I’m going to play with Legos after posting this.
If you didn’t already know, and couldn’t tell by todays background, I am A HUGE Lego fan! So why not make episode 50 all about Lego?
Today we are talking about the evolution of Lego, and how they almost fumbled the bag… er… the box!
The Marketing Gateway is a weekly podcast hosted by Sean in St. Louis (Sean J. Jordan, President of https://www.researchplan.com/) and featuring guests from the St. Louis area and beyond.
Every week, Sean shares insights about the world of marketing and speaks to people who are working in various marketing roles – creative agencies, brand managers, MarCom professionals, PR pros, business owners, academics, entrepreneurs, researchers and more!
The goal of The Marketing Gateway is simple – we want to build a connection between all of our marketing mentors in the Midwest and learn from one another! And the best way to learn is to listen.
And the next best way is to share!
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Copyright 2025, The Research & Planning Group, Inc.
TRANSCRIPT:
People who know me know that I’m a big Lego fan, and if you look behind me, you can see a few of the many Lego sets we have around my home office, and I’ve got quite a few more at my workplace office as well.
I’ve been building Legos all my life, and while most of the time, I’m building the boxed kit sets, I also occasionally just get out boxes of bricks and start building whatever feels right in the moment. I’m not one of those master builder types – those guys take things to a whole new level – but I really do enjoy seeing their techniques for building things that ordinary wouldn’t be easy to build out of bricks. There are all sorts of techniques for building things to be smooth without any studs or bottoms showing, and I’m truly impressed by the ingenuity of those who make building models of the things they love into a fulfilling hobby.
But like any fandom, there’s drama, and one of the big controversies in the world of Lego right now involves this piece called the smart brick, which is basically a standard sized 2×4 Lego brick with a microchip, a speaker and some LEDs inside it, allowing it to be integrated with just about any set and used to add lights and sound effects. Lego just announced them this week and is launching them as part of the Lego Star Wars series, and adult fans are questioning whether Lego – one of those brands synonymous with imagination and play – really needs to add multimedia light and sound to its sets.
This isn’t the first electronic Lego brick – there have been light-up bricks and robotic kits and remote control motors and Super Mario Brothers sets that add computerized gameplay and even a voice brick for the recent Transformers Soundwave set that allows you to hear recorded lines from the character.
<Play some of them>
But any time Lego takes a big swing like this, it’s also important to remember that while they’re one of the biggest and most beloved toy brands in the world, there was a time about 25 years ago when the company almost went bankrupt. And unlike almost every story like this, it wasn’t because they’d declined in quality or were making poor decisions or got acquired by a private equity firm or anything like that.
Nope. Lego got itself in trouble by listening to the experts.
And the only way out of that mess was to stop following the instructions and start building something new.
I’m Sean in St Louis, and this is the Marketing Gateway
The story of Lego is a story of innovation, and it all goes back to the company’s founder, Ole Kirk Christiansen, a toymaker in Billund, Denmark who started out making wooden toys and then started experimenting with plastic injection molding. He came up with a design for modular bricks that had studs on top that could lock into hollow spaces on the bottom and realized this would make a better toy than wooden blocks that could be stacked, but easily knocked over. His bricks were strong sellers in the 1950s and 60s, but it was the late 1970s when Lego really took off as a brand, becoming one of the biggest independent toy brands of the 1980s.
Part of what made Lego so popular was the quality of its design and its playsets, but Lego was also very careful to limit the number of sets it had available. Lego’s primary lines included Duplo, Town, Space, Castle, Trains, Boats and Technic sets, but Lego experimented a lot with sets aimed at different target markets – girls, babies, educators and model-builders – resulting in lines like Lego Dacta, Lego Scala, Lego Fabuland and Lego Model Team.
But the siren’s call of producing more specialized playsets for the mass market was too strong, and Lego decided to expand what it was offering. Their first new series was the Lego Pirates line, introduced in 1989, and the 1990s saw a big expansion into themes like Lego Aquazone, Lego Wild West, Lego Time Cruisers, Lego Ninja, Lego Adventures and Lego Rock Raiders. The Castle sets also started adding more factions to the traditional Lion Knight and Black Falcons armies, and the Space sets began adding new groups like the Blacktron, the Space Police, the Magnetron and many different types of aliens.
