The prices, Steve, the prices

[legodavee123]

Anyone ever consider maybe Lucas or his cohorts told Lego to dial up the profit margin?

If true, I would expect to see similar price increases across all Star Wars merchandise across the board-- anyone know if that's been happening?

set weights spring to mind, because across the board we're getting some larger parts in recent sets and more plastic obviously means more money. Maybe it's not that obvious though since no one has brought it up.

From what I've heard from inside the company, the price of individual elements doesn't follow as much rhyme or reason as you might expect. Things like "how many seconds does it take for the element to cool within the mold?" or "how easy is it to set up the mold for a particular color run?" or "how much plastic sprue needs to get recycled?". Other things like baseplates we know are pricier because there's a different process involved-- like with chrome parts, or assembled elements like minifig torsos or horses, or with multi-colored elements or things made from polycarbonate or the more rubbery/vinyl ABS, or printing.

Also involved are what parts are in use across the product line-- I recall that there's a lot of discussion between groups regarding what parts are currently "available" and which aren't. If you can convince the Star Wars and City teams to use a 2x4 wing piece, then your Atlantis set is made cheaper, because other groups are using that same element. But if you can't convince the other teams to use that element, then it winds up adding to the cost of your Atlantis set.

When all is said and done, every element has a "price" that's used for internal calculation for how much a set is going to cost, and that IS reflected in the final MSRP, but I get the impression that the final MSRP sort of uses that internal cost only as a starting point.

One thing that I've noticed, but I'm not sure has been affecting things has been that LEGO seems to be churning out new element designs at a very high rate compared to what they used to do. Star Wars has featured a bevy of new pieces, and continues to do so-- which doubtlessly adds to the cost. I'm not quite up on the current lineup of new Star Wars elements, since I haven't been buying Clone Wars stuff, but it would be interesting to see new elements cross referenced with price as well.

the Star Wars line has been around since just before Lego nearly went bankrupt - maybe those are related more than we thought? They've since spun around and have been turning a huge profit in recent years, all the while raising prices... see where I'm going with this? Frankly it never made sense for these to be priced on par with in-house themes, because they still had to pay uncle George at the end of the day.

Actually, from what I recall, Star Wars and Bionicle basically saved the company, and kept it afloat... or... from sinking less quickly. I also recall hearing sometime in the early 2000's that LEGO was dissatisfied with their price negotiation with Lucasfilm for the original 1999-2007 license agreement. Effectively, LEGO didn't have experience with branded merchandise, and Lucasfilm is practically the INVENTOR of modern licensed toy merchandising, and have TONS of experience. So LEGO supposedly got a shorter end of the stick than they really "ought" to have gotten in the early life of the license.

DaveE

[bigospedros]

Actually, from what I recall, Star Wars and Bionicle basically saved the company, and kept it afloat... or... from sinking less quickly. I also recall hearing sometime in the early 2000's that LEGO was dissatisfied with their price negotiation with Lucasfilm for the original 1999-2007 license agreement. Effectively, LEGO didn't have experience with branded merchandise, and Lucasfilm is practically the INVENTOR of modern licensed toy merchandising, and have TONS of experience. So LEGO supposedly got a shorter end of the stick than they really "ought" to have gotten in the early life of the license.

DaveE

Bingo! To me, this says that in todays world, Lego is setting the prices they do so that they make their necessary returns *and* are able to pay Lucas what they desire. If Lego didn't make their required margins in the first era then maybe they're "over-recovering" slightly now to balance it out.

Add to that the increase in manufacturing costs, inflation, currency fluctuations and all that jazz and that is probably your answer. I really don't think there is 1 magic answer to this age old question.

I think we've also discussed here in the past that the retailers basically make demands like "I want 2 sets of this price, 1 of this, 1 of that and 1 of this etc etc etc". And then the sets are kind of plugged into those price brackets.

