Important Lessons, It Turns Out

Fast Company just published an interesting story about Lego and its Future Lab, titled “How Lego Became the Apple of Toys.” Before the recession, Lego was in serious trouble. Fast Company sets the stage:

“About a decade ago, it looked like Lego might not have much of a future at all. In 2003, the company — based in a tiny Danish village called Billund and owned by the same family that founded it before World War II — was on the verge of bankruptcy, with problems lurking within like tree rot. Faced with growing competition from video games and the Internet, and plagued by an internal fear that Lego was perceived as old-fashioned, the company had been making a series of errors.”

What Lego Did Wrong & How Lego Made It Right

Lego\’s mistakes were legion, but mainly resulted from:

• Venturing too far afield of the company’s core competencies into media, including a cartoon series, and hospitality by building a string of Legoland theme parks;
• Relying on licensed properties over which it had no control to drive merchandise sales (Star Wars and Harry Potter); and,
• Overloading retailers’ shelves with too much product.

The result: The 2002 Christmas season was disastrous with major retailers reporting 40% of Lego stock unsold.

That\’s when Jørgen Vig Knudstorp, described in the article as a “deeply process-based thinker,” arrived on the scene. He immediately corrected the obvious past errors to stabilize the company, but then was challenged to generate growth.

To do that, the company invested in a new kind of consumer research, ”ethnographic studies of how kids around the world really play.” It formed the basis of a Future Lab to dig deeply into the mind of the consumer. Rather than focusing on new blocks, new sets, new designs, i.e. new products, the company focused on experiences and what the Lego products mean to the kids, and increasingly the adults, who play with them. The results have revealed new insights leading to marketing initiatives around play themes, bringing the company new success and rapid growth.

For example, the ethnographic research revealed important differences in how girls and boys interact with Legos, though both enjoy the building aspect of the toys. Girls use the play sets to role play, whereas boys need a strong story concept to stimulate play. So the company introduced sets for boys with detailed, imaginative back stories, like the Ninjago warrior set with its Destructoid machine, and for girls, there are Lego Friends with long-haired characters that rescue endangered animals in the jungle and set off on summer camping trips with friends.

Another research-based initiative created an adult-focused line of Lego Architecture sets, such as the Sears Tower, which retail at “grown-up prices,” many times those at which children’s play sets are sold. This expanded the Lego consumer market further.

What Lego Can Teach Luxury Brands

So what can Lego teach luxury brands? First, and most importantly, Lego shows the importance of thinking outside of the narrow confines of the product, moving beyond what the product is, and exploring the many ways the brand is experienced by the customer. Too much energy and money can be wasted on creating new and different products. A better investment might be to delve into the customers’ experience with the brand, how they use it, what it means to them, and how it creates meaning and value in their lives. Revealing these insights drives inspiration in new product development. Luxury brands need to invest in their own research-based “future labs,” using them as a platform for new branding and marketing initiatives.

There are other lessons Lego can teach luxury brands, including the dangers of venturing too far afield of the company’s core competency. For example, Coach is trying to transform into a lifestyle brand introducing footwear, women’s apparel, jewelry, sunglasses, and watches, with lackluster results. The only success has been its expansion into men’s leather goods, not such a stretch from Coach’s core as a women’s small leather goods designer.

Lego also shows how relying on circumstances outside your control can make luxury brands vulnerable. It is one thing to show a celebrity wearing a brand’s designs on the red carpet, it’s quite another to pay them for their endorsement to wear them. The threats of a celebrity spokesperson embarrassing a brand are huge today, thanks to social media and ever-present camera phones. And sometimes such celebrity relationships simply don’t work. Think the Brad Pitt 2012 mismatch with Chanel No. 5 perfume.

Lego also teaches luxury lessons about releasing too many products. Michael Kors is suffering the consequences of ubiquity today, and I’m afraid it will happen to Louis Vuitton, not necessarily from too much product, but too much retail exposure. Does the United States really need more than 100 Louis Vuitton outlets, including branded boutiques and leased areas in department stores? If a mass-market brand like Lego can suffer from too much exposure, how much damage can overexposure do to a luxury brand?

Learn the New Language of Luxury so Your Brand Connects with Today’s Luxury Consumer

From near bankruptcy 10 years ago to assuming the title of the world’s largest toy company today, Lego succeeded not by changing the product, but by focusing on the experiences it delivers to the customer. Essentially, a successful brand will focus on the real business it is in. For Lego, that was play. So for Louis Vuitton and other luxury brands, it is delivering a luxury experience. And that is a challenge today because a luxury experience means different things to different people at different life stages.

Before the recession, luxury marketers pretty much understood their brand promises, and their strong pre-recession sales and growth showed it. But it isn’t so simple anymore. Today, American affluents are seven years older than when the recession hit, and an aging population of affluents is not an obvious customer for luxury goods purchases. Upwardly mobile young affluents (24 to 44 years old) are far more inclined to indulge in the material expressions of wealth, the traditional platform for marketing luxury. But in 2015, there simply aren’t enough young people with affluent levels of income ($100k plus) to fill the gap left by aging Baby Boomers and the leading edge of Gen Xers (who reach 50 this year).

So, back to Lego. It can teach luxury brands about communicating in value-based language. Defining a new luxury language requires research into the brand experiences from the customers’ point of view. Communicating this new values-driven language of luxury becomes a critical marketing strategy. For example, more mature affluents are looking at, exploring, and valuing luxury in new and different ways. Unlike the young, conspicuous consumption is no longer part of the mature affluents’ lifestyle. Bragging rights come from how smart they shop, not the luster of the designer brands they buy.

Today, the luxury image is understated, practical and useful, representing old-fashioned values of quality, integrity and workmanship. To be resilient and sustainable, brands like Louis Vuitton must stop focusing only on their aspirational customers and pay more attention to those mature affluents with the money to spend. Take a page out of the Legos playbook and get clearer understanding of the business you are in, create your own future lab and learn a new language.