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Thursday, 5 December 2019

When product innovation fails what business can do? Ask LEGO


Danish based toy manufacturer Lego is around the corner for almost a century now. It had a great stride through the toy markets despite few bumps here and there. But a major crisis flared up when Lego went on board for product innovation. Did it succeed?

Experimentation can be dangerous for a conservative company. Lego started “LEGOLAND” amusement parks in the 1970s. Quite a number of these were closed as time went by prompting the company to disinvest by selling the remaining ones to a private investment company. In 1990s Lego had the gumption for further experimentation, this time in its home turf.

Toying with the idea of product innovation, Lego replaced its patented inter-locking plastic brick system toys by new pre-built colourful pieces. Thousands of such pieces were brought out jacking the price of average toy set to unimaginable high. The biting on the purse of parents footing the bill was marginal compared to the total rejection of the toys by the kids themselves.

The product innovation strategy failed miserably such that beginning 2000 Lego felt the pinch on sales and its losses started to mount leaving the company in red for the best time to the tune of half a billion US Dollars. Consequently, the company started to evaluate it product innovation failure.

The findings revealed three aspects. One classic inter-locking bricks system is easy to play with and allowed the kids to bring their creativity in building different type of structure. Second, in doing so the kids were happy and tried to show their inventions to friends and parents with pride. Third point is that in marketing toys not only you listen to the parents but equally to the kids themselves.

Repositioning as business tactics was found to be the best answer to the ills of Lego. So in late 2000 it went back to the old classical plastic brick system with modifications in tonal colour, shadow effects and a fair degree of complexity in-built in the pieces so that the kids can develop their imagination while playing with the pieces. The improved product also helped in two ways to prop up kids’ interest: creativity and curiosity.

This business tactics of repositioning had positive quantitative effects on the company too.

1. In 2018 the Lego brand was listed by Forbes as one of the top 100 world’s most valuable brands
2. Lego raked in revenue stream of about 5 Billion US Dollars
3. Corporate valuation of Lego is 15 Billion US$ ahead of its closest competition Mattel
4. Lego is the second largest toy manufacturer in the world.


Cheers!

 
Muthu Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677


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