The humble Lego brick is celebrating its 60th anniversary this year. CNBC looks at how marketing has kept it at the top of children’s wish lists, in spite of poor 2017 results.
When Julia Goldin found out she’d got the job as chief marketing officer (CMO) at Lego, the world’s most valuable toy company, she bought her sons a Lego Big Ben set. “I put it on the table and (said) ‘I have news. I have a new job, and we’re going to move to London,” she told CNBC by phone. It was 2014, and the family was living in the U.S., Goldin having worked as beauty brand Revlon’s global CMO based out of New York.
Everyone has their Lego story, says Goldin. “Every time I meet anybody and I tell them that I work at Lego, I get a big smile because everybody has a personal story to tell. They remember their first set, they remember the first time they gave (it) to their child (or) something that they built.”
But Goldin’s Lego story isn’t one from her childhood. She grew up in Russia, a world without the famous plastic bricks (Lego as we know it today was first made in a small Danish town in 1958), and it wasn’t until she relocated to the U.S. as a mother to a four-year-old son that she fell in love with Lego. A move to Japan followed when he was six, but the bricks weren’t well-known there either.
“In Japan at that time, you didn’t have much Lego. So I used to go back to London to shop in Argos. And one of the sets that I bought for him because he really wanted it, was the Millennium Falcon (a starship in the “Star Wars” franchise), (so) that’s my Lego story.”
There have been various versions of the Millennium Falcon and the latest, launched in October, was one of Lego’s hits of 2017. Selling for nearly $800, it has 7,500 pieces, making it the largest version of the spaceship the company has created. But it was an abundance of bricks that contributed to last year’s poor results: Too much stock was held in warehouses in 2016 and had to be sold off cheaply, contributing to an 8 percent decline in revenues for 2017.
Speaking at its results presentation in March, CEO Niels. B Christiansen said there would be “no quick fix” for the company and that more efficient marketing would be one priority for 2018. Goldin plans to make sure there are fewer hierarchies in her teams so that decisions can be made more quickly, and will also focus on data analytics to measure the impact of campaigns.
Goldin spoke for 20 minutes at its March results day and while it is unusual to see a CMO make a presentation at such events, she says marketing is a central part of how the privately-owned business operates, so Lego’s success depends on it.
“In many companies, the chief marketing officer is only marketing. I don’t just do marketing. You know that’s actually only one small portion of the job. What my team does is the whole product portfolio, product experience, communication, content, social channels. So it’s really cored to what we put out there in the market place and that’s why we want it to be part of the presentation,” she explained to CNBC via phone.
The name Lego comes from “Leg Godt,” a Danish phrase meaning “play well.” Founder Ole Kirk Kristiansen started making wooden toys in his workshop in Billund, Denmark in 1932, selling them as Lego toys from 1934. The Kristiansen family still owns 75 percent of the business via holding company Kirkbi, and the group made a net profit of 7.8 billion Danish crowns ($1.29 billion) in 2017.
The entire Lego brand as it’s known today was built on a simple foundation 60 years ago: one, small, plastic brick, 31.8mm long by 15.8mm wide, with eight studs in two rows of four. By the 1960s, Europe was seeing mass relocation from rural areas to towns and the toy sets started to reflect society’s increasing urbanization: One of the first Lego sets was a town plan that helped children learn about road safety.
There are now more than 3,700 different types of pieces, from mini-figures to tubes and accessories such as wheels and swords and more than 900 million building combinations are possible with just six bricks of the same color.
Bricks are made at Lego’s Billund factory, where there are 12 manufacturing modules. Within those are 65 molding machines, all creating millions of pieces, and the factory is run autonomously. Fans of the brand can do a two-day Lego Inside tour of the factory and Kristiansen’s original house, as well as build with its designers, for 14,500 Danish crowns ($2,396).
“Lego is a very mission-driven company. The family is very clear about the mission to inspire and develop the builders of tomorrow, to reach more kids, and they’re super dedicated to that,” Goldin told CNBC by phone. But it’s not just about selling more bricks to more kids: the company says that playing with Lego is about education as well as creativity.
“It’s about problem-solving. It’s about collaboration. It’s about acquiring skills that will help them to be stronger and more successful in the world … We believe that we have a massive role to play in the lives of children in terms of their development,” Goldin stated at its results presentation. The firm also has a foundation that promotes early childhood education.
