Case Lego
Case Lego
Case Lego
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Michael Mazzeo & Greg Merkley
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Online Pub. Date: March 06, 2016
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The SAGE
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Length: 5786 words
of-School Learning:
Copyright: © 2012 Kellogg School of Management at
Northwestern University LEGO and LEGO
Abstract
In December 2011 the Lego Group (TLG) announced the launch of Lego
Friends, the company's sixth attempt to market a product to girls. Lego
Friends, which was supported by a $40 million global marketing campaign,
was designed to introduce the fun of building with Lego bricks to girls, who
represented less than 10 percent of Lego's audience.
The company's poorly executed brand extensions and move from free-form
building sets to story-driven kits had nearly cost it its independence in 2004,
so the launch of Lego Friends was strategically important. However, within
hours of the product's appearance it was heavily criticized for reinforcing
gender stereotypes and damaging the valuable Lego brand.
Jørgen Vig Knudstorp, CEO since 2004, had saved TLG and ushered in an
era of sales growth with a series of successful strategic initiatives. Would
Lego Friends be another addition to TLG's graveyard of failed products for
girls, or would it prove popular and finally enable the company to double its
sales and profits by reaching this segment?
Case
One former TLG employee was quoted as saying, “Lego has a position to die
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for. Children think they are having fun and parents think it's educational. It's a
wonderful position and probably unique in the toy industry.” 3 That unique
position also brought with it extra scrutiny, and within hours of its launch
Lego Friends was the target of global criticism for its reinforcement of gender
stereotypes as well as for its fit with the Lego brand.
Poorly executed brand extensions had nearly cost TLG its independence by
2004. Was Lego Friends a similar blunder, or was it a savvy strategic move
by the toy marketer?
Lego Origins
In 1932 Danish carpenter Ole Kirk Kristiansen began making and selling
high-quality wooden toys for children in Billund. Two years later Kristiansen
named the company Lego, which combined two Danish words—LEg and
GOdt—that meant “play well.” (He later learned the neologism also meant
“put together” in Latin.)
“Only the best is good enough” (see Figure 1 ). When Lego was still
producing wooden toys, Kristiansen's son tried to cut costs by shipping toys
with only two coats of varnish instead of the three coats his father had
specified. Furious, Kristiansen ordered his son to go to the railway station to
intercept the shipment and finish the job properly.
After purchasing the first plastic injection molding machine in Denmark, Lego
began manufacturing plastic building bricks in 1949 based on a patented
and is still in use in 2012 (see Figure 3 ). The re-engineered brick was the
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foundation of the “Lego System of Play,” a design standard that ensured all
Lego bricks and elements—starting with bricks produced in 1958 and
including elements produced in 2012—would link together.
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Free-Form Building Sets
The original concept of the Lego brick was free-form building play. By 1967,
the company's product line had expanded to include more than two hundred
interlocking elements beyond the original brick, including wheels, windows,
doors, roof tiles, trees, and flags. These elements enabled children to
construct more realistic creations, but there was nothing other than a few
photographs on the box to guide children in the building process. (See
Exhibit 1 for pictures of free-form sets.)
In 1978 TLG introduced sets with themes, which included bricks and parts
with common designs. Dozens of themes were introduced and phased out
over the next three decades; early themes such as Town, Space, Castle, and
Pirates spanned several decades and spawned related subthemes, but later
themes were produced only for one to three years. (See Exhibit 2 for
pictures of themed sets.)
The now-iconic TLG minifigure was introduced in 1978 in three theme sets:
Castle, Town, and Space. The first miniature figure in the building toy
industry, it had a painted face and movable arms and legs (see Figure 4 ).
building sets generated less than 20 percent of TLG's profits. 4 As the head
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of TLG's U.S. subsidiary observed, “That's what the parents want to buy, but
Story-Driven Kits
Until 1999, TLG was unique among major toy manufacturers in avoiding
licensing the names and likeness of branded characters for its products.