Sometimes, the sets that get placed into each price bracket are, to us, not worth the money. But then the AFOL community is not your normal toy buyer and is also much more aware of money and where it comes from. We're also geeky enough to have invented a dream price per piece ration (which I maintain is daft given all the external pressures) and to have an encylopedic mind to compare this and that set to make an argument for complaints!

At the end of the day, the price is the price. If you don't like it ... don't pay it.

[Mofo Jones]

At the end of the day, the price is the price. If you don't like it ... don't pay it.

Or, wait for a sale or a coupon. I know that's hit and miss, but if you wait long enough, you'll likely get a set you want at a good price.

[bigospedros]

Or, wait for a sale or a coupon. I know that's hit and miss, but if you wait long enough, you'll likely get a set you want at a good price.

This is what I do and only twice have I had to resort to buying a set at full price in the last 2 years.

[fredjh]

Add to that the increase in manufacturing costs, inflation, currency fluctuations and all that jazz and that is probably your answer. I really don't think there is 1 magic answer to this age old question.

Of course life is never simple; to try to come up with simple answers often gives unsatisfactory results...

But as I've mentioned, TLG's increase in profits have outpaced increase in sales. Profits are what you have left AFTER paying licensing and all other costs associated with creating the product.

I'm not belittling TLG for wanting higher profits, I'm just annoyed at all the apologists who don't want to believe their favorite company is as "greedy" and "capitalist" as the next, labels that seem to get thrown around a lot (although not here, with the limited scope of FBTB) about every company people don't like. TLG is not some magnanimous organization that is trying to give us these wonderful toys out of the kindness of their hearts, and I have NO problem with that as long as we can realistically understand what's driving them to raise prices when considering whether or not we'll "accept" it.

TLG has won... I will not stop buying LEGO. I might buy less, but since they are making a higher profit they aren't going to be disappointed. Like everyone else, I'll wait for sales on sets I think are overpriced, and probably never shop at TRU again. On a side note, it's interesting how WalMart and Target's LEGO shelves were just savagely devoured by hungry Christmas shoppers... I went to TRU the Sunday after Christmas, and the shelves were essentially full. YMMV.

Straight from the horse's mouth:

http://www.lego.com/eng/info/default.as ... ycode=2057

Net profit for the year amounted to DKK 1,352 million against DKK 1,028 million in 2007. That's NET, after taxes (the before tax numbers are also given). That's 31.5% increase in NET profits. Revenue only increased by less than 19%. What does that tell you?

The company is simply profiting... again, there's nothing wrong with this, but it's not "molds" or the cost of "plastics," surely there may be some of that in there, there always is... but a profit increase that exceeds a revenue increase by over 10% is substantial. There were similar numbers working for 2009, but we only have the mid-year estimates, so I won't go there again.

Again, I want to say this over and over - they can charge whatever they want! Either we'll buy it or we won't; I'm not going to "demand" they lower prices, but I think it's important when determining a value for what you are buying to be aware that you are not paying for increased quality in plastic or anything else, the bulk of the extra amounts you are paying are more profit for the company. That may or may not influence your decision, it's entirely up to you.

EDIT: I take it back...

http://www.lego.com/eng/info/default.as ... chive=true

2009 midyear results; 23% increase in profit (only before tax numbers are given)

[Solo]

Anyone ever consider maybe Lucas or his cohorts told Lego to dial up the profit margin?

If true, I would expect to see similar price increases across all Star Wars merchandise across the board-- anyone know if that's been happening?

What makes you think that? There's nothing to suggest changing one product line has to effect all the others. I do know however that action figures are about 150-200% the price they were five years ago though. That's part of the reason I lost interest.

[meeotch]

TLG IS SCALPING US!!!!111ONE!!