Lego’s Vice President of Digital Consumer Engagement Peter Kim, who spoke at the Advertising Week Europe conference in London in March, said this mission creates a strong internal culture, as well as an external message. “The culture is quite strong. Anyone can tell you what the mission and vision are. We have a goal to reach 300 million children by 2032: these are the things that people who come to (work at Lego) understand and know,” he said.
Being a private company also helps. “We can really kind of stick to (the mission), even when times are not so good, and when times are good, it gives us a north star to focus on,” Kim stated.
Lego has almost a million adults in its Lego Ideas online community, and each year the company launches four products based on the designs. First, they have to have least 10,000 votes from supporters before being put to a panel of Lego experts.
In 2017, journalist Maia Weinstock’s “Women of NASA” idea made it through and it became a top-selling product on Amazon within 24 hours of launch. Others include spaceship NASA Apollo Saturn V, the rocket that launched astronauts to the moon in 1969, and a Lego “Tron: Legacy” set, which launched at the end of March. Winners get a 1 percent cut of sales plus licensing revenue.
Diversification is an important strategy for Lego, but it’s one that threatened the company in the early 2000s. In 1998, the toymaker faced the first deficit in its history and the following year it decided to cut 1,000 jobs. By 2003, net sales fell by 26 percent, play material sales slipped 29 percent and as a result, the pre-tax loss on earnings came in at 1.4 billion Danish crowns ($211.7 million). In 2004, it appointed a new CEO and a plan to focus back on its traditional values and products.
Since then, it has gone beyond the brick, creating an array of movies (“The Lego Movie,” “Lego Star Wars,” “Batman,” and its own story, “Lego Ninjago”) and video games, plus its YouTube channel — the site’s most popular branded channel — with 5 million subscribers, plus countless fan sites.
“Beyond The Brick” is one such YouTube channel, with more than 280,000 subscribers and over 120 million views. Brothers Joshua (22) and John Hanlon (24) started it in 2011 and made it their full-time job last May.
Such user-generated content is obviously valuable to Lego — the Hanlon brothers were invited to its Denmark headquarters twice in 2017 — but also to content creators. In an email to CNBC, John Hanlon said that they expect to make a six-figure sum in 2018, with around 90 percent coming from YouTube’s ad system and the rest from ads they sell to companies like BrickLink, a marketplace for Lego parts. The brothers spend about half the year traveling around the world to make Lego YouTube videos.
Why do they love it so much? “Regardless of age or ability, anyone can pick up Lego pieces and let their imagination run wild,” John Hanlon told CNBC by email. “Lego brings together the young and old for wholesome, non-electronic fun.”
Adult fans of Lego (known as AFOL) are also an important audience for the company. Last August, TV show “Lego Masters” ran on the U.K.’s Channel 4, a contest to find Britain’s best Lego builders, attracting more than 2 million viewers per episode, Goldin says. People not only got on Twitter to comment, they also shopped: “People went into stores and wanted to buy and wanted to build,” she said at its results presentation.
While Lego has opened itself up to external fans and creators, its policy when working with other corporates is to be protective of its brands, such as Warner Brothers on the “Lego Batman” movie and Disney on the “Star Wars” films.
“We make sure that everything that we do is very true to the values of our brand and bring that brand to life in a way that we protect as much as possible,” Goldin told CNBC by phone. “With Warner Brothers, the secret sauce is the fact that we each allow each other to do what we are really best at.” Lego brings its designers to create characters, while it lets Warner get on with the animation.
Lego also wants to immerse people in its real-life worlds, and along with its eight Legoland theme parks (operated by Merlin Entertainments, of which the Kristiansen family owns 29.7 percent), it opened the Lego House in Denmark last September, a playground full of 25 million bricks. It’s made up of multiple-colored zones that aim to teach “core competencies” to children, including social development, problem-solving, emotional development, and creativity.
There’s a brick play pit, a waterfall of bricks, and a giant tree of creativity, many floors high. Guests can build a fish out of Lego, take it to a scanning station, add eyes and other features before it appears as a digital version in a giant fish tank, where it experiences various emotions.
The connection between the physical and digital worlds is something Goldin is asked a lot about, she says.
“One of the big questions that I’m always asked is the question of digitalization — is that a threat to Lego (or) is that an opportunity. We believe digitalization is a massive opportunity … Technology has been part of integration into Lego experience for a long time now,” she stated at its results presentation in March and pointed out that Mindstorms, its range of programmable robots, is now 20-years-old.
Its Lego Life online community for children has 6 million members, where the most popular thing for kids to do is upload pictures of their own creations. Meanwhile, Lego Boost, launched last August, lets children as young as seven attach their Lego toy to sensors so they can be programmed to respond to movement and even talk.
