Reference no: EM133283616

Case: Lego Stacks Billions of Bricks to Become the World's Most Valuable Toy Brand

The name Lego combines the Danish words for play (leg) and well (godt). It might just as easily combine the words for market and well, given how impressively the company has conquered the toy world through effective marketing. By the time you read this, at the company's current rate of sales, an enthusiastic builder somewhere in the world will have purchased the one-trillionth Lego brick.

The Lego brand is now worth nearly $8 billion, roughly twice the value of the next 10 toy brands combined, and much of that staggering growth in financial value has happened since 2015. The six core values that Lego established for its brand-imagination, creativity, fun, learning, caring, and quality-help explain why the brand is so valuable and why it connects so well with millions of children and adults. Julia Goldin, Lego's chief marketing officer, says that "everybody she meets has a personal story to tell" about their experience of giving, receiving, or building with Lego.

A trillion plastic bricks would have been difficult to imagine at Lego's founding in 1932, when it was a small carpentry shop dedicated to making wooden toys-toys that didn't sell well in a world wracked with economic depression followed by global war. The company's fortunes began to change when founder Ole Kirk Christiansen purchased an injection molding machine and began creating cheaper plastic toys. He introduced the forerunner of the now-iconic plastic brick in 1949, but it didn't take off until his son Godtfred came up with the idea of marketing the bricks as a "system for creative play" that encouraged children to experiment and invent.

With that emphasis on stirring the imagination, the company's marketing efforts moved into full swing. The first Legoland Park opened in the company's hometown of Billund in 1968, and this was followed by a magazine, a series of books, and more parks around the world. Growth continued on a solid but not spectacular trajectory until 1999, when the company made two fateful decisions. The first was to begin making products with branded themes licensed from popular movies and other entertainment products, starting with a series of Star Wars-themed products. Star Wars Legos have been a big seller ever since, with a variety of standard sets and limited special editions, such as a Millennium Falcon model nearly 3 feet long made of 7,500 parts.

The second decision was a 180-degree reversal in its attitude toward involving customers in marketing and product design. Even though it had become a global success story and run its entire business on the principles of being good for customers, it had gradually closed itself off from customer contact out of fear of litigation. Children would frequently send the company ideas for new sets, and if Lego introduced anything remotely like a child's suggestion, parents would sometimes threaten to sue for a piece of the sales revenue.

This reluctance to accept outside ideas eventually led to a company culture that was closed off from the outside world. The company got a rude awakening right before the Christmas shopping season in 1999, when its three largest retailers said Lego was so out of touch it no longer understood he market-including the major shift that adults had become a significant portion of their sales, with some spending thousands of dollars a year on Lego. In addition, the firm was basically ignoring the vast community of Lego fans online. In those early days of the internet and social media, the idea of customers communicating with one another on their own unnerved many companies, because they couldn't control the conversations and weren't sure what to do with all the information flying around online.

This wake-up call "kind of freaked the CEO out," as a former employee put it, and prompted immediate action. To connect with its adult customers, the company established the Lego Ambassador Network, which unites some 300 online communities of Lego user and fan groups. The company now stays in constant contact with these product enthusiasts, sharing advice and ideas. And it continues to expand the range of products aimed at grown-up tastes, including a range of sophisticated architectural sets based on real-life cities and buildings. To provide a safe place for kids to share their love of Lego, the company created the social network Lego Life. For a company once described as living inside a silo, it is now engaged and customer-centric in every way imaginable.

Creative marketing efforts continued, highlighted by The Lego Movie in 2014, a box office smash that triggered a flood of social media commentary and reinforced the company's core brand values. Dozens of other movies and TV shows followed. Lego has a huge presence on Facebook, Twitter, and YouTube; it's the most popular branded channel on YouTube, in fact. And fans continue to carry the Lego message across every form of media. A TV show in the UK that featured a contest to find the country's best Lego builder attracted more than 2 million viewers per episode and drove an increase in sales as people were inspired by what they saw.

Even the best-managed companies can stumble from time to time, of course, and after nearly two decades of torrid, marketing-driven growth, Lego hit a rough patch in 2017. Following several years of not producing enough product to meet demand, it overproduced and got stuck with more inventory than it could sell. Offering discounts to clear out this inventory dampened its financial results, but as of 2018, the company said it had addressed the problem and expected to grow in line with the global toy market.

Whether the company can continue to capture the fancy of new generations of children and adults will depend to a large degree on the imaginations of its 250 designers and whatever opportunities for hot licensing deals might appear. Julia Goldin explains that new products are essential to the company's growth because kids and adults are always on the lookout for something new. Lego faces tough competition in an entertainment world going increasingly digital, but its focus on imagination and creativity are likely to keep millions of active minds and hands coming back for more.

Question 1: Lego products are designed to last for generations. How might this level of quality affect Lego's ongoing sales, both positively and negatively?

Question 2: Currently available recycled and recyclable plastics are not strong enough for Lego's needs, but the company is working on a plant-based alternative and aims to manufacture its products from sustainable sources by 2030. How should its marketing efforts address the issue of sustainability in the interim?

Question 3: How do you imagine that the meaning of the Lego brand differs between adults and children?