Why does LEGO MSRP seem to rise faster than inflation?

Si_UKNZ · January 2012

The price of toys is meant to be dropping - according to this ..
http://www.bbc.co.uk/news/business-16535721
... in 2011 games, toys and hobbies dropped in price more than any other sector, by 3.5%.

So why do Lego (RRP) prices seem to keep going up faster than inflation?

BTHodgeman · January 2012

I think the single best answer right now is supply and demand. By almost all accounts, demand for LEGO has been rising. LEGO can either increase supply (which would have implications on price stability and may not be possible) or increase cost.

Brent

prof1515 · January 2012

Demand is part of the reason. Let's face it, kids like Lego. Lego knows this and knows that parents (and grown-up kids) will pay just about any price they set. They can continually increase it and make money even as they employ cost-cutting methods like Chinese manufacture and specialized combination (BURPS, etc.) parts.

madforLEGO · January 2012

If LEGO is not careful they will have a repeat of the late 90's

davee123 · January 2012

If LEGO is not careful they will have a repeat of the late 90's

Well, the problem wasn't really the late 1990's-- LEGO's first loss was in 1998, and 1999 was actually successful, largely thanks to Star Wars. But 2000-2005 were terrible.

But beyond that, the problem back then wasn't that LEGO was too expensive. LEGO just was getting off the mark when it came to producing things that kids loved, and also, LEGO's internal workings were heinously expensive.

They also had things like standards which were more-or-less arbitrary. For instance, you know how insanely popular the collectible minifigures are? The idea was pitched to them back in roughly 2003 or 2004, and was shot down because "we're not a minifig company, we're a building toy company". Essentially, they refused to follow something that would make them money, because they believed in the core of the company being something other than a money-making business.

When Jorgen took over in late 2005, new initiatives started pouring in that focused on cutting quality, saving money, and making money. And it's paid off for them.

If LEGO encounters another rough patch, it probably won't be because they're charging too much. It'll be because they miss the mark on finding the pulse of consumers, OR if one of the competing brands (like Kre-O) suddenly hits a series of home runs and starts becoming the next big thing.

As for the current trend in price increases, I would similarly agree that it's probably demand. I would love it if it were revealed to be quality improvements (like stopping the use of Chinese ABS, packaging improvements, etc), but it's probably not. Essentially, people are willing to pay more for LEGO, so LEGO charges more.

However, I'm curious how you'd gauge the current increase in prices? What rate do you believe LEGO costs have increased by, and what would you base that on?

DaveE

Si_UKNZ · January 2012

I'm curious how you'd gauge the current increase in prices? What rate do you believe LEGO costs have increased by, and what would you base that on?

The short answer is 'gut feel', but I guess my gut feel is based on a few experiences so I'll try and post-rationalise a little ..
.. My internal barometer thinks of 5p as a good value price per piece, 6-7-8p as normal, and 9-10p is where I start wondering if it represents good value. Sets like London escape, bank and money transfer, public transport station, harbour, police station and airport all push the envelope, hitting 9p-10p-11p, and none of these represent good value IMO. Also note that only one of these is licenced. (I dont collect SW but I understand this is a lot worse).

I see sets like the police boat start life at a ridiculous price of £30, and then over time drop to £20, and again this seems like clear overpricing for it's own sake. That boat was never worth £30 and that was pretty obvious looking at the range when it was launched. There have been a few others like this too - apparently the jedi shuttle? (dont really know much about it though)

sidersdd · January 2012

Boats and airplanes are a bit difficult to include in the price/part calculation comparison because they have those large pieces which are much more expensive. Likewise with the mini modular set. You need to calculate the Nub value or Nob value or whatever it was in that other thread.

dougts · January 2012

I think we tend to think of the licensing costs as being entirely borne by the higher prices in the licensed sets - and obviously this is at least mostly true. But I suspect that at least some percentage of the licensing costs are also being borne by pricing standards on non-licensed sets as well. In a sense, the non-licensed themes might be subsidizing the licensed themes when it comes down to overall profitability -They likely have a much higher profit margin on non-licensed versus licensed. They can charge a premium for licensed themes, but only to a certain point beyond at which demand would drop too far. For example (all made up numbers), lets say that in order to make the same net margin on two similar-sized sets, one licensed and one not, that they need to charge $100 for the first, and only $50 for the second. But they know they cannot sell enough product at $100, and therefore they lower the price to $85 and raise the price of the other one to $65. They are making the same money overall, but with much different margins on each.

So, the fact that LEGO has been greatly increasing it's use of licenses could be another factor in the overall inflation of LEGO set pricing, both licensed and not.

