In this episode, the guys chat about when everything wasn’t awesome at Lego, and how they were able to drive an amazing turnaround by reducing marketing adjacencies. Chad talks about the genius of the Lego Movie and Nico talks about why less is often more.
When you think about legacy brands, brands everyone loves, there are huge brands like Coca-cola or Nike that everyone knows about, but not everyone loves. And then there are brands that are universally loved, that it seems no-one could ever dislike. And then there are brands that are beneficial, that educate or improve. Being one brand that does it all, is liked by everyone, and provides an actual benefit, well that’s the holy grail. That’s what we call a mega-brand. And one of those brands, is LEGO.
The Lego group is a Danish company that was founded in 1932 by (and is still owned by) the Kirk Kristiansen family. Today it seems like Lego has always been an unassailable brand – one of those brands that almost doesn’t even need to advertise, they just do what they do perfectly, and everyone reveres them. But a lot of people don’t know that Lego hasn’t always been what it is today. And even as recently as 2004, not even 20 years ago, the Lego company was in trouble.
The Lego Group started humbly in the workshop of a Danish carpenter named Ole Kirk Christiansen (who lived from 1891 to 1958). Christiansen started building wooden toys in Billund, Denmark in 1932, and in 1934 he named his company Lego – which comes from the Danish phrase “leg godt” which means “play well.”
In 1947 Lego started making plastic toys, including (in 1949) a plastic building block that they originally called “Automatic Binding Bricks”
The motto of the company was “only the best is good enough.” (in Danish: de bedste er ikke for godt). Chirstiansen believed that quality was paramount, and he held his employees to a high standard. Sentiment against plastic toys was hard to overcome in Denmark. But the Lego company’s attention to quality won people over. By 1951 plastic toys made up half the company’s production. And in January of 1958 the Lego patented their design, and the modern Lego brick was born.
The Growth Of The Modern Lego Company
From the time it was founded in 1932 and for 66 years the Lego group had never posted a loss.
But in the mid 1990s things started to shift. For a blast from the past, have a look at this 90’s Legos ad. Competition had intensified and Lego had to cut prices to remain competitive.
The market got tougher, and consumer tastes seemed to be moving away from Lego to other, flashier toys, games, and gadgets. Consultants advised them to diversify. Some said they needed to pay attention to their competitor Mattel – who had products from Barbie to Matchbox cars, a lineup with breadth. Lego attempted to diversify its products to keep up, but the shift away from the original block seemed to hurt more than help. Rather than lean into their historical equity – Lego had hired designers out of top colleges who didn’t care about the brand.
But in 1998 the company faced its first deficit. In 1999 Lego cut a thousand jobs By 2003 their sales had fallen 26 percent, and pre-tax earnings fell by over 1.4 Billion Danish Crowns (200 million US dollars). An internal report at the time stated that Lego hadn’t added anything of value to its portfolio in over a decade. Year over year sales were down 30%, and the company was $800m in debt. Lego was facing the most serious financial crisis in its history.
The Turning Point
So, as companies often do in a time of crisis – they looked to the leadership. In 2004, Lego hired former McKinsey consultant Jorgen Vig Knudstorp as CEO, and embarked on a company wide restructuring plan. The goal at the time sounds very basic. It was “to become a financially well-founded, value creating business.” That may sound obvious. But it’s not obvious if that’s not what the company has been doing. Lego revisited its history, and a decision was made to get back to the core of the company, to Ole Kirk’s original values and products. Knudstorp hit the ground running, and made some hard decisions. They reorganized the company, analyzed all costs, and they focused on what they were good at. The first thing Kundstorp did after the internal work of cutting the fat, was to turn to the fans of the brand for the way forward.
Quoting Knudstorp: “One of the very impactful ways for me to rediscover our ultimate purpose was talking to ‘superusers’ of the brand, and spend days talking to them about it […] that’s where you learn you are all about, and that feedback helped me articulate the direction together with my colleagues for the future innovation of the brand.”
Lego rebuilt their company by bringing it back to its core mission, and using that as the basis for innovation. They still make new kits, but the new kits today are on equity with Lego historically. They’re interchangeable. They’re cost-effective to manufacture. And they FEEL like Lego – connecting Lego 40 years ago with Lego of tomorrow. Watch the following video of Knudstorp discussing the Lego comeback.
Back On Top
Just over a decade after they were on the brink of financial catastrophe, Lego is once again back on top. In 2015 revenues topped 35 billion Danish crowns Lego was the #1 toy company in Europe and Asia, and #3 in North America – where profits topped $1bn for the first time. – beating even Apple. In 2016 alone Lego sold over 75 Billion bricks. Lego minifigures (the little people in their kits) now outnumber humans on Earth. And the British Toy Retailers Association voted Lego the TOY OF THE CENTURY.
Lego’s enduring popularity is due to its combination of creativity and utility. Lego’s comeback is one of the most striking in history, and their turnaround has put them at the top of the world’s most powerful brands, replacing the mighty Ferrari.
The guys end off the show by discussing the following fun facts about Lego:
- The moulds used to produce Lego bricks are accurate to within two-thousandth of a millimetre (0.002 mm!). Because of this high degree of accuracy, there are only around 18 bricks in every million produced that fail to meet the company’s high quality standard.
- The world’s tallest LEGO tower is 28.7m high, made from 465,000 bricks! Have a look here.
- LEGO Minifigures are the world’s largest population, with over 4 billion of them around the world!
- During the Christmas season almost 28 LEGO sets are sold each second.
- On average there are 80 LEGO bricks for every person on earth.
- The motto of LEGO is Det Bedste Er Ikke for Godt, which means, “Only the best is good enough.”
- There are over 915 million ways to combine 6 LEGO bricks.
- Globally, children spend 5 billion hours a year playing with LEGOs.
Enjoy the show!
We speak about:
- [00:20] Top 3 brands from a brand value perspective
- [04:30] The history of Lego
- [05:40] The beginning
- [10:00] Lego decided to diversify
- [11:50] Lego faces its first deficit
- [19:00] The turning point
- [30:40] Back on top
- [41:50] Lego fun facts
- Website: https://www.marketingrescuepodcast.com/