[legodavee123]

I'm just annoyed at all the apologists who don't want to believe their favorite company is as "greedy" and "capitalist" as the next [...] TLG is not some magnanimous organization that is trying to give us these wonderful toys out of the kindness of their hearts

Well, here's the thing for me-- TLG as an entity may be as capitalist as the next corporate entity, but its inner workings aren't as greedy. Or, aren't as unequal as other companies. If you look at, say, McDonald's or Walmart or Ford or Hasbro or what-have-you, there's generally a very disproportionate distribution of income distribution. The lowest factory workers and cashiers get minimum wage, and there's tons of them. And the executives make an absurdly ludicrous amount of cash, complete with yearly raises, bonuses, stock options, and other stuff. Now, none of these companies (to my knowledge) have posted their salary distributions, but market research has shown that US-based companies are VERY unbalanced, and Danish companies are actually a lot more balanced. The lowest employees and the highest employees are closer in salary and other compensation.

Another issue is that Denmark has the highest tax rate in the world. And the US (by comparison) went through Reaganomics in the 80's that lowered upper class tax brackets that have STAYED low (by comparison). So more of the money that's going to executives is actually going to the Danish government, which similarly doesn't appear to throw money at its officials, but instead spends it on programs to help its citizens. And I like that.

What would be more interesting would be to see how much money gets re-invested in the company, rather than going towards employee compensation. What percentage is going to research higher quality manufacturing techniques, better customer service, better market research, etc.? In the past, LEGO always spent a LOT of money on these types of expenditures, as seen in remarkably high customer service, high quality manufacturing, and a very low rate of problems. That's not necessarily as true any more (I don't have a good feel for this), and it would be interesting to compare LEGO to other companies in that respect, to see how they stack up nowadays.

Anyway, I think the descriptor of "just as capitalist as the next company", while technically true (because they as a company are after profits like every other company), isn't really fair in terms of the image it portrays, because the typical imagery is of a room full of a few arrogant men wearing top hats and laughing about how much money they're able to take from all those low-life customers and workers. It's of CFO's and hedge fund managers taking huge bonuses that are 50+% of their already ludicrous annual salaries, when other people are getting laid off in order to have some cost savings. But from my experience with LEGO, they don't operate that way.

DaveE

[legodavee123]

What makes you think that? There's nothing to suggest changing one product line has to effect all the others.

Isn't precedent the reason typically given for increasing licensing costs? That is, "here's what we're charging company X, we'd like to bring you in line with that". That would mean that if LEGO were go to up WITHOUT seeing an increase in other SW merchandise, that the likely reason would be because LEGO had somehow gotten out of step with other licensed companies.

Now, it's possible that LEGO finagled a better deal with Lucas around 2007/2008 because their contract was re-negotiated around the time that LEGO was struggling, and now that LEGO is doing well again, Lucas is bringing LEGO back up to where they ought to be-- but again, you'd expect in that instance that other SW merchandise would have taken an increase since 1999 or so, when the LEGO license started.

I do know however that action figures are about 150-200% the price they were five years ago though. That's part of the reason I lost interest.

Well, that might be a good indicator of your theory, then, yes?

DaveE

[fredjh]

Anyway, I think the descriptor of "just as capitalist as the next company", while technically true (because they as a company are after profits like every other company), isn't really fair in terms of the image it portrays, because the typical imagery is of a room full of a few arrogant men wearing top hats and laughing about how much money they're able to take from all those low-life customers and workers. It's of CFO's and hedge fund managers taking huge bonuses that are 50+% of their already ludicrous annual salaries, when other people are getting laid off in order to have some cost savings. But from my experience with LEGO, they don't operate that way.

DaveE

Then why, despite ever increasing profits and sales, did they lay off workers in Billund in November? Many stores couldn't keep sets on the shelves for Christmas; even LEGO.com was sold out of most of the popular sets... what's the justification?

Yes, I think it's true many of the executives at TLG might be nicer than most, but they still make executive decisions with their heads, not their hearts.

[legodavee123]

Then why, despite ever increasing profits and sales, did they lay off workers in Billund in November? Many stores couldn't keep sets on the shelves for Christmas; even LEGO.com was sold out of most of the popular sets... what's the justification?