These were big business in the toy industry, accounting for approximately 25
After an unprofitable year in 1998, TLG was urged by its U.S. subsidiary to
introduce a Star Wars product in conjunction with the release of the fourth
installment in the popular movie franchise. It took six months for executives
in Billund to approve the arrangement, not only because it represented a new
way of doing business but also because the word “war” and the inclusion of
weapons violated TLG's anti-violence policy. The opposition was so strong
that TLG acquiesced only after Kristiansen's grandson personally backed the
project. In 1999 TLG introduced fourteen Lego Star Wars kits (see Exhibit
3), which tallied sales of DKK 2 billion.
Lego Star Wars offered children something previous Lego products had
not—a narrative they knew and could integrate with their building play. Peter
Eio, former head of TLG in the Americas and the original champion of
licensing, observed: “[Lego Star Wars] led us to say, Storytelling is
important.” 7 The success of the line shifted Lego products from “designing
One mother said of her Lego-loving son, “I prefer the free-form bricks, where
he can make his own universe. Ethan is most drawn to the theme-based
scenarios… He's fixated on the directions—when he builds it, he wants it to
look exactly like it looks on the box. That introduces a note of anxiety into
“There is a danger of Lego forgetting what has made the brand famous—it
tradeoff for children playing with these kits: “When you have kids playing out
Indiana Jones, they're playing out Hollywood's imagination, not their own.” 11
By 2004, Lego Star Wars products represented 41 percent of all Star Wars
extension of its license to produce Star Wars kits in 2012, it reported sales of
more than 200 million boxes of Lego Star Wars products since 1999, making
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it the best-selling product line in the company's history.
After Star Wars, TLG licensed other properties including Harry Potter,
Indiana Jones, Spiderman, and Lord of the Rings. (See Exhibit 4 for pictures
of licensed kits.) Sports-themed kits were developed under licenses with
NBA basketball and NHL hockey, and in 2009 TLG partnered with Disney to
produce Lego kits featuring characters and settings from the films Toy Story,
Prince of Persia, Pirates of the Caribbean, and Cars.
from themed sets and licensed kits. 13 While successful at generating sales,
licensing altered TLG's risk profile. As one toy industry analyst observed,
“Today's hit can quickly turn into tomorrow's dud, adding volatility that Lego
Licensed kits required specific design skills to translate the varied characters
and settings that were well known from movies into the Lego motif of
elements and minifigures. The fantasy environments demanded specialized
pieces to make them realistic, which required new molds, production
methods, and inventory. The success of the kits confirmed that the stories
and realism were appealing, but the preformed pieces limited what could be
built with the kits, which came with detailed instructions to ensure the
accurate construction of what was more a fragile model than an active
plaything.
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robot-like figures that were built with plastic parts—not Lego blocks—that
snapped together (see Figure 5 ). TLG supported the elaborate story line of
Bionicle with websites, movies, books, video games, and cartoons that
introduced new characters and contexts. Bionicle was a hit, but unlike
previous TLG story-based products, “none of the figures have a ‘play
meaning’ independent of their story… You can buy one and build it—but
when you're done, unless you know the story, you won't have a clue as to
The storytelling aspect of TLG grew to the point that it was described in 2010
as a media company where “the stories are told not in books or on film but in
small interlocking blocks and through the imaginations of the children who
Marketing
Lego brand recognition in the mid-1990s ranked fifth among toys after Mattel,
Hasbro, Sega, and Nintendo. In 1997 TLG unveiled a new vision for its
brand: “In the year 2005, we want the Lego brand to be the most powerful in
the world among families with children.” 17 One toy industry analyst
commented that TLG executives in this era “thought they knew about
certainly one of them”; 19 that same year Lego was ranked the seventh most
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theme parks, and the Lego brand shops.” 22
Lego (AFOLs). 23 TLG introduced special edition kits for AFOLs and
were larger (for example, the Taj Mahal in Figure 6 was 20 in./51 cm. long,
20 in./51 cm. wide, and 16 in./41 cm. tall), contained more pieces for realism
(more than 5,900), were more complex (nearly two hundred pages of
instructions), and were priced much higher (USD 299.99) than typical Lego
kits.
toy.” 24 AFOLs also created thousands of websites and blogs, which were
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AFOLs organized more than 170 public events, which were attended by 2.6
million people.
