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Discounts on LEGO Exclusives
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Comments
I think they know that. I mean, it seems obvious to many of us. My guess is that there are other reasons for the no discount on exclusives policy. Maybe they are testing the water? Maybe they need to slow production in some areas. One way to slow sales, and boost profit, is to raise the price by nixing discounts.
As it's been mentioned before, having (now) 4 Modulars out at once, they offer a broad selection before the secondary market.
They are likely trying to meet some internal profit goals, forecasts, etc., and they saw that the most "resilient" group of their customers is those buying the Exclusives. They can afford a potential hit to the sales figure in that category because profit will rise.
With their other categories, they can't afford not to discount against Mattel and other toy market competitors whom they know will certainly aggressively discount. With Exclusives, there really isn't any competition, except maybe other Lego sets...
Discounting is the new normal. Their prices will certainly reflect that as soon as they catch up with the "new normal." Retail prices should increase, so discounts can increase.
Knowing that you'll never see a discount on an Exclusive, VIP points for many are the only way to justify buying one of these sets.
That, and they finally started enforcing the expiration of points just this year...
And I think you are far overestimating how many people care about discounts. I still buy the exclusives easily at retail. Always have, always will, and I'm certainly not alone.
Gee, it must be nice to be rich!
The only way I was picking up the TH, was perceived savings.
I've never once estimated the number of people who care about discounts, so I'm not sure what you're basing that comment on....
(But I will add that I don't know a single person who wouldn't at least "prefer" to buy something discounted, especially in the crazy-let's-sell-everything-for-half-price environment we seem to be in nowadays...)
Brand stability?
TLG has a lot more sets currently available than I can ever remember there being, so their injection molding equipment has to be used more efficiently. Smaller sets are sold in larger quantities than the larger sets, so the bulk of the injection molds have to be configured accordingly. If the throughput in manufacturing is constrained, a decision has to be made: 1) EOL some sets, or 2) reduce the volume production of some sets at the expense of others. It may just come down to balancing production bandwidth, although this would imply a smaller supply of exclusive sets.
It would be fascinating to analyze the growth in unique part numbers over the years at TLG. The unique colors wouldn't matter as much since they only require changing the resin color.
I do not know much about this area, but my assumption was that Retailers were just not allowed before to sell certain sets under a specific price point, especially if new (while older sets are a different ball game.)
My assumption with the sales this year was that Lego changed something to allow retail to sell at a discount. If Lego can dictate exclusive pricing, I would think they dictated pricing on the rest for years.
NOW, enter this year, and you have no discounts available for those sets. You, as a retailer, have already committed to x amount of Exclusives built upon last year's volume/this year's project...only to find out you cant move them for less than RRP. Even at 50% of the $120, your company is banking $60.00. How many smaller sets are you going to have to sell/move to get that one sale? The answer is A LOT.
And you have to move them while the iron is hot. And competetitive with online retailers, or other B&Ms. That's exactly what we've seen this Christmas season.
Short shopping timeframe. Limited discounts on the big sets that MOVE at Christmas. Competition with everyone else. All of it = smaller sets discounted a plenty. I would be pissed if I were a Walmart/Target/Amazon. TRU is it's own worst enemy, usually. This year has surprised many folks.
There's another indicator. When TRU is the best deal in town for some stuff, you can bet there is something wrong on the sidelines or backstage.
- Battle of Hoth (Tauntaun)
Fire Helicoptor (Red windscreen)
Fire Boat (boat hulls)
Tanker Truck (tank shells)
all had a relatively short life span, but all also have some pretty unique parts. could be the molded supply ran low, and rather than doing another run, they just decide not to make any more.
I get the other "bandwidth" production problems etc on larger piece sets...but frankly, that's somewhat bogus too, just because of the pieces being a bit more common.
Originally I suspected it was about reselling. Partly it still might be. but now I think it's more about creating a "premium" product line and maximizing profits on those items
To maintain their high brand loyalty/aspirational brand status, they need to continue to manufacture expensive sets that aren't discounted as much.
I don't think at all that this is a "stab" at resellers. I think people take that all too personally. So the resellers don't get the discount on the Exclusives this year? Well, look at the discounts on the regular line. There are more discounts pre-Christmas than ever before. There's a lot of money to be made as a reseller, especially NOW as TRU/Walmat/Target all start to see their shelves empty...
Bottom Line - and I know I'm oversimplifying this... but an occasional 10% discount isn't going to impact *my* decision to resell. Those triple VIP points? Effectively the same discount as the 10% off coupon, if you consider Lego $ to be equal to actual $.
The retailers also have ways around chargind MSRP it... Like Target just did with the gift cards.
Walmart, Target, and TRU are all large enough retailers that the "threat" of Lego cutting them off isn't really even valid. Lego would never stop supplying any one of those stores because it broke a "Minimum Advertised Price" rule... Obviously sales figures are not available, but I'd be willing to bet that every one of those stores is at least 10% of Lego's US sales...
I missed this whole "no discounting exclusives" discussion when it first happened, but there are also anti-collusion laws in the US, meaning that while the supplier can recommend a price, they can't force a retailer to charge that price.