I don't know the reasoning behind that layoff in particular-- and neither did I claim that they have and always will have a perfect track record. In fact, since 2006, LEGO has seemingly become a more typically greedy company. I've talked with a bunch of LEGO employees who have been there since the early 90's or so, and others who used to be employed by LEGO prior to then (80's sometime). And from what I've heard, LEGO gradually was forced to cut back on the niceties that they provided their employees starting in the late 1990's and early 2000's, when their ethical business practices ran them up against the harsh reality of competition. And it came to a head in 2005/2006 when LEGO was forced to make massive layoffs and cutbacks, and began restructuring in 2006.

But I have pretty high confidence that if it was a different company, you'd see them make more drastic changes. If Kjeld had sold the company back in 2006, instead of simply handing things over to Jørgen Vig, I expect you would've seen the buyer relocate their corporate headquarters outside of Denmark, offload more to labor to China (which they've already started doing much to my personal disappointment), among other things.

My point is essentially that people still take pride in LEGO's business practices, and I think describing them as a typical company in terms of corporate greed paints a picture of a more capitalist business culture than is accurate. It is admittedly starting to get worse, but I don't think they fit the stereotype of American corporate greed. Maybe they will someday-- certainly their outsourcing to China has me starting to wonder-- but I still feel justified in what LEGO does with its money.

DaveE

[fredjh]

^^^ So you're still just being an apologist... they do the same things as other companies, but now it's OK because they have their reasons.

Do you really think CEOs of other companies get off on laying people off and cutting back perks for their employees or shifting production to China? Of course not, that's just how the media portrays them.

[legodavee123]

^^^ So you're still just being an apologist... they do the same things as other companies, but now it's OK because they have their reasons.

Do you really think CEOs of other companies get off on laying people off and cutting back perks for their employees or shifting production to China? Of course not, that's just how the media portrays them.

Precisely. I think your terminology in calling LEGO "just as capitalist" makes inappropriate use of the stereotype, painting a more brutal picture than is deserved. The problem I have with most companies isn't that I actually believe the imagery of CEOs cackling with glee at their good fortune while their employees are replaced with cheap labor overseas. It's that the system allows capitalism to run amok (which it does), whereas in Denmark, absurdly high taxes discourage things like gross salary inequality. But clearly, we digress. If you'd like to discuss further, let's PM instead. I find the topic quite interesting, but it long ago left the "Ask LEGO" realm, and now threatens to leave the "anything LEGO" realm entirely and degrade into a purely economic discussion.

DaveE

[Ozzelator]

I'm a little late to this discussion, but I thought I would offer my thoughts about the pricing disparities anyway.

I think there is one assumption that is being made in this discussion that is obviously false, namely that the demand for individual sets is the same across the board. If you look at sets that are clearly in high demand (e.g. the battlepacks), their price per piece ratio is much lower than other sets despite having a larger proportion of more expensive components (minifigures). So despite having higher production costs, the larger sales volumes results in higher overall profits.

You then have the additional complication of marketing Star Wars products to two different demographics with very different demands, collectors (including AFOLs) and children. These can be even further subdivided into OT and PT fans, fans of the animated series, fans of UCS vs. minfig scale sets, etc. It seems to me like LEGO is trying to appeal to as many demographics as possible by expanding its product line further. As such, certain sets will have broader appeal, higher sales volume , and lower price per piece ratios (e.g. battlepacks) and others will have more limited appeal, lower sales volume and, hence, a higher price (e.g. the TIE Defender). You can then stack this on top of the fact that some sets are exclusives with limited production runs and sales outlets (both of which undoubtly impact the potential profitability of the sets) and it is no wonder that the pricing of sets is so complicated.