And as well as contending with obvious rivals such as Hasbro or Mattel, Lego is also competing with how children and their parents choose to live, says Kim. “The nature of play has also evolved with the rise of digital. Competition comes in many forms, not just products but how kids decide to spend their time and how lifestyles have changed,” he said, speaking at the Advertising Week Europe conference in London last month.
“Maybe it’s a matter of competing for attention with YouTube influencers as much as (wondering) is there time to build a (Lego) set? So the trick is, how do we get within that stream and really create collaborations to make play the part of life.”
Is Lego succumbing to that threat from evolving lifestyles? The company’s 8 percent decline in revenue for 2017 was the first time it had seen a fall since 2004 but CEO Christiansen hopes this will be a better year. “We are going to start off 18 on a better note than the way we started 17,” he said at its results presentation in March.
In spite of its disappointing results, Goldin maintains that Lego was still high on children’s holiday wish lists for 2017. “Despite the challenging year that we had, at the end of the year, we saw more kids put us on their wish lists in key markets like the U.S. and Germany. And that gives us a lot of confidence about the fact that Lego is still very relevant and very engaging to them,” she said at the presentation.
For brand consultant Stephen Cheliotis, Lego is loved by all types of people. It topped the Superbrands ranking of the U.K.’s strongest consumer brands, an organization Chelotis chairs. “One obvious reason is first of all that it doesn’t really polarize opinion … It’s a brand that isn’t seen to be ‘oh yeah that was a great way back then.’ It’s still seen (by people) as still applicable, useful, and relevant to me today.”
One thing the company has changed is the speed at which it works, giving its teams “more power to make decisions, to act quickly and to be more creative,” according to Christiansen. That has extended to its in-house creative agency, headed by creative director Emma Perkins.
Traditionally, agencies work out insight about a particular product, sometimes the result of research with consumers, before teams are briefed to create an idea or advert that reflects that insight. Sometimes weeks later, ideas are presented to creative directors and eventually clients.
“Lego has completely taken apart what it is to be an agency and how to have ideas, so the speed of which we need to go out there … this idea of waiting for an insight, developing an insight, handing it off to a (strategic) planner … that’s all been taken apart at Lego,” Perkins said, addressing an audience at Advertising Week Europe last month. Instead, the company now uses a sprint methodology developed by Google Ventures, where people from different departments clear their diaries for a week to work on one task, to prototype a communication idea. Senior Lego staff get to see ideas quickly, and feedback happens fast.
The process for creating online content is also a focus for Goldin, with teams working on new content as a product launch, rather than doing so far ahead. “We allow our people to have much more flexibility in terms of making decisions … And making changes that they need to, fewer hierarchies and fewer processes, but also making sure that they free up their time (so they don’t just) create many things ahead of time,” she told CNBC by phone.
Along with changing how it operates to be fit for the future, Lego is also looking to new markets. Lego saw “strong double-digit growth” in China and will open an office in Dubai this year. “In places like China and India as we expand our geographic reach, people actually don’t know Lego at all, so we still can learn what it means and build up that muscle to be a challenger brand and to learn what it means to have competition and fight copycat … It’s a matter of staying humble,” Kim said, speaking at Advertising Week Europe. Lego announced a partnership with Tencent in January, which will see Lego games offered by the Chinese internet giant, as well as an extension of Lego Life in China.
Newer entrants are also coming into the market all the time, such as GoldieBlox, a toy company encouraging girls to build and aiming to inspire careers in the science and technology industries. “It would be easy to be arrogant and just say that everyone knows the brand, and we just keep doing what we’re doing and we’re good, but it’s always, hey, what do consumers want, how do we get there, how do we deliver?” Kim said.
Finding out what children and their parents want is the secret to Lego’s success. According to Goldin, the answer is novelty: each year, 25 percent to 30 percent of sales come from new products. “As a chief marketing officer you really need to understand how the whole process works, how you can accelerate it, how you can bring things to market faster, how you problem-solve around it, but also how you inspire innovation,” Goldin told CNBC. And it is here that her experience selling cosmetics to women at Revlon helps her.
“Like in the toy business, the beauty category depends a lot on novelty … Like kids, women don’t know what they want … No woman would ever tell you what it is that she really wants. No woman would ever tell you that she has enough pairs of shoes or enough colors of lipsticks or enough makeup. But if you ask them what is it that you want, they will never know. And it’s the same with the kids, they’re looking for novelty.”
