A culture of innovation and customer experience helped Lego ward of disruption in the 1990s when it was beset by higher tech competitors and a shrinking market. Today the Danish toy giant is still enjoying the fruits of that culture, consistently amongst the world’s most valued brands.
That was the message from Christian Majgaard, a former Lego top executive and head of global brand and business development, during his keynote presentation at the Gartner Data and Analytics Summit in Sydney this week.
Majgaard joined Lego in 1974, around the same time the company was beginning a near two decade long period of growth, he said. But the success made Lego “a bit too proud of ourselves” and and fostered a bureaucratic corporate srtucture, leaving it ill prepared and unwilling to change when disruption hit in the 1990s.
“In the 90s we suffered what — we didn’t use the word disruption then — nowadays we would say is a disruption because a lot of new things happened over a very short span and highly impacted our situation,” Majgaard said.
Lego was facing a new wave of competition from video games, computers and the VHS (and their new fictional character). This period coincided with the shrinking of mum and dad toy stores around the world, unable to compete with big retailers. For example, global chain Toys R Us was accounting for nearly a third of all Lego sales at the time, placing the product alongside “copycat” brands.
Advertising costs also increased, Majgaard said, increasing the barrier between Lego and its end users.
“We had computers, we had the movie characters, we had the retailers, we had the cost of communication. That really pressed us and we also saw plateauing sales.”
Lego, did not respond well, at least initially, denying the threat of a new market, telling itself it was confident in its “classical market” position, Majgaard said.
“For a couple of years we were sitting on the deck of the titanic. Our market share went up because compared to the other classic toy brands we did a little bit better. So in a way it was looking ok, according to strategy.”
“[But] the whole thing is, the classic toy market made up a smaller and smaller proportion of the total toy market.”
Eventually Lego acknowledged how unsustainable its “classic market” approach was and set about removing the “dust on the brand” with what Majgaard says were some bold decisions.
“We took a dramatic decision which some people did not really believe in. But we took it anyway. We said ‘we want to be the world’s most powerful brand among families and children’. That’s the new starting point.”
The risk of experimenting with new products, including robotic lego, and digital initiatives was offset by maintaining Lego’s long held customer experience, Majgaard said.
Lego embraced a link to computers, a new direct customer relationship through an online presence, built on its education partnerships and tried to extend its visibility beyond holiday seasons to year round in a bid to stay relevant, according to Majgaard.
Innovation and customer experience response
At the heart of the response, Majgaard said, was an understanding of customers and the market, supported by technology and skills.
New robotic Lego debuted in 1997 helping the company refresh its image. The success of the line, still available today, came from the back of experimenting with robotics behind closed doors for over a decade, Majgaard said.
Lego also forged a series of partnerships with Hollywood movie companies, creating strategic alliances with one time foes Harry Potter and Star Wars that continue today.
Lego also redesigned its website from the “corporate facades” typical of the time to one capable of fulfilling consumer orders, not a common practice at the time, Majgaard said.
“It became a very interactive and customer friendly website that has meant a lot to Lego.”
The toy maker also expanded into other channels, opening Lego themed amusement parks, school events and holding lego exhibitions and model shows.
The initiatives are part of a more holistic view of customers Lego continues to employ today, according to Majgaard.
“Many people believe that they know their customer just because they know they are buying, how they shop … Of course there is some predictive power in that insight but the problem is its still looking at the customer as a shopper not as a wholesome person.”
Majgaard said Lego uses anthropologists to better understand its customers and the strategy has led to new product lines.
“You can not possibly develop [a view of the customer] through how people click on a website. That’s simply not good enough.”
Majgaard pointed out his brief history of Lego had focused on successful initiatives but just as important are the failures and experiments. He recommended companies embrace their failures and a culture of experimentation while also minimising bureaucracy.