Also, I think the licensing fee argument is overblown. All of the recent Pirate sets (a theme clearly targeted at AFOLs) had abysmal price per piece ratios despite being an original theme. I think the potential demand for a set (as gauged by TLG) has a huge effect on the pricing point for many sets. In addition to the previous examples, I think the price difference between the new Landspeeder and the Swamp Speeder is a clear example of this. The Landspeeder has a much broader appeal (by virtue of being OT) than the Swamp Speeder and therefore it makes sense for it to have a lower price point.

On a side note, I find it interesting that MSRP on the battlepacks has been raised to $10.99 (from $9.99) given that studies of consumer psychology suggest that this is a terrible price point that should decrease the perceived value of the product.

[fredjh]

If you look at sets that are clearly in high demand (e.g. the battlepacks), their price per piece ratio is much lower than other sets despite having a larger proportion of more expensive components (minifigures). So despite having higher production costs, the larger sales volumes results in higher overall profits.

That may be true, but it's still a break from traditional LEGO pricing. Moreover, there's a reason larger sets traditionally had a lower cost per part (if we're still on that), and it's because, for each part, there is less advertising, packaging materials, and shipping (yes, I know a large set takes a lot more to ship, but not more than, say, 20 battle packs).

If I'm the CEO of an automobile company, I would rather offer you a really good price on a $60k car than crap prices on three $20k cars (for many reasons). The only reason I sell $20k cars is because if I didn't, I would lose a lot more than 2/3 of my customers.

[BlueDragonZ]

If you compare with Canada, we take an even higher price increase with most sets 1.4 X or even higher than the already raised USD price. Most sets are around 20 cents per piece here now. People here in Canada will start buying less lego due to the high prices. We've seen these cases when the ahsoka fighter was $55 when it was suppose to be $40. People didn't buy it because of the marked up price and walmart clearance them out.

Btw, what exactly happen with Walmart and LEGO in Canada 2 years ago? Prices are still high but they somehow came up to an agreement and walmart is getting lego again. Walmart was previously fighting with lego on the high prices despite the Canadian dollar being strong. Looks like they gave up..

But I guess its Canada and because the US has a competitve and largest market in the world, they can get the lowest prices and sales.

[ThinkingImpaired]

I think you're all making this way too complicated. Lego is a company. Every company is going to maximum profits. Demand and costs dictate pricing. Lower costs tend to give you your maximum profit at a lower price point. Higher demand gives you your maximum profit at a higher price point. Obviously since prices are going up, Lego is maximizing its profit due to changes in costs and demand, and maybe, just maybe, they weren't operating at their maximum profit price point to begin with and are now learning how to raise it.

It would be one thing if they were raising the prices to compensate for increased quality and the costs associated with new molds, but they aren't. It's pure and simple greed: nothing more, nothing less.

Take economics jude. Name one company in this world that would not raise their prices if they could increase profits. Calling companies 'greedy' doesn't make any sense at all. All companies are out to maximize profits. The "greedy" companies the media talks about are just the companies with the highest demand therefore, the way for them to maximize their profits is to increase their prices.

Well, here's the thing for me-- TLG as an entity may be as capitalist as the next corporate entity, but its inner workings aren't as greedy. Or, aren't as unequal as other companies. If you look at, say, McDonald's or Walmart or Ford or Hasbro or what-have-you, there's generally a very disproportionate distribution of income distribution. The lowest factory workers and cashiers get minimum wage, and there's tons of them. And the executives make an absurdly ludicrous amount of cash, complete with yearly raises, bonuses, stock options, and other stuff.

If Lego could get the same number of quality workers for less pay, I don't think you really believe that Lego will say "no, that's fine...you can keep the extra money". Like you said, Denmark has a high minimum wage and so in order for Lego to stay competitive in the market and have the number of workers it needs, it has no choice but to pay around the same as other companies in Denmark. We aren't in Candyland; the only way businesses pay employees is if they get profit out of said employees. Every person of the six billion on this earth operate on rational self-interest.

