How Lego rebuilt the core, brick by brick
I caught a fascinating film on the rejuvenation of the Lego brand on a flight to Dubai to watch the World Rugby 7’s last week. It is a great example how remembering and refreshing what made you famous can boost brand and business. Since re-focusing on the core in the early 2000’s turnover has quadrupled. It has overthrown Hasbro and Barbie to become the world’s best selling toy brand.
In the early 2000’s Lego was under attack from both direct competitors, Playmobil and Mattel’s Barbie, and indirect competition in the form of video games. The CEO at the time Kjeld Kirk Kristiansen, grandson of founder Kiel Christiansen, responded by developing in-house video games such as Lego Island. However, this was not a core competence of Lego and the video games were of poor quality. Lego also launched more complex product such as a range of high speed cars called ‘Racers’. These products strayed away from the core of the brand and also drove up costs for components such as micro-motors and fibre-optics. “The number of parts climbed rapidly from 6000 to over 12,000 causing a nightmare of logistics and storage and a huge amount of infrastructure expansion for no gain in sales,” according to one Lego insider. The business made heavy losses of $100 million in 2000 and $200 million 3 years later.
2. Refocus on the core
Jargon Vig Knudstorp (JVK for short) was brought in as the new CEO in 2004, the first non-family member to run the business. He brought the brand “back to basics” and refocused on what made Lego famous. This meant going back to the essence of the brand which is about playing by building. The name Lego is Danish for “play well”.
In the film, JVK showed the example of a fire engine from before turnaround (below left). It had been simplified and was sold on the idea of being easy to make in order to attract people not interested in building. However, as he pointed out, if you don’t want to build, you will buy something else. The new fire engine Lego launched had more bricks, but was actually less expensive to make as it was based on ‘reusable’ bricks that go into other kits.
3. Upgrade the core
Lego invests heavily in rejuvenating the core range. A team of 200 creators come up with new ideas, with the objective of renewing the half the core range each year. Costs are kept down by forcing the creative team to work with Lego bricks that can be re-used in multiple kits. The total of 3,500 different types of brick sounds a lot, but is half the number of 10 years ago, even though turnover has increased by several hundred percent.
Lego also draws on the creative energy of its large army of fans around the world who come up with new ideas for free. The ideas are displayed on The Lego Ideas website. If an idea gets 10,000 votes Lego will look will look at it, with the lucky few like the bird kit below being put into production and earning 1% of sales for the creator.
4. Extend the core
Once a solid core business was re-built, Lego then strategically extended the core business. Lego Friends targeted girls with a set of product with themes and colours relevant to them, versus the boy-oriented focus of the brand before. Another key extension has been the licensed collections using movie properties such has Harry Potter and especially Star Wars, which accounts for an estimated 1/3 of all Lego sales. Lego invests heavily in these licenses, spending an estimated € 270 million a year on them!
5. Stretch the core
In a marketing masterstroke Lego stretched its brand into the entertainment market, with the launch of The Lego Movie. This was a blockbuster success with box office takings of over $460million and a profit estimated here at a cool $229million, some of which I assume went into Lego’s pocket. The genius in this brand stretch is how it grows the core business, by promoting the Lego core product. As Steve Davis of the Austin Chronicle said. “The Lego Movie may be the shrewdest marketing ploy you’ve ever seen.”
In conclusion, Lego is a great example of how to remember and refresh what made your brand famous, rebuilding a strong core before then extending and stretching into new markets.