by: Ding Mingjue
Abstract: This article analyzes Lego customer needs and innovation points, and analyzes the customer value life cycle through research on Lego second-hand information and on-site visits to Lego child players. , analysis of the causes of the 2003 Lego crisis and response strategies, focusing on internalizing the content of the course "Creativity and Corporate Breakthrough Strategies" through research on Lego, and understanding the laws and principles of corporate innovation, and the life cycle of corporate value. Practical application and analysis of problems that may be faced at each stage.
Keywords: LEGO, innovation, crisis, customer needs, value life cycle, value proposition
1. Analysis of LEGO customer needs and main innovation parts:
< p> 1. The core needs of customers - pride in independent creation:Children are naturally curious and like to create on their own and gain a sense of accomplishment from it. In order to personally confirm this demand, I visited many families with children who play with Lego. One 8-year-old boy impressed me deeply. He had bought a variety of toys at home, but only Lego could keep his children from getting tired of playing with them. , there is even a dedicated "Lego display cabinet" in the home, which lists various finished Lego products that the children have built by themselves. Each piece has its own name. "Every time the children bring their friends to the house, they will take them first." Look at the display cabinet and show it off, this is his most precious treasure." The child's mother told me anecdotes about her child. Her words and demeanor conveyed to me the child's full joy and pride.
LEGO's core values ??firmly grasp this need - "Let children create unlimited possibilities through the assembly system of building blocks." Three basic modules with eight points of the same color can have With 915.1 million possible combinations, children can build anything they imagine and gain a sense of creative pride from the fun of building. [2]
2. Parents’ needs - focus on children’s development and creativity
With the improvement of living standards and the advancement of science and technology, parents’ concepts of education for their children are also changing. With the changes, the fierce competition in the modern business environment has caused parents to be "anxious" about their children's education. In addition to cultural subjects, parents are increasingly paying attention to their children's development and creativity, and are no longer satisfied with letting their children "just play", but They hope to cultivate children's intelligence and creativity while having fun, because they have high expectations for their children's future;
LEGO's innovation lies in creating an entertaining and educational game system and changing the marketing model , shaping the image of education, making Lego not only a toy, but also educational. [2] Education through fun is different from pure school education. Lego can more easily stimulate children's interest and initiative, and cultivate children's hands-on ability, thinking ability and creative problem-solving ability while having fun.
3. There are differences in the needs of different countries and regions:
There are cultural differences in different countries and regions, and parents also have differences in the way their children play, as mentioned in the article " American parents value their children's independent exploration spirit and do not like to intervene and teach their children while they are playing; but European parents like to sit on the floor and play with their children. "Lego's innovation lies in its ability to first understand the needs of different regions. Customers analyze and understand, identify differences in needs, and further make differentiated designs. [2]
2. LEGO’s stages in the customer value life cycle and key points of innovative value proposition
1. Research and development period: approximately 1934-1958
< p> The LEGO brand was born in 1934. In the early days of its establishment, it mainly focused on wooden toys; until 1947, LEGO began to develop plastic toys. This was also a manifestation of LEGO's vision. During the wooden toy period at that time, it placed bets on the future of new plastic building blocks. After about 10 years of repeated research and development and trial and error, the modern prototype of LEGO was born, and a patent was applied for in Copenhagen on January 28, 1958. [1]Innovation value proposition: "Inspire and cultivate tomorrow's builders", encourage children to pursue their ideals through "hands-on" and "brain-use", this value proposition has also become the backbone of LEGO Core values ??developed over decades; combined with its core value "The best is good enough", LEGO began to differentiate itself from other competitors.
2. Training period: about 1958 - 1978
As shown in the figure, around 1960, Lego's sales began to grow, but the growth rate was limited and the market size remained At that time, there were dozens of manufacturers producing construction toys, such as mini building blocks, Lincoln building blocks, etc., but none of them could form a system. Lego realized that "it must develop from producing individual toys to being able to create entire game systems." [1]
The biggest innovation at this stage was to focus the company's resources on a clearly defined core business - "Plastic Building Block Game System", and gave birth to LEGO's six innovation principles: (1 ) Limit the size but not the imagination; (2) Make it affordable for consumers; (3) Simple, durable, and rich in variety; (4) Suitable for men, women, old and young; (5) A classic among toys, no need to update; (6) ) distribution channels are smooth. [1] At the same time, LEGO also focuses on high simulation, "No matter what you build with LEGO bricks, it will be as real as the real world." [1] These values ??and principles laid the foundation for the later mass production and sales of LEGO.