Lego was also investing in other ways to grow its brand. In 1968, Lego had opened a theme park in Billund called Legoland that was one of Denmark’s most popular tourist attractions, and Lego decided to open replicas of this park in the United Kingdom, California and Germany.
And then Lego made one of its biggest announcements in 1999 – it was going to make a whole series of toys based on the Star Wars films, starting with the original trilogy and also including the new prequel trilogy. It wasn’t long before they were producing other sets based on popular movies like Harry Potter and Jurassic Park III as well as Marvel Comics’s Spider-Man and characters owned by Disney like Mickey Mouse and Winnie the Pooh.
But just four years later, in 2003, Lego was in trouble. It was running $300 million in the red and was projected to lose $400 million the next year. The company was about to go bankrupt, and it wasn’t easy to understand why.
And so corporate management started investigating.
One of the biggest problems was that Lego’s management culture had gotten obsessed with growth and innovation thanks to a lot of expert advice on how they could grow their brand. Lego also had a culture of allowing any employee to suggest new ideas.
This was, incidentally, in line with a lot of expert advice on how toy manufacturers could stay current in an increasing global market – by staying ahead of the innovation curve and offering experiences unique to the brand. Lego was creating all sorts of exciting new bricks and ways to enhance their toy line, and the company was very proud of the fact that all Lego bricks – including the Duplo line! – were still compatible with one another regardless of theme, allowing those who’d been collecting Legos for a long time to be able to use old and new blocks together.
But these innovative bricks and pieces came with a big cost – specialized parts required specialized production and increased the time needed to sort pieces, assemble kits and inspect them for quality assurance. The more unique parts each set needed, the greater the cost in producing them.
Lego was also finding that these newer sets weren’t growing their market share – it was fragmenting it. They were moving the same number of units, but a far greater number of SKUs, which meant the profit per SKU was much lower due to production and shipping costs.
Lego had to reorient its philosophy to what it called Controlled Innovation, which meant that there was a more organized structure for evaluating new ideas that involved asking a lot of questions to put these ideas to the test and that there was a guiding principle of being the best company for family products.
Another major problem was that Lego was still manufacturing its sets in Denmark, which meant production was more expensive and the cost of shipping to an international market was higher. Competitors such as Mega Bloks, on the other hand, were being produced in Asia where manufacturing costs were far lower and international distribution was more standardized.
Lego decided to close its standalone headquarters, move management into a factory and then begin manufacturing operations in the Czech Republic and Mexico to save on costs.
Lego’s stake in theme parks was also problematic because it meant running a separate division that had to operate those parks, which were now in four different geographic areas. The parks were successful and quite popular, but they also required continued management to stay that way.
And so they sold a 70% stake in the parks to the investment firm The Blackstone Group, generating enough cash to cover the operating capital they needed to restructure the Lego company itself. This formed a successful partnership, and even to this day, Lego’s primary investment company, Kirkbi, has a stake in theme park and attractions operator Merlin Entertainment with Blackstone, and Merlin Entertainment has greatly expanded Legoland’s footprints while also operating the popular Lego Discovery Centers, which Lego recently acquired back from them.
Lego also had to come to terms with the fact that the toy market was changing in the early 2000s and that they had experienced their biggest growth during a toy market boom in the 1980s. Many traditional toy manufacturers, such as Mattel and Hasbro, were struggling in the 2000s to compete with sophisticated electronic toys and video games, and the narrower field of “boy’s toys,” which Lego largely fit into, was even more competitive, often requiring substantial media and advertising support to keep toys current. Research was also finding that boys were also aging out of the toy section more quickly than before, narrowing the number of customers who might want to purchase Lego toys during the holidays, for birthdays or other special occasions.
Licensed toys based on popular franchises and movie tie-ins were still big sellers, and Lego was smartly positioned to have tie-ins with Star Wars and Harry Potter. Again, this went along with expert advice, because everyone was trying to attach themselves to the massive success of Hollywood blockbusters during that time. But Lego also found that these toys tended to sell best when the movies were in theaters and that interest in these lines would then plummet, which didn’t work so well for a company that designed toys to be available on shelves for several years, not mere months.
