The perfect balance between the ultimate standard of commercial magic and unlimited personality of 82 year old LEGO From Guangzheng Hengsheng

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The following is the The perfect balance between the ultimate standard of commercial magic and unlimited personality of 82 year old LEGO From Guangzheng Hengsheng recommended by recordtrend.com. And this article belongs to the classification: Brokerage Report.

With 65.51% market share and 71.95% gross profit margin, neither the financial crisis nor the iPad has prevented LEGO from topping the global toy industry. It is generally believed that Lego’s core competitiveness comes from differentiated product strategy, IP reshaping ability, marketing ability, product attributes combined with education, and preemptive layout of emerging markets. However, we think that the market ignores its business model of perfect balance between standardized output and individual needs, Lego’s business magic. This paper aims to explore the formation factors of LEGO model and the essence of logical thinking behind it, and try to explore its application in other industries.

1、 LEGO mode: the integration of extreme standard and extreme personality. Michael Porter, a famous strategist, thinks that it is difficult to have both low cost and differentiation. The LEGO model is obviously a combination of low cost and differentiation. It keeps low cost through standardized output, and connects a large number of personalized needs through combination.

According to the research on Lego, we think that there are two important factors to realize LEGO mode

1. It can effectively meet the personalized needs of consumers and find the product attributes with increasing marginal benefits.

2. In order to meet the personalized demand with lower marginal cost, that is, to meet the personalized demand by means of segmentation and recombination.

In 2005, Lego’s gross profit margin was 58%. After just four years, the gross profit rate increased rapidly to about 70%. The fundamental change is that it found that 70% of the product series was composed of standard universal parts, and accordingly reduced the number of new parts with extremely low frequency of use, from 14900 to 7000. With the help of the increase of gross profit rate, Lego’s revenue expanded by 2.45 times and net profit increased by 4.15 times in the five years after the financial crisis from 2008 to 2012. During this period, the global toy market growth rate was only 9%.

2、 The essence of c2m2b and other business models is highly interlinked with LEGO thinking. At present, the business models of enterprises such as Haier, Europa and tal are essentially similar to LEGO thinking. The hot c2m2b mode is actually a derivative of LEGO mode in the Internet era. The emergence of the Internet makes it possible for enterprises to link consumers at low cost, And big data enables enterprises to quickly meet a large number of personalized needs.

Taking Haier’s Internet factory as an example, Haier, on the one hand, connects with personalized needs through Zhongchuang foreign exchange and hope platform; on the other hand, it reduces the cost of realizing personalized demand through modular production. Specifically, since 2008, Haier has been exploring modular design in order to reduce costs, dividing its 354 parts into 23 modules for production, with the gross profit rate increased by 7.42%; in 2011, the first Internet customized brand “commander in chief” achieved a leap from 0 to 1 billion; in 2014-2016, it built 8 Internet factories.

As of 2016, Haier’s customers’ participation in the whole process of mass customization accounted for more than 10% of revenue, product categories expanded from 20 to 500, gross profit margin exceeded the historical level of 31.02%, energy utilization rate increased by 5%, vehicle resource turnover rate increased by twice, distribution efficiency increased by 20%, product development cycle shortened by 20%, delivery cycle shortened from 21 days to 7-15 days, inventory days shortened by 50% Reduce operating costs by 20%.

3、 The thinking behind LEGO model: segmentation standardization and portfolio variability. Haier Internet factory model and LEGO model jointly show the charm of balancing standardization and personalization. The core thinking behind these models is segmentation standardization and combination variability, which we named Legos. Under the guidance of LEGO thinking, enterprises have formed a highly personalized and standard reproducible mode, which makes enterprises full of personality and differences while expanding rapidly.

We think that the use of LEGO thinking needs to meet four preconditions: 1. The product or industry is divisible, and it can be combined after segmentation; 2. The product nature or core function will not be changed after segmentation and recombination; 3. Segmentation will not bring a lot of extra cost to the enterprise, especially there are a lot of common parts after segmentation; 4. Segmentation should be meaningful, that is, consumers want to get personalized; at present, the application of segmentation standardization and combination changeable thinking is mainly divided into two directions: 1. The first is manufacturing industry, whose characteristic is to achieve low-cost standardized output at the cost of reducing the degree of personalization. The significance of Legos is to deepen the standardization part of general parts and improve the ability to meet personalized needs. For example, customized furniture enterprises, standardized output through the division of multiple workshops, personalized reflected in consumer demand. Meanwhile, the average revenue growth rate and average net profit growth rate of customized furniture enterprises have been higher than that of finished furniture enterprises. In 2017, Q3 reached 36.92% and 41.8% respectively. In fact, we think that in modular production, furniture enterprises may go further, which requires a large number of general part splitting of their products, similar to the 23 modules of Haier Internet factory.

2. Secondly, asset light industries, such as education, film and television, are characterized by a large number of objective personalized needs, but the product is difficult to standardize, which leads to higher expansion costs. The significance of LEGO thinking lies in the segmentation of products to form a low-cost standardized output mode, and at the same time, it maintains the satisfaction degree of personalized needs through combination. For example, tal’s standardized output is realized through the standardization of course content and systematic training of famous teachers, while individualization is reflected in teaching students according to their aptitude. On the one hand, the education output is divided into two parts: famous teachers and courses, which are respectively standardized. On the other hand, the characteristics of teaching students according to their aptitude are deepened, and the teaching and research contents are divided into different product series according to the demand. This highly standardized and reproducible business model also provides a prerequisite for tal’s regional expansion. As of the first half of 2017, tal has entered 36 cities, with 908 education centers and service centers. In 2017, tal’s K12 revenue surpassed New Oriental by US $1.043 billion, with a revenue growth rate of 68.26%, much higher than that of New Oriental (K12) of 36.63%.

To sum up, we believe that Lego thinking has a wide range of applications, and we hope that Lego thinking can give enterprises more inspiration in business model. Especially in the manufacturing industry, enterprises that have achieved standardized output can continuously improve the ability to meet the personalized needs of consumers through segmentation, standardization and portfolio change, echoing the general trend of consumption upgrading. For more light asset industries, while maintaining personalization, they constantly split products to form low-cost standardized output, laying the foundation for future expansion.

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