Anyway, I think the descriptor of "just as capitalist as the next company", while technically true (because they as a company are after profits like every other company), isn't really fair in terms of the image it portrays, because the typical imagery is of a room full of a few arrogant men wearing top hats and laughing about how much money they're able to take from all those low-life customers and workers. It's of CFO's and hedge fund managers taking huge bonuses that are 50+% of their already ludicrous annual salaries, when other people are getting laid off in order to have some cost savings. But from my experience with LEGO, they don't operate that way.

If that's what you think of when you hear the world "capitalism" then I don't see what the point of discussing this further would be....I would just suggest you challenge everything you hear and don't just accept everything as true.

[banthafodder]

I think everyone understand the fundamentals of capitalism. You are right in that companies will try to maximize profits and altruism doesn't pay the bills. However, we as consumers, do have the right to protest gross changes in products we buy whether that be in price or quality. I've been upset over cost increases and, like others, have put off buying sets until prices have come down; hopefully, with enough people doing this, to send a message that current price increases are too steep. I do believe that TLG is trying to maximize their profits by setting prices higher to test market limits. It is up to us the consumer to let them know what that limit is. On a more positive note TLG customer service is second to none and I support good companies with good after sale support.

[ThinkingImpaired]

I think everyone understand the fundamentals of capitalism.

Reading through this thread, obviously not everyone.


My point is, say what you want, but the only way for consumers to bring a price down is by lowering demand. Demand on Legos (especially star wars) is not lowering anytime soon....blame the kids and their parents if you want, blame all the people who complain about the prices and yet still buy, blame whoever...just don't blame Lego. They (like every company) only take what consumers give them.

[legodavee123]

If Lego could get the same number of quality workers for less pay, I don't think you really believe that Lego will say "no, that's fine...you can keep the extra money". Like you said, Denmark has a high minimum wage and so in order for Lego to stay competitive in the market and have the number of workers it needs, it has no choice but to pay around the same as other companies in Denmark. We aren't in Candyland; the only way businesses pay employees is if they get profit out of said employees. Every person of the six billion on this earth operate on rational self-interest.

I'm... not sure I understand your point. You think I was implying that they would try to pay their Danish workers $4/hour or something?

The point is that LEGO has kept plastic molding jobs in Denmark, where it's expensive. Plastics molding isn't rocket science-- you can do it in Taiwan for CONSIDERABLY less. Sure, you might not get quite the same level of quality, but 90% of consumers won't know the difference. And you can even find decent quality plastics molding in Asia that's reasonably on par and is still cheaper. But LEGO put off outsourcing for many years.

If, by your logic, every company in the world is trying as hard as they can to maximize profits, and is stupid not to do so, the why wouldn't LEGO outsource more (or all!) of its plastics molding out of Denmark, which is probably one of the MOST expensive places to do the molding?

In its early days, LEGO took great pride in providing work to Danish citizens, and probably still does. The difference is that Ole in particular, and his sons probably to a lesser extent, cared about their countrymen more than making money. You can go ahead and claim that it's a selling point to have "moral business practices", but you're going to have to face the fact that having moral business practices can sometimes be far more costly than they are beneficial to the company. Companies are run by people, not robots. Some people are indeed pressured or encouraged by making money, and they'll do quite a lot in order to do so. Others are more motivated by doing the right thing.

Unfortunately, people that are motivated by money are often more successful, and the companies that they run do better and get bigger than those with a more ethical focus. LEGO was one of the exceptions to that rule until around 2006 when they started changing their philosophy.

If that's what you think of when you hear the world "capitalism" then I don't see what the point of discussing this further would be....I would just suggest you challenge everything you hear and don't just accept everything as true.

I don't mind people claiming that LEGO has capitalist practices. Of course they do. However, to call them "just as capitalist" I believe is inaccurate, and in my opinion, it makes LEGO out to be some sort of greedy bad guy-- or at least, just as much of a greedy bad guy as Walmart or Hasbro or McDonalds or what-have-you.

DaveE