Case Study - LEGO

LEGO is a family-owned toy maker that was founded by the Kirk Kristiansen family in Billund, Denmark in 1934. The word LEGO is a contraction of two Danish words leg and godt meaning play well. It wasn't until 1958 that the modern-day plastic brick was developed.
Through the 1960s LEGO continued to expand the brand through specific themed sets and the introduction of the DUPLO system for younger children. In 1980 the LEGO group established the Educational Products Department (named DACTA) to expand the educational opportunities of their toys. In the following years, many LEGO series were developed: Technic series, Expert series, LEGO City sets, LEGO Star Wars, LEGO Ninjago, and the Legends of Chima line.

By 2000, technology was changing the way children spent their time. Computers, video games, and cable television appeared likely to destroy the market for LEGO products. The company had long catered to what it called "the joy of building" and the "'pride of creation" and it wasn't clear if the LEGO brick with its basis in unstructured, imaginative playtime could thrive in the digital age. In its quest to be consumer-driven, LEGO rolled out toys that required little assembly and others brand extensions like Lego Star Wars (video-game), Mindstorms (programmable robots), Creationary (board games), and iPhone apps like Life of George. In addition, programmable bricks sold under the name LEGO Mindstorms were created and a business consultancy group fostering creative thinking called LEGO Serious Play was developed. By 2004, LEGO was one of the top ten toy makers in the world but was losing the equivalent of $180,000 each day.

In 2004, LEGO appointed Jorgen Vig Knudstorp as CEO, the first leader outside the Kirk Kristiansen family. Knudstorp confessed, "If I'm honest, I didn't know what the strategy was. LEGO had done what so many companies had done, which is to stretch the brand, and I wasn't sure if the financial crisis was because LEGO had stretched too far, or if it was just a very hard strategy to execute."

LEGO's competitive advantage is in precision. LEGO has its own term for the click-fit: clutch power. Clutch power enables the bricks to be locked and unlocked with ease and retain the "locking" ability for several generations. The tolerance (in engineering terms) of the LEGO stud is 1/50th of a millimeter - 10 times finer than a single hair.

LEGO's more advanced sets were skewed towards boys. There is definitely a "LEGO phase" for school-age boys similar to the "princess phase" for girls. However, unlike tiaras and pink chiffon, LEGO play develops spatial, mathematical, and fine motor skills, and allows kids to build almost anything they can imagine.

In 2011, LEGO launched LEGO Friends, a new line of building sets aimed at girls. To develop LEGO Friends, the company did extensive research into how children play. In spite of naysayers within LEGO and women's groups opposed to stereotypical girls' toys, LEGO Friends has been a huge success - exceeding all expectations. In just the first year, LEGO Friends became the fourth best-selling line behind Star Wars, Ninjago, and LEGO City. LEGO Friends is experiencing growth rates in sales well above the company average. LEGO reports that LEGO Friends has tripled the number of girls in the U.S. who are building with LEGO bricks. There has been a significant shift in the gender split among LEGO users.
In 2012, net income rose to a record $993 million. Sales increased 25% over 2011 - outpacing both Mattel (the world's largest toymaker) and Hasbro (the second largest). LEGO Friends has proven to have a global appeal with a 35% increase in sales in China in the first 6 months of 2013.

"Adapting as a business can mean moving to a new technology or it can be achieved through acquisition," explained Knudstrop. LEGO's fundamental technology - snug stud-into-tube bricks that hold fast but come apart easily - hasn't changed since 1958. LEGO has never been involved in an acquisition and its foray into technology was a dismal failure. "For us," Knudstrop said, "the challenge is in some ways bigger: to take known constructs and organize them in new and surprising ways."

Discussion Questions:

1. Do you think LEGO should try to compete with more technologically-advanced toys? Why or why not?

2. Identify briefly the marketing mix (4Ps) strategies for LEGO.

3. What does Knudstrop mean by saying "take known constructs and organize them in new and surprising ways"?

4. Why do you think creating a series targeting young girls was important to LEGO?

5. Why do adults like to play with LEGOs?