LEGO: A GREAT BUSINESS AND THE CATEGORY LEADING BRAND
Lego is a great business – hugely strong business management practises, and a very highly respected employer.
Lego is also though the leading proponent of brand management in the toy industry! There is no doubt that Mattel, Hasbro and others have really strong brands and they manage them very well on the whole – but they don’t have a single brand which adds up to top 3 toy companies in the world, but the Lego brand alone is routinely in the top 3.
If you want to look at brand extension strategies, carving out sub niches for your brand or long term brand management you will struggle to find a better example than Lego in any category or industry.
In Episode 1 of the Playing At Business podcast, we take a look at what makes Lego so strong, and importantly what other businesses can learn from Lego’s excellence and long term success. Just click on the ‘Play’ icon below to listen.
To listen on iTunes, just click here: https://itunes.apple.com/gb/podcast/playing-at-business-podcast-with-steve-reece/id1389778170
For more information on the Playing At Business podcast, go here: www.PlayingAtBusiness.com
TRANSCRIPT OF THIS EPISODE:
Playing at business with Steve Reece. The business podcast with a sense of fun. To find out more, go to www.playingatbusiness.com
Hi and welcome to episode 1 of the playing at business podcast. The business podcast with a sense of fun. I’m your host Steve Reece and today we’re going to be taking a look at Lego. Now Lego is very much the poster child of the toy industry. It’s one brand, but it’s actually the biggest toy company with that one brand. So all the other toy companies have multiple brands in order to add up to a similar or smaller size to Lego. So in terms of the toy industry, it doesn’t really get better than Lego and there are so many learnings which any business can take from Lego. Not just toy companies but any business and we’re going to run through some of these. The first of which I like to look at is longevity. So I think one of the things that I’ve experienced most in business is the expectation and the push for quick results. You know those managing directors or for the entrepreneurs out there those kind of inner voices, who want instant gratification, instant payback for effort, for resources, for money invested. The reality is that actually most businesses don’t work that way and they don’t grow that way. So Lego started making wooden toys. The founder actually started making wooden toys back in their 1930’s. So whilst we might be looking at the biggest toy company in the world today, obviously it didn’t start from that position and it also didn’t get there overnight. so I think above all when I’ve consulted with companies of all sizes, the number one thing that actually sets them up for failure is the fact that they expect instant results and I think that Lego is a classic example of a company that’s got to the very top of their game. But they’ve done it over decades – actually nearly a century. So I think really the bottom line is you know it’s about growth and it’s about persistence and you know we can very definitely learn some of those things from Lego.
Funny enough actually when I joined the toy industry about 20 years ago now at the time of recording, Lego had some pretty big problems. They were at least reportedly supposed to be near to bankruptcy and had reportedly lost their way. so as often happens in these cases new leadership came in and one of the big things that turned Lego around reportedly and certainly observation from what I saw was the Lego Star Wars video games and what this allowed Lego to do was to move from being something that was very much loved by parents, because of all the positive benefits of that kind of play of which there are many. Not least of which is its kind of proven direct path towards the science and engineering careers later on in life. so obviously the challenge was that whilst kids liked Lego at that time and I used to do a lot of consumer research in this area and you would find the parents were very hot on Lego and the kids liked it, but the Lego Star Wars video games made the kids go from liking to loving Lego. Suddenly Lego became cool for kids. Suddenly Lego became an aspirational brand for both kids and parents somehow which is actually a lot of the magic of what they’ve done – managed to maintain their huge parental approval at the same time.
It depends on what you’re doing and who are your consumer is in each individual market. but in the toy industry obviously you’re looking at kids and parents and you tend to find you get what we would call pester power driven products where kids are the primary driver for purchase. Because they say you know mom can I have this, dad can I have this. But actually you also get parent different purchases like a board game, a craft kit, something which parents might see as being more worthy and so Lego kind of achieved the holy grail of their segment by getting both of these two parts of their consumer duopoly to love the brand.
