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.”
Lego Group is worth $7.57 billion, making it the world’s most valuable toy brand by far, according to consultancy Brand Finance. Its brand value measurement is made up of factors including business performance and the value of the brand if it were to be licensed.
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 the 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 core 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).
Today, the company’s mission is “to inspire and develop the builders of tomorrow,” a phrase often repeated by Christiansen and Goldin.
“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.
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.
Lego’s Architecture range is popular with adult fans, who build city skylines and buildings such as the U.S. Capitol or New York’s Guggenheim Museum. Berliner Arndt Schlaudraff makes his own versions of iconic structures, using all-white Lego Architecture Studio pieces. His creations include the Ministry of Home Affairs in New Delhi and the Synagogue of Livorno in Italy.