers. Retailers like Wal-Mart and Amazon get their sets from Lego, too, and the last thing Lego wants to do is look like they're underselling some of their biggest clients. They can get away with offering deeper discounts during times like Black Friday primarily because the retailers will be offering even steeper discounts, and the VIP program and gifts-with-purchase are a way to offer benefits year-round to people who shop directly from Lego without actually cutting the prices on current products. Offering you a choice of gift-with-purchase sets, as you suggest, would eliminate the other benefit of these sets, that being that they expose buyers to themes they may not have considered otherwise, and offering the equivalent of 20% off ANY order over $100 year round would ridiculously wound Lego's profits, especially since it skims most of the profit off purchases from Lego's best customers, and would lead others to consolidate their purchases in the same way.

On the other hand, Lego does not have any problem with sellers like Amazon underselling them, except in the case of products like the modular buildings, which ARE supposed to be exclusive to Lego.com and Lego brand retail stores and are only sold through Amazon by third-party resellers (the same kind Lego is trying to crack down on).

[Deathleech]

A big problem with your suggestion is that it is in Lego's best interest if they DON'T even the playing field with other retailers. Retailers like Wal-Mart and Amazon get their sets from Lego, too, and the last thing Lego wants to do is look like they're underselling some of their biggest clients.

Well Lego wouldn't be under cutting them, they would be offering completely different incentives so people actually buy stuff directly from Lego which I assume makes Lego more net profit per set since they cut out the middle man. Amazon and other retailers would still have much better prices even if Lego did everything I suggested (which was 15% back on purchases over $50 and 20-25% back on purchases over $100, all in the form of additional sets). Amazon regularly discounts ALL sets 20-30% and you don't even need to spend a certain amount to get the discounts, you get them on EVERY purchase whether it be a $13 set or a $130 one. They also give you a flat dollar amount off, not additional sets. I think it would work because AFOLs and parents who currently buy from Amazon would still do the majority of their buying there. Some might start going to the Lego store instead, but I can't imagine they would abandon Amazone in droves. At the same time people who buy at the Lego store might be more likely to buy extra stuff there if there are incentives or make impusle buys when they would otherwise just browse the store. If Lego doesn't want to sell stuff at their stores why even have them? They need to offer SOMETHING. Even Lego's sales are pretty pathetic, usually only 10% discounts when other stores are doing 30%+. They currently aren't even in the same ballpark.

and offering the equivalent of 20% off ANY order over $100 year round would ridiculously wound Lego's profits, especially since it skims most of the profit off purchases from Lego's best customers, and would lead others to consolidate their purchases in the same way.

This is true, and even Amazon and TRU who regularly have sales and discounts don't have them 365 days a year. Maybe Lego could just do one or the other, they could offer 10% VIP back OR a polybag or small set when you spend a certain dollar amount. When they have sales they could offer both?

Edited December 30, 2013 by Deathleech

[TheLegoDr]

I still tend to buy the sets directly from LEGO when they come out instead of sitting around going for a deal. Normally because I'm afraid of missing out on something. They have been some sets that had very short production runs, so I'm glad I got them when I did. I like getting deals, but typically if the set of too expensive to get it at msrp, then I probably don't want it enough. It didn't help as lot of the sets I want anyway are exclusives, so they are almost immune to sales anywhere. The VIP points aren't a great incentive, but for people like me who do buy from them it is nice to have points to get free sets every now and then.

[llenroccc]

You are right! I just think the deal is getting way worse than before and I missed it because I expected to have a whole week to get 10% off... It is just getting harder to predict when lego will put their sets on sale and what kind of deal it will be.

How do you figure it was better than the year before? 3x VIP is 15% back. Last year it was 10% off, plus the normal 5% VIP which is also 15%? I would rather have the 10% off on the spot, and have it all week, than 10% back in VIP and only offered one day.

[Hive]

I only ever buy LEGO when on sale at 40 % or higher (with the rare exception of an occational collectible minifigure or MISB out of production set); if I can't get sets at that price, I usually pass. LEGO is simply too expensive otherwise. Heck, even at sale prices I find it rather expensive compared to other consumer goods. While I love LEGO, I sadly don't find them to represent good value for my money at MSRP.

So basically, when LEGO refuses to let exclusive items go on sale, they aren't making me pay full price - they simply miss out on the sale alltogether.