So I think there’s a huge amount that can be learned from this and in the end actually Lego becomes one of the best examples of brand management in the business world today. Aside from the toy industry, you won’t find a better example of a brand that is what extended, that uses co-branding, that uses segmentation and that uses multiple platforms. So there’s a lot that most businesses can learn actually from the way that Lego had done this and for those of you who are less aware of the details of what Lego do, I mean it’s effectively a what I would call a platform really more than anything and that it’s a physical brick. You know at the end of the day that’s really the core of what it is and you know these bricks can be used to build things. Now different consumers want to build different things and they have different motivations for building these things and one of the things that’s most clever about Lego is that they are brilliant at creating new sets, new sub brands and new extensions who offer something to all of these different types of consumers. So I’m just going to click through the website and call out a couple of the different kind of subsets or extensions. So Lego architecture, now this would be probably more appealing to kind of certainly older children if not teenage children and also adults. Because it’s effectively creating and building replicas and Lego City which is kind of one of the core building blocks, and one of the core versions of Lego. It has kind of catch-all appeal to all children. Moving through we’ve got Lego super heroes. So obviously here they use licensed characters as brand extensions. So on the website they feature the Superman version. But there are other versions as well. Obviously one of these kind of things appeal to children. We’ve got a Disney range, DUPLO for younger kids against segment, Elves and Friends. Now this is a very controversial area. Because effectively Lego were targeting girls with these sets and I’m not going to go into the rights and wrongs of that…but the reality is that you know predominately those sets are bought by or for girls and so in each of these segments Lego has works out you know what are people looking for. Specifically what they’re looking for Lego to do in these spaces and then they’ve applied their underlying system to this.
Now actually Lego have a modular structure to what they do. So effectively if you’re a Lego designer you know you don’t just get to create everything from scratch. Because they have factories set up to produce certain types of bricks and the more types of bricks they produce obviously the less efficient Lego becomes. so let’s say you’re creating a Star Wars or a Batman or a Lego friend set, you maybe only get a couple of bespoke pieces that you can create from scratch. so everything else you’re doing is with color and maybe is clever design of what you’re doing and then very very purposefully utilizing these couple of extra blocks that you like.
One of the other really salient points is actually Lego was protected from some competition by a series of patents. Now I am absolutely the last person on the planet who anyone should listen to about legal matters and I have no expertise in that area. But I do know because it was widely reported that Lego had significant protection from patents until relatively recently. Lego was reportedly supposed to really suffer from competition once the patent protection expired because then anybody could make plastic bricks for play of a similar size and look as Lego’s and actually that has happened – there are businesses out there now who are multi-million dollar businesses, with some companies doing tens or even in one case and hundreds of millions of dollars of business based on doing a similar type of product with a different brand on it. Lego was supposed to suffer from all this competition, but they’ve actually gone from strength to strength by better utilizing the brand and more than anything actually, it’s almost made Lego raise their game and really push some of these areas. Because they know that if they don’t get in and own each of these areas you know a competitor could go in there and do it instead of them.
The only area, certainly in my time of knowing and looking at Lego, where you could argue they potentially missed a trick or if not missed a trick, at least perhaps failed to take the right steps would be in the area of digital revolution. Now one of the biggest kind of phenomena in children’s entertainment in the last I guess 10 plus years is obviously the digital revolution, the internet revolution. App games in particular allow for really addictive easily accessible play experiences for the children. so I guess you know if we take ourselves back 10 years, 15 years you know I’m sure Lego had aspirations to own the digital space for brick based building in the same ways they kind of owned the physical one. But actually the predominant player in that space today is actually Minecraft. Minecraft being a 3D block based, open play app game, which can be played on PC as well. Minecraft is absolutely loved by kids and there are several reasons why this is so loved by kids. I mean the reality is firstly let’s get this one out of the way. It is based on a kind of play that is known and loved by both kids and parents like we’ve already said. But I think a second thing and I think this is where you know again we go outside of the toy industry and any business can learn from this is the kind of presumption that you know almost a sort of them being held hostage to one’s existing success. In a sense that you know when you move something to a new platform, to a new format you have to challenge your own perception of what your brands are and what your business are and you know perhaps Lego didn’t quite address that as aggressively as they could have done. I don’t frankly know [12:28 inaudible] the reasons for that. But I think what Minecraft has done is actually given the consumer exactly what they needed in this day and age. Which you know if you think about children of bygone generations, they had actual physical freedom. You know they could run around and play outside and they’d maybe be told to be back home at certain time. Children today in most Western markets tend to have far less freedom than that you know they tend to have more structured routines you know due to stranger danger & all these kind of problems and the recognition and high awareness. So they don’t roam as free as they used to do.