Competition
petitioned Canadian courts for trademark 25 protection of its brick design, but
in 2002 the Federal Court of Canada dismissed its request because the
design was functional and therefore ineligible for trademark protection. As a
result, Mega Brands and other companies were permitted to continue
manufacturing and marketing their Lego look-alike products.
Mega Bloks produced toys under licensing agreements with the Halo video
game franchise, Marvel Comics, Hello Kitty, Smurfs, and Thomas the Tank
Engine, among others. In 2012 Mega Brands announced that it had secured
the rights to create Hot Wheels and Barbie-themed construction toys. Sales
of Mega Bloks grew from USD 94 million in 1999 to USD 280 million in 2011.
building toy market; as shown in Figure 7 , TLG market share in the United
States decreased significantly from 1992 to 2007. By 2005, Mega Bloks were
being sold in Europe, a region that accounted for 60 percent of TLG sales.
Figure 7: TLG Market Share of U.S. Building Toy Sales
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commodity-grade resin instead of the higher-quality resin used in Lego
bricks. This cost difference was reflected in Mega Blok prices: in 2004 a 140-
piece Lego Bulk Tub was priced at $19.99, whereas a 100-piece Mega Bloks
In 2004 TLG operated one of the largest injection molding operations in the
world, an 800-machine factory in Denmark, along with three factories in
Switzerland and one each in the United States, Korea, and Brazil. Molds
were produced in Switzerland and Germany. Within each factory, production
teams operated independently. Engineers who designed new kits also
worked independently to develop relationships with suppliers.
Other Initiatives
TLG entered the amusement park business in 1968 with the opening in
Billund of Legoland, a theme park. Parks were later added in Windsor,
England (1996); Carlsbad, California (1999); Günzburg, Germany (2002);
and Winter Haven, Florida (2011), with another planned to open in Malaysia
in 2012. The parks, which were marketed to families with children ages two
through twelve, offered Lego-themed rides and attractions suitable for small
children as well as large-scale models built using millions of Lego bricks.
Each of the parks received more than 1 million visitors per year (the Billund
park was the most popular Danish tourist attraction outside Copenhagen).
The cost to construct a park was approximately DKK 1.5 billion; total net
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profits for all parks in 2004 were DKK 20 million. 27
In 1997 TLG introduced Lego Island, its first branded video game developed
in partnership with Mindscape. The game sold 7 million copies, which
encouraged TLG to produce more than forty games featuring Lego
minifigures in Star Wars, Indiana Jones, Harry Potter, Batman, or TLG's own
themed environments. The non-violent games became quite popular, selling
a total of more than 60 million copies between 1997 and 2009. 28 Although
TLG executives initially were concerned that video games were incompatible
with the company's educational focus and building products, a company
executive later said, “We've done extensive research that shows that video
games actually encourage creative play. Kids will play on their Lego Star
Wars computer game for half an hour. Then they'll jump onto the floor and
made forays into television and film production and Lego-branded books and
magazines.
Situation in 2004
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traditional toys, as children were moving away from toy play as early as age
eight, a phenomenon known as “kids getting old younger,” or KGOY. This
was especially true for girls: “Girls mature faster and therefore migrate
quicker away from toys. They tend to imitate adult tastes and lifestyles at a
A consultant reportedly advised the TLG board in the early 2000s that only
three of the company's products were profitable: Bionicle, which made
consistent profits, and Harry Potter and Star Wars, which were profitable only
in years when a new movie was released. 33 Thirty TLG products generated
80 percent of sales, but those thirty products were not the same year to year:
TLG sales dropped 30 percent in 2003, which led to the biggest loss in its
history (see Exhibit 6 and Exhibit 7). The company's high level of debt and
dwindling cash reserves turned the loss into a battle for its survival as an
independent entity.
