LEGO - From The Brink of Extinction to The Best Brand in The World

Welcome to Market Basket Musings, Salud Brand Management’s newsletter exploring different topics in the Consumer Packaged Goods (CPG) industry. Now, you might be asking “why is a food broker posting about a toy company!?” And it would be a valid question, but we believe that the story of Lego can serve as an inspiration for producers in the food and beverage industry.? At the very least, we hope it makes for an interesting read during your morning cup of coffee.

We all know Lego as the juggernaut it is today in the world of toys, but everything wasn’t always awesome at the toy brick manufacturer. Lego’s journey from the brink of bankruptcy to becoming one of the world’s most powerful brands is a remarkable story of reinvention, focus, and innovation. Here’s how they did it:

Lego was founded by Danish carpenter Ole Kirk Kristiansen, who had an unfaltering belief that children would love the endless hours of creative fun his tiny wooden blocks could provide. The only limitation was that of their own imagination. Kristiansen was so resolute in his venture that he rose from the ashes of not one, but three, fires at different production facilities. He literally picked up the pieces, one by one, and reassembled them, firmly believing LEGO was destined for greatness. In 1946, he was introduced to a plastics molding machine and began experimenting with plastic bricks. The first iteration of the bricks we are all familiar with was launched in 1949 under the name: Automatic Binding Bricks.

Three generations of Kristiansens later, Lego was thriving, but trouble was brewing. Management, pressured by their perception of changing societal trends, began to spread resources too thin. Video games and cheaper copycat products were flooding the market. In response, they started complicating their sets, incorporating motors and flashing lights in an effort to dazzle children. The breadth of product lines expanded into areas Lego was not known for, diluting the brand image. It seemed Lego had lost sight of its creator’s key principle: capitalizing on children’s boundless imagination to unlock millions of possibilities. This time, it wasn’t a factory fire threatening Lego; it was a full-fledged dumpster fire.

Enter J?rgen Vig Knudstorp, a new 36-year-old CEO, who broke the long chain of nepotism within the company. He followed these steps:

1?? Refocused on Core Strengths: Knudstorp recognized that Lego’s strength lay in its core product and the philosophy laid down by its founder—the simple yet versatile brick. He removed unprofitable product lines and focused on what made Lego unique.

2?? Streamlined Operations: Lego simplified its operations, reducing the number of components used in its sets. This made production more efficient and cut costs. The company also outsourced some production elements to reduce overhead and laid off 1,000 workers.

3?? Listened to Fans: Lego started conducting research with the group that made them successful in the first place: kids. By engaging more with its fan community, Lego created successful new product lines like Lego Star Wars, Lego Harry Potter, and later, Lego Friends, which all resonated strongly with customers.

4?? Innovated within Core Competencies: Instead of spreading itself too thin, Lego innovated within its existing strengths. This included launching the highly successful Lego Ideas platform, which allowed fans to submit ideas for new sets. If an idea gained enough support, Lego would produce it, fostering a strong sense of community and engagement.

5?? Integrated with Digital: Lego embraced the digital age without losing sight of its physical products. This led to the development of successful video games like "Lego Star Wars" and movies like "The Lego Movie" in 2014, both critically acclaimed and commercially successful. These ventures expanded Lego’s brand into new areas while reinforcing its core products.

As a result, Lego staved off bankruptcy and managed to quadruple profits during the financial crisis of the late 2000s. They became the largest toy manufacturer by revenue, surpassing Mattel. With a solid foundation, the company was now poised to experiment in other areas like movies, video games, and augmented reality, where they continue to enjoy success today. Lego’s story is a testament to not losing sight of what made you great, listening to your customers, and focusing on innovation. It’s a blueprint for how a company can turn crisis into opportunity and emerge stronger than ever.

We hope you enjoyed this edition of Market Basket Musings, where we explore different topics in the CPG world. Please share our insights with anyone you think might enjoy our content. Follow our LinkedIn page for more industry news, information, and tips: Salud Brand Management LinkedIn.

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