Why Are Plastic Lego Bricks So Pricey?

Dec 06, 2017
Marketing

Brand Strategy Focuses on Price and Quality

SMITH BRAIN TRUST – Ask anyone with kids who love those iconic building toys: Lego sets aren’t cheap. And those plastic, intricate brick sets very rarely go on sale. The Danish-based Lego is part of an elite club of brands that hold their ground on price and quality, even as factory outlet stores, insider promo codes and other discount schemes have transformed the way many consumers buy.

Yoga apparel maker Lululemon is another member of the club. It boasts a limited collection of stores, doesn’t offer generous discounts and drives demand by keeping inventory scarce.

“And Bose speakers,” adds P.K. Kannan, the Dean’s Chair in Marketing Science at the University of Maryland’s Robert H. Smith School of Business. “They never go on sale. It’s one price and they rarely, rarely have promotions.”

For all three brands, holding firm on price is a matter of strategy.

“It’s about the brand. You work hard to create a brand image,” Kannan says. “If you want to create a perception of high quality, an exclusive kind of brand, you really have to price the product in such a way that indicates quality and deliver on that quality promise.”

“Price,” he adds, “is a signal.”

And though factors may change – because of accidental inventory overload, for example, or the drive to pressure a new competitor – maintaining that price signal can pay off for some brands. “People associate high price with high quality,” Kannan says.

“The minute you start discounting your products, people’s perceptions of the brand will change,” Kannan says. “They will begin to think, ‘Well, maybe it’s overpriced.’ ”

In essence, he says, messing with the price means messing with the quality signal.

“After that, you cannot retain that exclusivity anymore,” he says. Many consumers won’t pay full price again for a brand once they’ve seen it discounted, reasoning that to do so would be paying too much.

It’s prospect theory – the notion that when a consumer pays $10 more for a product than what they expect, rather than $10 less, that loss looms greater than a gain of the same amount. “No one wants a loss,” he says. So they’ll wait until the item goes on sale, until it reaches the discounted price they now are conditioned to expect.

For many high-end brands, fending off cheap knockoffs or other impostors carries a significant price tag, as well. It’s just part of defending the label against potentially inferior products that might subtly erode the desirability of what they sell.

Anyone who knows Lego can spot the knockoffs in a matter of minutes. The bricks don’t fit together as neatly. They get stuck together or they don’t click together at all. “The worst,” says Kannan, father of five.

It’s definitely not impossible to pay less than the list price for a Lego set. They sometimes do become discounted at stores, but generally not often and not by much. And when they do, the discount usually applies only to certain sets, not the brand’s entire line. On Black Friday, for example, Target cut the prices of just five $50 sets by 30 percent, stipulating that each store would have limited inventory and calling it a “Doorbuster.”

The discount, though limited, may have been a loss leader, a way to lure customers into the store, where they potentially would buy lots of other stuff.

Because for people with kids who love those iconic building toys, Lego sets are worth it.

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About the Expert(s)

KannanPK

P. K. Kannan is the Dean's Chair in Marketing Science at the Robert H. Smith School of Business at the University of Maryland. His main research focus is on marketing modeling, applying statistical and econometric methods to marketing data. His current research stream focuses on attribution modeling, media mix modeling, new product/service development and customer relationship management (CRM).

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