New Leadership
In October 2004 the board of directors appointed TLG's first CEO from
outside the founding family. Jørgen Vig Knudstorp, a 35-year-old former
consultant for McKinsey & Company, developed a three-phase strategy that
focused the company's initial efforts on ensuring its survival (see Figure 8 ).
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Knudstorp sharply reduced expenditures by cutting 2,000 jobs and
negotiating with the workers' union on plans to cut thousands more. He
raised cash by selling TLG office properties around the world, which had
always been owned rather than leased. To improve liquidity, TLG exited the
theme park business by selling Legoland to Blackstone for $800 million in
2005. The new CEO stopped internal development of video games in favor
of a licensing agreement and eliminated the company's software division.
Information technology also was outsourced to IBM.
For example, the orange fire in Lego Harry Potter kits became water when
to 33 percent. 36
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TLG's supply chain was another major focus. According to Knudstorp, “The
supply chain is a company's circulation system. You have to fix it to keep the
four, and a single new distribution center, which was managed by DHL
Solutions under an outsourcing contract, was built outside Prague, Czech
Republic, to replace five centers in Denmark, Germany, and France. When it
was completed in 2006, the new center reported costs 30 percent lower than
In 2006 TLG announced it would close its Swiss factories and outsource
much of its manufacturing to Flextronics, an electronics manufacturing
services company that already produced Lego Duplo products. Production of
Bionicle and other more demanding products would continue in Billund, but
standard Lego bricks would be produced and packed by Flextronics in
Eastern Europe and Mexico to take advantage of lower wage rates in those
countries. Flextronics would also take over operations at the existing TLG
factory in Kladno, Czech Republic. The number of TLG employees dropped
from 7,300 in 2004 to 5,300 in 2006; when the outsourcing plan was fully
implemented in 2010, headcount was expected to drop to approximately
3,000. The outsourcing was expected to reduce the share of TLG products
manufactured in-house from 95 percent to 20 percent.
In 2008, however, TLG decided to take back the majority of its production
and return to manufacturing most of its products in-house. Although TLG had
initially concluded that its manufacturing was a commoditized process, it
found it could do it at lower cost because Flextronics did not have superior
technology or better raw material access, only a lower salary for workers. 39
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today for $100 that would have been $149 five years ago and they're more
profitable.” 40
User-Generated Design
Lego service.” 41
website that gave Lego fans the opportunity to share MOCs. All designs that
garnered 10,000 votes from other website users were reviewed by a TLG
jury to confirm they were safe and consistent with the Lego brand. Those that
passed the review were produced and marketed as standard Lego sets and
earned their creators commissions of 1 percent of total net sales.
Websites became an important channel for Lego fans to share their passion,
promote their MOCs, and express their creativity. A 2012 search of the
video-sharing website YouTube revealed more than 300,000 user-created
videos with the keyword “Lego”; more than 50,000 of the videos were
reviews of Lego kits and a similar number were stop-motion videos created
with Lego minifigures. Flickr, a photo-sharing website, returned more than
1.4 million results for a search for “Lego.”