3. Growth period: approximately 1979-1993
In 1979, Kyle was appointed president and established an effective management system around the LEGO game system. Lego has experienced a 15-year period of rapid growth, and its product operations have begun to focus on sets. [1] As shown in the figure "Lego Sales Trend Chart 1", Lego's sales increased rapidly during this stage.
At this stage, LEGO’s innovative value proposition lies in segmenting the market to make it easier for users to find suitable products. At the same time, it allows LEGO’s R&D and marketing teams to focus more on their products and better meet the needs of specific customers. The needs of market users. That is, "the product line is divided into three parts according to different users: Duplo - large building blocks for young children, LEGO Construction - basic assembly sets that are the core content of the LEGO system, and others - other LEGO assembly materials."
4. Maturity period: mid-1990s (about 1993-1998)
By the mid-1990s, LEGO had become a large company with 45 branches on six continents around the world. Group, its sales scope has expanded to the world, [1] sales volume is large and stable.
At this stage, Lego Company was rapidly globalizing, but it failed to be accompanied by enough innovation. It began to become complacent, complacent and conservative. Lego became a slow-paced company. The current situation at this stage also determines Lego is heading for crisis. [1]
5. Decline period: about 1998-2004
As shown in the figure, although Lego's sales continued to increase steadily from 1994 to 1998, profits were still declining. declined, and suffered its first loss in 1998, with losses reaching US$47.8 million[4]. According to data, Lego lost up to US$1.6 billion in economic value from 1993 to 2002, which is equivalent to an average loss of US$500,000 per day. [1] Lego has entered a period of decline.
There were major missteps in the innovation value proposition at this stage: the team led by Bragman seriously departed from the basic principles of the LEGO play experience (development, imagination and creativity) in order to pursue those who did not like construction toys. New users (accounting for 2/3)[5] weakened the value proposition of "the joy of building and the pride of creation", thereby alienating LEGO's traditional core users, and once brought LEGO to the edge of bankruptcy.
6. Transformation and development period: 2004 - now
In October 2004, Jorgen Vig Knudstorp became the CEO of LEGO. LEGO has overcome the bankruptcy crisis and entered a new development period, taking major measures. There are: restoring the "Depot series"[3], withdrawing from direct operation of a large number of derivative businesses, Mindstorm" Lego robot creating the first industrial ecosystem based on an open source platform, etc. [1]
The biggest innovation of LEGO at this stage is the return of LEGO's original value proposition, adjusting the focus to core customers and "stimulating and cultivating the builders of tomorrow"; at the same time, reshaping LEGO's corporate culture and returning to the fundamental values ??of LEGO at the beginning of its business - "Less on flashy strategies and more down-to-earth"; return to the concept of "serving retailers first, then serving children".
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3. Analysis of LEGO’s huge economic losses in 2003
1. Analysis of external causes:
The rise of the video game market , game companies led by Atari and Nintendo have changed the children's game market. These highly addictive computer and television games have taken away children's time and attention. Children's demand for toys has begun to transform. Lego has played a key role in these new interactive games. It seems "old" and "conservative" in front of me. [2]
2. Internal reasons (main reasons):
(1) Deviation from LEGO’s core value proposition and loyal user groups
Through investigation, LEGO found 2/3 of children said they would rather play game consoles than play building blocks. LEGO is ambitious to capture this new group of users. They believe that "building experience is no longer the main goal" and should "highlight action." and game value", and replaced the main sales "Duplo series" with the new "Exploration series", but in the end not only failed to capture the new user group, but also lost the original loyal fans. Fans felt that they could not find LEGO from them. Traditional value proposition – “The joy of building and the pride of creation.” [1]
(2) Exploring multiple blue ocean markets and all-round innovation in a hurry for quick success
Lego launched “Lego Movie Studio”, “Discovery Series” and “Lego Education Center” Waiting for innovation, eager to create more distinctive products to attract children's attention, and hoping to stimulate sales through multiple peripheral industries, this rapid expansion and innovation makes Lego face many unfamiliar fields and businesses; Every innovation has its own rhythm. LEGO is eager to succeed and can’t wait to withdraw from various supplementary products. The behavior of pushing back ideas has disrupted the market. For example, after seeing the success of the “Biochemical Series”, it immediately launched the “Defender Series”. In the end, most innovations All ended in failure. [1]
(3) Harm the interests of partner Lego retailers
Retailers have always been important partners of Lego and play a role in the business model to market Lego products to Children's promotion plays an important role, but with the development of Lego's "exploration of all-round innovation", Lego has established "brand stores". On the one hand, the operation of the store requires a lot of costs, on the other hand, it poses a threat to retail trade, and retailers There is a competitive relationship. [1]
