Five years ago, Danish toy company Lego was bleeding money to the tune of $300 million in a year. It seemed as though reality had finally caught up with a relic of a pre-video game, pre-internet era. But by last year, Lego was posting double-digit sales increases, and in the first half of 2009, sales were up by nearly a quarter, as many rivals were floundering. How did it turn around? The 77-year-old company took on a variety of marketing and operational changes that have made it look thoroughly modern.
of voters said Lego should win for its success at understanding its customers.
Lego got social media -- especially the crucial aspect of social media that involves listening to what's being said in the marketplace -- before it was fashionable. For example, part of its decision to engage adult fans came from monitoring their blogs. More broadly, Lego has gotten adept at sampling culture, understanding the desires of both its existing and potential consumers and adjusting accordingly. The most important instance is Lego's decision to make sets themed around movies like "Star Wars" or "Indiana Jones"; now those licensing deals make up more than half of sales.
2. YOU DON'T OWN YOUR PRODUCT; YOUR CONSUMERS DO.
Legos are made only for kids, right? Wrong. A huge adult fanbase that never got over the toys of their youth still spends large amounts of money with the company and, perhaps more important, comprises one of its biggest communities. By all accounts, it took Lego's leadership some time to understand that its product isn't used precisely the way they'd like it to be, nor is it used precisely by the people they want to use it. But that understanding did come, and now Lego engages in active outreach with the AFOL -- or Adult Fans of Lego -- community. The company gets involved in their events and has created a roster of ambassadors who regularly communicate with them. Lego even brings them in on the development of new products.
3. VALUES AND CULTURE ARE IMPORTANT, NOT IMMUTABLE.
Lego never outsourced manufacturing to China. That means it avoided the lead-based-paint scare of 2007, which hurt many rivals. That's one value from which it hasn't veered. But, at the same time, Lego relaxed on a typically Scandinavian aversion to orienting the company around profitability. Now, many employees are compensated to some degree on performance. Because of those Hollywood licensing deals, it's also had to come to grips with the reality that some of its toys will have violent references.
4. EXPLORE NEW PLATFORMS AND CHANNELS -- NO MATTER WHAT YOUR AGE
It's easy for a toy like Lego that -- let's face it -- seems anachronistic to retrench into what it's always done well. Which is to say it could simply make plastic blocks and watch its business erode over time. Instead it's chosen to stay relevant, and a large part of that is finding different ways to distribute its core product. It's currently developing both a board game and a movie, and there's a Lego "Rock Band" video game now in stores. By year's end, there will be 47 Lego retail operations.
5. SHARPEN YOUR OPERATIONS.
Not long ago, Lego had a difficult time keeping its most in-demand products on the shelf, and product development was slow, causing a negative impact on the brand with both consumers and distribution partners. In recent years, the company has sped up development, meaning that a new Lego product can get from idea to the shelf within a year. That means Lego can be more responsive to cultural trends, and, in a rapidly changing market like toys, that's all-important.