Lego Friends
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TLG originally held to the “good Scandinavian unisex tradition that toys were
for boys and girls.” 43 However, anthropologists had observed that girls
differed from boys in preferences and styles of play—not only did they want
“friendlier” colors and lots of detail, they also took frequent breaks during
building to begin storytelling and rearranging. Boys, on the other hand,
tended to be more linear and build quickly to get to the end result. Boys also
tended to interact with figures in the third person, whereas girls projected
themselves onto the figures they played with. 44 As a result, the blocky Lego
minifigure was not popular with girls: “Let's be honest: girls hate him,” said
Mads Nipper in 2011. 45 As a result, TLG had virtually ceded the market for
Lego Friends was the company's sixth product aimed at girls: Scala
(introduced in 1979) was a line of kits containing small plastic parts for
assembling necklaces and bracelets; Fabuland (1979) contained minifigures
with the heads of animals and the bodies and clothing of humans; Paradisa
(1992) included pastel bricks along with minifigures; Belville (1994) included
larger articulated figures and pastel-colored elements; and Clikits (2003) was
an arts and crafts system for creating necklaces and bracelets. (See pictures
of representative products in Exhibit 8.) Clikits and Scala failed because
they did not integrate with the company's brick products, and the others had
not correctly addressed gender differences in children's play patterns.
office, a beauty shop, an invention workshop, and a fashion design studio, all
set in the fictional town of Heartlake City.
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Launch
Knudstorp had saved TLG and ushered in an era of sales growth with a
series of successful strategic initiatives since taking over leadership of the
company in 2004. Would Lego Friends be another addition to TLG's
graveyard of failed products for girls, or would it prove popular and finally
enable the company to potentially double its sales and profits by reaching
this segment?
(/cases/lego-friends-leveraging-competitive-advantage##i2001) 1 . Brad
(/cases/lego-friends-leveraging-competitive-advantage##i2002) 2 . Cristina
Lindblad, “Lego Gets Snapped at Over Girls' Line of Toys,” SFGate, April 23,
2012.
(/cases/lego-friends-leveraging-competitive-advantage##i2003) 3 .
(/cases/lego-friends-leveraging-competitive-advantage##i2004) 4 . Lauren
Foster and David Ibison, “Spike the Robot Helps Lego Rebuild Strategy,”
Financial Times, June 22, 2006.
(/cases/lego-friends-leveraging-competitive-advantage##i2005) 5 . Daniel
(/cases/lego-friends-leveraging-competitive-advantage##i2006) 6 . Stephan
(/cases/lego-friends-leveraging-competitive-advantage##i2007) 7 . Charles
Fishman, “Why Can't Lego Click?” Fast Company, August 31, 2001.
(/cases/lego-friends-leveraging-competitive-advantage##i2008) 8 . Maaike
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(/cases/lego-friends-leveraging-competitive-advantage##i2009) 9 . Fishman,
(/cases/lego-friends-leveraging-competitive-advantage##i2010) 10 . Harriet
(/cases/lego-friends-leveraging-competitive-advantage##i2011) 11 . Nelson
D. Schwartz, “Turning to Tie-Ins, Lego Thinks Beyond the Brick,” New York
Times, September 6, 2009.
(/cases/lego-friends-leveraging-competitive-advantage##i2012) 12 . Alyson
(/cases/lego-friends-leveraging-competitive-advantage##i2013) 13 . Foster
(/cases/lego-friends-leveraging-competitive-advantage##i2014) 14 .
(/cases/lego-friends-leveraging-competitive-advantage##i2015) 15 .
(/cases/lego-friends-leveraging-competitive-advantage##i2016) 16 . Faris,
(/cases/lego-friends-leveraging-competitive-advantage##i2017) 17 . Danny
Rogers, “Lego to Be a Danish Disney,” Marketing, July 2, 1998.
(/cases/lego-friends-leveraging-competitive-advantage##i2018) 18 . Faris,
(/cases/lego-friends-leveraging-competitive-advantage##i2019) 19 . John
Tagliabue, “Lego Tinkered With Success, and Is Now Paying a Price,” New
York Times, December 25, 2001.
(/cases/lego-friends-leveraging-competitive-advantage##i2020) 20 . Majken
Schultz and Mary Jo Hatch, “The Cycles of Corporate Branding: The Case of
the Lego Company,” California Management Review 46, no. 1 (Fall 2003): 8.