(4) Decision-making errors in attracting innovative talents and cultural atmosphere
Lego failed to ensure that new employees met the company’s needs, despite hiring world-class development talents in various professional fields , but few people are good at using building blocks to create interesting game experiences, and have not integrated their works into the cultural atmosphere of Lego. [1]
New employees lack contact with management, and there is a lack of communication and cooperation between developers and designers, such as between the developers of the "Exploration Series" in Billund and the designer team in Milan There is almost no cooperation, no information exchange, and design concepts cannot be passed on. At the same time, failure to learn from setbacks and take relevant corrective measures to adjust strategies is likely to make the same mistakes again. [1]
3. Lego’s strategic analysis to reverse the crisis
Faced with the major crisis in 2003, Lego tried to make changes and reverse Lego’s current disadvantages:
< p> (1) Reshape LEGO’s corporate culture and return to LEGO’s core valuesReturn to the fundamental values ??of LEGO when it was founded – focus on “down to earth” and follow the principles of the early days of entrepreneurship – “The experience of LEGO games should be based on "Building blocks and building set system" and "Through the assembly system of building blocks, children can create unlimited possibilities"; return to truth-seeking and pragmatism, and let everyone understand through a series of facilities and writing that they are responsible for their own results and performance. [1]
(2) Establish close and win-win cooperative relationships with partners
It is not only necessary to consider LEGO’s own profitability, but also how to make retailers profitable. Fully understand retailers' ideas and needs, and send appropriate products to retailers in sufficient quantities at the right time to help increase retailers' profit margins. [1]
(3) Focus on profitable innovation
In the past, Lego has carried out too many innovations and was not profitable in many aspects. Therefore, Lego began to focus on the core resources of the company. Focus on profitable products.
Reduce fearless expenses, close unsuccessful projects, focus on the development and transformation of core profitable products, and create a financial tracking system. Any existing or newly developed product must prove that its sales profit is greater than or equal to the benchmark of 13.5% [1 ], allowing everyone to focus on innovations that can truly generate profits.
? (4) Strictly limit product costs
Lego conducted a systematic inventory of existing products and found that among the 14,200 building blocks developed in the past, 90% of the new elements were only After using it once, many parts were repeated, and some parts had only slight differences. In response to this discovery, LEGO discarded 50% of the redundant parts and encouraged children to use the remaining parts to create. This move allowed LEGO to save a large amount of production and transportation costs for mold equipment management. [1]
(5) Be truly customer-centric and focus on core customers to create together
LEGO believes that customers need to help the company determine market demand, rather than company executives Decide what the customer wants. First of all, it focuses on Lego’s core customers and sets the market target standard on Lego’s most important customers. It abandons the “2/3 of children who don’t like to play with building blocks” and firmly grasps the “1/3 of children who love to play”. Brick Kids,” though smaller in numbers, can be profitable.
In terms of methods to understand customer needs, Lego attaches great importance to "small data", that is, observing customers in real environments, focusing on people-oriented, visiting Lego customers, and gaining insights into the essence through phenomena. And use these insights to innovate targeted at customer needs. At the same time, we pay attention to the differences in needs of customers in different countries and regions, understand how customers in different regions play Lego, and carry out personalized designs based on these differences.
Pay attention to the ideas and needs of LEGO fans, create more opportunities for customers and fans to participate in LEGO interactions, and maintain this "dialogue" mode. On the one hand, it helps LEGO gain customers from them. Real feedback on the product has inspired the development of new products; on the other hand, it has turned a large number of customers into loyal fans of Lego and increased the stickiness of fans.
Prototype testing will be conducted at various stages of new product development to continuously understand customer feelings, that is, organize a group of children to meet, show them the new toy prototype, and then observe their interaction with the prototype to discover the existence of the toy Problems and continuous improvement, the purpose is to develop toys that interest target customers (children who like building blocks).
(6) Shape the image of “education” and enhance “willingness to pay”
Children’s parents are important decision-makers in their children’s purchase of toys. Compared with toys, parents hope that their children can play more Good cultivation of children's intelligence and creativity. In response to this demand, Lego changed its marketing model and gave toys an "educational" connotation.