What Minecraft allows them to do is to roam freely in the digital world and I think actually this could have been an existential threat from Lego’s perspective. You know they’ve kind of been both lucky and also effective at mitigating that. Firstly pragmatically they clearly realized that perhaps they’d missed a trick. They licensed the rights to do a physical version of Minecraft in blocks that stops anybody else doing it and taking away market share from them in the physical brick building space. So you can get a Lego Minecraft set. Which as far as I’m aware are very popular. So in a sense they kind of shut off that threat to their business. But actually you know the reality is physical play is not going away despite what you might hear or you might read. So in the end they’re going to be safe and you know more than safe. You know they’re going to thrive because now parents need an antidote to screen time. But actually what Minecraft has done is highlight this classic up and coming opportunity. which is to jump on a new platform and to do whatever it takes to make it work regardless of your brand vision, regardless of existing businesses, regardless of brand guidelines and any of these things. so I think if you had to pick one error, Lego perhaps missed an opportunity to capture another huge base in this whole digital kind of app gaming world. But they’re not doing too badly still so and I’m sure they’re not crying over that spilt milk!
Actually which leads me on to the next point, which is content and specifically I guess movies and what we used to call ‘TV content’. I’m not quite sure what we would call it nowadays and Lego has moved I guess maybe as a matter of learning from kind of missing the boat a little bit in the Minecraft space and they’ve moved towards being more of a true holistic brand management company. So they’re not only focused on their physical play pattern quite to the degree that they were. Obviously the Lego movie series has been very successful. They’ve been co-branded and obviously these drive both the physical Lego products, but also the Lego IP further into the lives of kind of children and people in general. This almost the ultimate brand extension and Lego have probably learnt from the number two toy company Hasbro, who very much moved into the content world and you know created their own content with the help of movie studios, e.g. the Transformers movie franchise which has been hugely successful. So think in a way Lego learnt from Minecraft and are obviously in a really good space now.
So, I wanted to start this podcast series with Lego. Because I think it’s the best example of longevity. It’s the best example of the fact that success doesn’t come immediately overnight. it’s the best example of brand management and extension that I’ve seen and as a career brand guy I’ve seen a lot of brands and I’ve seen a lot of people try to extend brands. I’ve worked on a numerous other successful brands. But still really Lego as far as I’m concerned is the kind of the pinnacle of brand management. I think it’s also a learning opportunity in terms of realizing that your business today may not be the same tomorrow and we’re all facing this on a daily basis these days. Because technology is moving so fast and the way that we consume content is moving the way that we interact with businesses, the way that we communicate with our consumers has changed hugely over time. So the fact that Lego who were still on such a high-flying ride managed to not fully take the opportunities that are offered to them in digital world is also a learning for all businesses out there and finally I think the thing I would say which you know I haven’t mentioned so far but in summary I think it would be remiss of me not to mention actually is corporate responsibility. So Lego have the advantage of being a family-owned business primarily. This enables them to take a slightly longer term view on things. It enables them to invest more easily in their own manufacturing with a long term view. They don’t have to chase their quarterly sales quite the same way as publicly listed companies do. But also you know not all private companies are run as ethically and if you were to look into big businesses and rank companies that run their businesses ethically, I think you find that Lego will be one of the top rated companies worldwide.
So there you go. That’s my take on Lego and what other businesses can learn from Lego. Please keep listening, there’ll be more to come in this series. If you want to find out more about us and what we do and find other episodes of this podcast, please feel free to visit www.playingatbusiness.com
Leave a review please where you find this if you find it useful. If there any topics that you would like to be included or like us to cover on this podcast, definitely please get in touch. We won’t be able to do them all I guess, but we’ll try and do some of them and above all, please keep listening!
Playing at business with Steve Reece. The business podcast with a sense of fun. To find out more go to www.playingatbusiness.com [Music]