Yes, there is a cost to it, but given the huge scale and volume that TLG does, set design, materials costs, shipping, packaging, marketing, etc. all likely exceed the cost of the molds.
Getting the cost of the molds and the cost of the mold machines down is something they would have been working on over the past 10 years, those items are now actually quite cheap compared to historical costs.
I think total volume is an issue, machines can only be run 24 hours a day, there is no 25th hour. Machines can only produce X number of parts of a given size an hour, they take X amount of time to inject, X amount of time to mold, X amount of time to cool and eject from the machine.
A machine can make more 1x1 tiles per hour than it can make 2x2 bricks, given the surface area and volume, so it is cheaper to make smaller parts, but only to a point. Such molds do cost slightly more and do wear out faster than simpler molds.
There is also QC testing and start and stop waste to consider (every time they change a color or mold, there is lost production time).
I'm sure they have some very smart people working full time on that problem, I know that if I was in charge of TLG, I'd spare little expense in having the very best people running my factory floor, you can make or break the company down there.
Having lots of storage, as they have been building, helps, because you can run a single color/part for longer and stock up on it, that makes the overall cost of every part just a little bit less.
Money is made in a business like this, a tenth of a penny at a time, multiplied times billions.
Honestly, I can argue either view, but I do not know enough on the interaction between big box and companies like a Lego to know which theory makes more sense. I guess that is what I would like to know, someone that has heard Something in the wind or has experience on that side of things. Which is more valid and what really occurred?
I chalk good Toys-R-Us deals up to a short season, the company not doing well and Walmart's highly aggressive sales plan they had to compete against. They could not keep their high price point continuing in this current market and for once may have needed to actually offer a deal.
a) Bloomberg reports U.S. spending was up 2.3% for BF in 2013 and predicts 2.4% overall. Those aren't insane numbers, but it certainly stands against the concept that "people don't have enough money this year"
b) Even so, whether people do or do not "have enough money this year," how in the world are you then making the leap to write "Probably not related to the no discounts policy?" Maybe it is, maybe it's not, but there's no evidence or even indication one way or another, just speculation.
According to the Lego special that was on a few years ago, the molds can each run between $10K-250K. And with all the new themes and sets, TLG has had to produce a lot of new molds. Additionally, the injection mold drives are extremely expensive and (based on personal experience) are also very sensitive to voltage issues (specifically utility voltage sags) that can cause them to drop off line. If a drive drops off line and the plastic starts to cool in the molds, things can get ugly!
Like you said, there are only 24 hours/day, so the production department has to be very good. Decisions have to be made on the volumes for each specific set and there is only so much equipment to meet demand. TLG has the choice to purchase additional equipment or to be extremely smart in their forecasting. Either way, bandwidth comes into play at some point and decisions have to be made on which sets (really, which parts) to produce. Toss in unplanned events (that will happen from time to time) such as power disruptions, maintenance issues, etc., and the insane number of sets being offered these days, and throughput is impacted even more. Frankly just thinking about it all really "impresses" me (pardon the pun) with Lego's operation.
My point is while everyone is focusing solely on the "managerial" aspect of not offering discounts, equipment constraints also play a role in what's produced and at what price it's sold...with the obvious goal to maximize TLG's profitability. Yes...management gets to make the decision; however, production is always a part of that decision (in a well run company)...and could be a big part of this recent decision. Again...just a thought.
I honestly don't buy into the molds costing $100K to make. I think that's Lego marketing hogwash. Tons of toy manufacturers do one-off type molds all the time for short lived products. While Lego's molds may be of higher quality, they aren't that much better. And in some cases they are inferior to other action figure products from companies like Hasbro.
The average plastic injection mold these days costs between $1K and $5K to make, less if you do it in volume (which LEGO does). My father owns patents in this area and purchased (actually leased) his first injection molding machine back in 1977.
Those patents, sadly, are expired, or I'd still be getting a check every month. :( (Boo, why can't patents be like copyright in that regard!)
Oh well...
The molds were very expensive back in the 80s, the molds he purchased in 1983 were $125,000 each, which is why they were leasebacks (the company making the product actually paid for them and leased them to my father.)
Today, thanks to CAD/CAM, completely electronic manufacturing machines make the molds (in the 80s they were made by hand) very quickly and far better quality than 20 years ago.
This is why we can now have a new horse every few years, when back in the 80's/90's horses were brick built, it would have cost way too much to make molds for them back then.
The cost of this technology goes down every year, and has been going down every year for decades. Yes, those machines are indeed expensive (some of them are more than a million dollars each), but they last a long time and can be used as long as they make economic sense to do so, we're talking decades timeframes...
Those are capital investments, the molds are disposable, they are good for "X" number of impressions then they wear out and have to be replaced.
A company the size of TLG should have an in house CAM machine making their own molds at this point. Then whomever is running those machines is an idiot who needs to be fired.
For the value of those machines and the business critical nature of them, they shouldn't be running off the utility lines, they should be running off local power, cleaned and processed from the utility lines but with smooth and steady power flow with no peaks or surges.