From the perspective of creating value, the transformation from toys to educational products has improved parents’ “willingness to pay”, which not only helps LEGO stand out from the competition in toys, but also enhances customer loyalty and the LEGO brand. Image does not provide room for subsequent price increases.
(7) Cross-border cooperation and transformation into a diverse look
In order to enhance the brand image, LEGO has tried diversified cross-border cooperation and actively transformed into digitalization and developed new fields. For example, it launched "The Lego Movie" and cooperated with the movie "Jurassic World" to launch toys and games with the same theme. Utilizing cross-border alliances, LEGO is no longer just a game manufacturer, but will also use content marketing to become a "media company that tells the story of building blocks" so that its products can tell more meanings. [2]
4. Analysis of issues to consider in different stages of innovation
(1) R&D period:
Consider who the customers are and what their needs are (What are the customer’s pain points), specific trial scenarios, and what is our core value proposition? Focus on what products and services we can provide to customers based on their needs; adopt a customer-centric product innovation process to polish them into viable product units.
(2) Training period:
The first thing that needs to be considered in this stage is the issue of survival. Continuous trial and error and adjustment between the developed products and services and real users will eventually be needed. Before the capital chain is broken, there should be a good match between products and services and the real needs of customers. To avoid innovation that is divorced from core customers, designers cannot test products on behalf of customers.
Pay attention to forming differentiated product features and starting from a differentiated market. Small companies avoid direct competition with large companies. Many disruptive innovations seem to provide a poor experience at this stage. , which is contrary to the traditional business model of large companies (making traditional companies go from "looking down" to "not understanding" to "unable to catch up").
In terms of innovation, we need to pay attention to the "golden circle" rules, in the order of why-how-what, that is, first focusing on the core value proposition and brand value "Why do it?", "How to do it?", and finally It is "what to do" and avoid innovation that deviates from the core value proposition.
(3) Growth period:
Whether the business model can be used well for rapid replication and large-scale development is the key at this stage; in the process of large-scale development, do not be eager for quick success and quick profit, and strictly control Control standards and set up KPIs to prevent corporate principles, products and service quality from deforming during the expansion process.
At the same time, continue to focus on the core value proposition and do not deviate easily. Target core customers, allocate company resources to products and services that can meet the needs of core customers, and avoid unrestricted innovation.
Due to the rapid expansion of the team due to expansion, the introduction of talents must be strictly controlled to avoid recruiting personnel who are inconsistent with the company's core values; at the same time, new recruits must pay attention to the inheritance of corporate culture and values. , effective communication needs to be ensured during the project process.
(4) Maturity stage:
At this stage, you need to avoid blind arrogance and complacency, be "prepared for danger in times of peace", continue to maintain innovation, and consider advancing or delaying according to different product cycles. If If the product development time is long, it is necessary to start a new iterative upgrade as early as the growth period; the new iterative upgrade can consider platform-level innovation based on the existing foundation. This is not a simple superposition of functions. The starting point is higher, making it harder for competitors to catch up. and imitation, innovation should be aimed at profit, rather than unlimited innovation. We must grasp the pace of innovation and do not rush for success.
You can try process transformation innovation and supply chain management innovation to control costs, follow the "2/8 law", focus resources and manpower on profitable projects, and close projects with serious losses.
In the process of innovation, ensure the existing main business income, and do not give up the existing mature market share easily. Pay attention to the cooperative relationship with partners, do not damage their interests easily, and enhance the loyalty of suppliers\retailers.
Strengthen the establishment of brand value. Brand value is directly related to customer loyalty. Continuing to maintain interactive connections with core customers and maintaining a long-term and stable core values ??are important factors in enhancing brand value.
References
[1] David Robertson. Lego: The World of Innovators [M]. Translated by Tian Qinhua. CITIC Publishing House, 2014: 4-85
[2] Jason Huang. "Small data" is the way to go! 5 ways for Lego to regain dominance from the brink of bankruptcy [Z]. Innovation Latte, 2016: 1
[3] Chen Yiru. Brand transformation: Lego’s reversal between change and stability [J ]. Brand Chronicle, 2015: 1
[4] Martin Lindstrom. LEGO engineered a remarkable turnaround of its business. How'd that happen? [J]. Linked in, 2016: 1
< p> [5] JONATHAN RINGEN.How Lego Became The Apple OfToys[J].Fastcompany,2015:1