In 2001 Lego ranked behind Coca-Cola, Kellogg Company, Disney, Levi's,
Fisher-Price, and Pampers. In 2002–2003 only Coca-Cola and Kellogg
ranked higher.
(/cases/lego-friends-leveraging-competitive-advantage##i2021) 21 . Ruth
(/cases/lego-friends-leveraging-competitive-advantage##i2022) 22 .
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2004.
(/cases/lego-friends-leveraging-competitive-advantage##i2023) 23 .
(/cases/lego-friends-leveraging-competitive-advantage##i2024) 24 . Ibid.
(/cases/lego-friends-leveraging-competitive-advantage##i2025) 25 . A
(/cases/lego-friends-leveraging-competitive-advantage##i2026) 26 . Joseph
Pereira and Christopher J. Chipello, “Battle of the Block Makers,” Wall Street
Journal, February 4, 2004.
(/cases/lego-friends-leveraging-competitive-advantage##i2027) 27 .
http://www.e-tid.com/Legoland-profits-drop-despite-visitor-increase
(http://www.e-tid.com/Legoland-profits-drop-despite-visitor-increase)
.
(/cases/lego-friends-leveraging-competitive-advantage##i2028) 28 .
http://parents.lego.com/en-gb/news/Lego%20Universe%20to%20close.aspx
(http://parents.lego.com/en-
gb/news/Lego%20Universe%20to%20close.aspx)
(/cases/lego-friends-leveraging-competitive-advantage##i2029) 29 . James
Delingpole, “When Lego Lost Its Head—and How This Toy Story Got Its
Happy Ending,” Mail Online, December 18, 2009.
(/cases/lego-friends-leveraging-competitive-advantage##i2030) 30 . Brendan
(/cases/lego-friends-leveraging-competitive-advantage##i2031) 31 . “Lego in
Talks Over Branded Family Vehicle,” Marketing Week, January 18, 2001.
(/cases/lego-friends-leveraging-competitive-advantage##i2032) 32 . Ravi
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(/cases/lego-friends-leveraging-competitive-advantage##i2033) 33 . Andy
(/cases/lego-friends-leveraging-competitive-advantage##i2034) 34 . Keith
(/cases/lego-friends-leveraging-competitive-advantage##i2035) 35 .
Elizabeth Dowsett, Lego Harry Potter: Building the Magical World (New York:
DK Publishing, 2011).
(/cases/lego-friends-leveraging-competitive-advantage##i2036) 36 . Carlos
Cordon, Ralf Seifert, and Edwin Wellian, “The Case Study: Lego,” Financial
Times, November 24, 2010.
(/cases/lego-friends-leveraging-competitive-advantage##i2037) 37 . Oliver,
(/cases/lego-friends-leveraging-competitive-advantage##i2038) 38 . “Bricks
Stack Up for Lego,” Supply Chain Europe 18, no. 1 (January 2009): 28–29.
(/cases/lego-friends-leveraging-competitive-advantage##i2039) 39 . Agnes
(/cases/lego-friends-leveraging-competitive-advantage##i2040) 40 . Ibid.
(/cases/lego-friends-leveraging-competitive-advantage##i2041) 41 .
http://ldd.lego.com/en-us/subpages/designbyme (http://ldd.lego.com/en-
us/subpages/designbyme)
(/cases/lego-friends-leveraging-competitive-advantage##i2042) 42 . Cuusoo
(/cases/lego-friends-leveraging-competitive-advantage##i2043) 43 . Jan M.
Olsen, “Toy Lesson for the ‘90s: Girls Are Girls, Boys Are Boys,” Marketing
News 29, no. 16 (July 31, 1995): 30.
(/cases/lego-friends-leveraging-competitive-advantage##i2044) 44 . Wieners,
(/cases/lego-friends-leveraging-competitive-advantage##i2045) 45 . Ibid.
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