Local backup batteries and backup generators would ensure 24/7 operation regardless of the utilities.
From the Ultimate Factories show, the row of machines I saw, there is easily $100 million worth of equipment in that room. If they don't have local power for those, someone isn't doing their job.
http://www.apc.com/products/family/index.cfm?id=185
That system is a battery backup designed to provide up to 1.6 megawatts of power to prevent exactly what you're talking about, no power failure at the utility level should ever reach the molding machines. Those batteries provide power long enough to get the diesel generators running.
http://www.generac.com/Industrial/Modular_Power_System_(MPS)/
This system fits in a small building next to your manufacturing plant and provides up to 9 megawatts of power to continue running during a major loss of power.
Never, ever, ever should a utility failure just cut power to your million dollar injection molding machines. Actually, they probably have orders in for more of that equipment, but that is the sort of equipment that can have a year or more backlog in production. Rather like the airplane makers, if American Airlines wants 200 new airplanes, the first delivery will be in 2 to 3 years and it will take 15 to 20 years to deliver them all.
TLG can't just order up 100 new injection molding machines, there is a waiting list.
b) we are on the internet and although this isn't the speculation thread, it might as well be. Most of everything anybody ever says is speculation.
I'll bet you $5 that within the next 3 years, we get another horse design. That would not have been economically viable 20 years ago.
Today, thanks to CAD/CAM, they can spit out a new horse with minimal effort. It isn't "no" effort, so they don't want to do it for no reason, but I would suggest that perhaps the cost and effort required to keep track of "another" part within their bin storage system is as much, if not more of a deal than the cost of the new mold.
As for the economic viability of molds in the past: While I agree there is a difference, I don't know if it's as dramatic as you suggest. Fabuland, for example, had about 10 different head molds when it debuted in 1979, and had about 20 by the time it ended in 1989. The theme also had a lot of small accessories (vacuum cleaner, telephone, even a kitchen sink) that were unique molds.
Just another viewpoint... This shows just how expensive LEGO really is. This is $100, including shipping. It weighs 60lbs, comes with the table and all of the track and trains that you see.
Compare that to what you get in most $100 sets from LEGO.
My wife saw the new Kings Castle built on display at the LEGO store last week, I asked her, "if you didn't know much about LEGO, what do you think that should cost, just looking at it built?"
Her reply... "$40, maybe..."
Make of that what you will...
Your point is spot on though - LEGO is absurdly overpriced when you consider the materials costs and such. On the flipside, the nature of the system and parts reusability and the durability makes for a product that will last years - decades even, long long long after all the other plastic toys have long seen the trash heap and the train tables have been passed along to someone else. if you take the long view, LEGO is pretty good value in terms of the cost/hour you can eventually get out of it
Retailers have always been able to discount pretty much all sets. Why have they gone crazy this season?
a) Short Christmas season
b) *Important* - They cant discount higher priced sets, and sell smaller sets for closer to RRP....(ie, sell a set for $120.00, take your 50% split with TLG, and add 60.00 margin). How many sets does a retailer have to sell to get that same margin, assuming the same numbers?
With 35% discount we've seen this season vs 20% off a Modular of years past:
1) 49.99 set -- 3.75 sets : 1
2) 29.99 set -- 6.15 sets :1
3) 19.99 set -- 7 sets :1
4) 9.99 ------ 9 sets : 1
You get the drift. That's just a straight recoup from selling one discounted set the retailer may have missed out selling. That's not including the revenue lost because of the discounts they needed to move sets. In years past, a 15-20% discount was sufficient for most of the above. a 30-35% discount on almost all sets is concerning if you are looking a big box retailers, and their adjusted future with TLG. It is to me anyway.
All of that marks that retailers planned on lighter discounts, were told no discounts on exclusives after they've already made their budgetary provisions, and trying to recoup their margin in a short shopping environment. Is there anything that really points you to think retailers knew that was coming? I dont see it...
What you don't do is price it high, then leave it there and say "take it or leave it". It might work for a rare luxury item, it may work for very expensive items that are POA (price on application), but for a child's toy? No.
People like to get a "deal". If they really "need" $150 for modulars, for whatever reason... Then price them at $200 RRP and "put them on sale for $150" from time to time. They'll actually sell more of them that way, any college marketing 101 class can tell you that.
But you're right, they could put 10 more minifigs in Kings Castle and not change the price. What they might not have to do is discount it so much and they may well sell more of them.
Its entirely possible that it is.
But when you consider that sets from the early 90s had about the same or lower prices for similar or smaller piece count sets, and conversely according to Consumer Price Index $100 then buys $178 now... I'm surprised anyone got sets back then in poorer families like mine.
Granted I also cant think of many other toys I could sell now for essentially the same or more than I purchased them for. Or ones that work as well over two decades later.
Of course the sets of those days can't hold a candle to the detail of today's sets, so there is a tradeoff there between basic pieces for building in exchange for all kinds of interesting smaller detailing bits and pieces. and of course my entire collection consisted of blue, light grey, red, white, and black pieces, with a small smattering of yellow and green