Thezoofox · January 2012

Average UK Salary 1984 - £10,779
Average UK Salary 2010 - £30,000 ish
1984 Cost of Kings Castle 6080 $52.75
2010 Cost of Kings Castle 7946 $99.99

Not sure if this proves LEGO has gone down in price over the years or not.
In realise i'm using British salaries against US prices but thats all i could find quickly.

Any thoughts

legoDad · January 2012

Demand is high.
MSRP means nothing to TRU and my local Target in Queens.

JP3804 · January 2012

Average U.S. wage 1984 - $16,135.07
Average U.S. wage 2010 - $41,673.83

Source SSA average wage index

legoDad · January 2012

Lookin' at the Jan. catalogue I felt the prices are all fair except for some here and there.
The Superheroe and Star Wars lines so far are mostly fair, Kingdom's Joust and Mini-Modular are excellent prices (for the piece counts you get). Overall the prices look spot on to me.

JP3804 · January 2012

According to my math Lego is about 33% cheaper now then in 1984. More if you allow for the difference in piece counts.

sram · January 2012

I believe the sets (especially Technic) are priced based on their weight? I remember reading somewhere that the set designers meet price guidelines based on the weight of their creations. It is not clear that to use a price per piece is a good estimate.

I believe that the prices of sets have been going up. To mitigate any backlash there have been value adds to the sets -- for example more minifigs, or extra printing, unique pieces, and so on. The actual cost of these value adds maybe minimal to TLG (cost of plastic is negligible, in the overall scheme of things).

Hard fact to me is the cost of the racers -- we used to get them for $10, they are no longer at that price point. 8231 "Vicious Viper" is a racer set that has MSRP at $12.99. A similar racer 3-4 years "8670 Jump Master" was $10. TLG has been careful to provide some differentiation so one cannot make a straight comparison to show price increase.

There must be well paid individuals with a MBA in their pocket that work on ensuring that TLG makes more money without any consumer backlash. After all they are a profit making venture.

krklint · January 2012

Part of the price "increase," and I'm not talking 1984 to today, but 2008 to 2012, has to do with the financial stability of the various countries. The U.S. was partially downgraded, in financial standpoints, last year. France was just downgraded. This "downgrading" plays a part in individual businesses ability to borrow money to purchase product, which is later sold to pay off the loans. The lower the nations rating, the higher the interest rate for businesses in that nation to borrow.

Also, shipping costs have risen. Major businesses calculate shipping costs a year (at least) in advance, and adjust pricing to fit future expenditure. TLG has been solid in many of their business moves in the last 10 years... so I would contend that some of the price "increases" I've seen in the past four years is connected to the two items I listed above.

evileddie1313 · January 2012

Lego sets have been pricey for 30+ years and it is no different today. They are of exceptional quality and will last a lifetime if maintained properly. The MSRPs of current sets is fair IMO, but a new set should never be bought at the MSRP price. Almost every Lego set, at one time or another, will be discounted by TRU, Amazon, Lego, Target or EBAY. Hell, I even found 6 Clone Trooper Battle Packs at a local Wegman's(food store) for $6(US) a piece. It pays to be patient when purchasing Lego sets.

doriansdad · January 2012

Real inflation is much more than your government edited figures and revised formulas. In the US real world inflation runs 10% p.a. Lego is below that. Don't forget you are also purchasing Lego with a fiat currency. Compared to gold your Lego is very cheap indeedy.

MinifigsMe · January 2012

^^ agreed, lego doesn't need to be bought at RRP anymore, where as 20 years ago, with out the internet and supermarkets selling everything there just weren't the sales that exist to day. If you only had toy shops and department stores to buy your lego from today, you'd be paying a lot more. I'm sure Lego are aware that a lot of lego isn't sold at RRP as retailers need to be able to offer sales and make a profit.

Coolsplash · January 2012

@evileddie1313, wish I had your patience. Its been a very hap hazard Nov-Dec for me. But I agree with what you say 100%.

evileddie1313 · January 2012

@Coolsplash A two year old maniac son will 'teach' you patience. LOL

tbennet2 · January 2012

too many investors buying up all the good sets and flipping them for big $$$! Prices will go down(lego bubble) as soon as the investors stop buying... kinda like the USA housing market did.....

evileddie1313 · January 2012

@tbennet2 The days of finding a Star Destroyer(10030) at a fair price are long gone I agree, but all the newer sets are fairly priced. If you wait for the right deals from TRU, Lego, Amazon and similar stores, a collector or fan can get a definite bang for their buck and get involved in the Lego 'bubble' themselves. LOL

Why does LEGO MSRP seem to rise faster than inflation?

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