But Lego had another ace up its sleeve – a line of toys called Bionicle that had first launched in 2000 and which was their own original intellectual property. Bionicle was different from more traditional sets because it involved building larger action-figure sized toys and battling them. It was also accompanied by a multimedia collection of web-based media, video games, comic books, picture books, novels and direct to video animated productions helping to flesh out the science fiction story.
By doubling down on Bionicle – and phasing out or cutting back many of its less popular lines – Lego was able to accomplish several goals. First of all, these less realistic toys could be built with fewer specialized parts, allowing Lego to cut down manufacturing and production costs and produce sets more quickly. Second, Bionicle sets were scalable to a variety of different sizes and configurations, allowing Lego to deliver waves of sets that fit different price points. And finally, because Bionicle had a compelling and popular fictional hook to go along with the toys, Lego could drive traffic to its website to create stronger engagement with the brand and build interest in Bionicle – and Lego! – through its ancillary media.
Bionicle became the template for several other lines that followed, including Knights Kingdom, Exo-Force, Legend of Chima, Nexo Knights, Monkie Kid and the Ninjago line, which eventually became even more popular than Bionicle and which is still going strong today.
But Bionicle had also taught Lego many lessons about what did and didn’t work when creating an original IP. One of the Lego themes that Bionicle had initially inspired was called Galidor, and while it too had a storyline and tie-in media, it had tried to use more traditional action figures in place of Lego bricks. The line did poorly and added many additional costs into Lego’s production and manufacturing operations. It was one of the first things phased out when Lego began to restructure in 2004.
After Lego steadied itself and took the lessons it’d learned seriously, it rebuilt itself into the behemoth it is today. In fact, in 2024, which is the year we have the most current information for, it had its best year ever, generating $11.5 billion in sales. Lego is one of the most highly-sought brands during the Christmas holiday season, and its expansion into the “kidulting” market over the last decade has been a resounding success with kits that allow adult fans of Lego, or AFOLs, to build flower bouquets and replicas of famous paintings and display items and architecture sets and history sets and so much more.
Lego also finally broke out of the boys market about 15 years ago with its Lego Friends line, its first successful series targeted at girls. The Friends sets are 100% compatible with the regular Lego sets, too, though the minidolls included in them have a different proportion than the iconic Lego minifigures.
And Lego is one of the only companies that has been able to successfully work with some of the biggest brands out there in marketing – Disney, Dreamworks, Illumination and Nickelodeon, or Marvel and DC, or Sega and Nintendo, or various automotive brands or shoe brands or camera brands or aircraft brands or even rival toy lines like Teenage Mutant Ninja Turtles and Transformers – to create some truly beloved and even iconic sets.
Lego’s even taking over the Pokémon license from its own rival, Mattel’s Mega Blox & Construx line.
Lego’s standalone retail stores and theme parks continue to be popular today. You can also buy Lego fashion apparel, board games, jewelry and more.
And of course Lego has enjoyed an enormous pop culture moment over the last 15 years with the success of The Lego Movie, the Lego Batman Movie and the Lego Masters TV Show, each of which has been a big hit.
But what I admire most about the company is that it remains committed to its core principles and values. It’s never sold its core business to private equity partners, never tried to reduce the quality of its products to improve sales and it’s never tried to devalue its brand by skimping on customer service or user experience. If you buy a Lego product, you’re virtually guaranteed to have a great time building something that you can enjoy playing with or putting on display.
And if you see a better way to build it, you, just like the company itself, can tear things down and start over fresh.
I’m Sean in St. Louis, and this has been The Marketing Gateway. See Ya Next Time!
So in lieu of a plug today, I want to note that we’ve reached Episode 50, and if you’ve been watching and supporting us, thank you so much for that!
We’ve been thinking about this show like a rocket blasting off into space. Our initial boost involves getting a lot of episodes up and in place, and then we’ll gradually slow down as we continue on our mission. And on that note, we’ll be slowing our pace down to 4 episodes for the remainder of 2026, taking Mondays off and airing new episodes Tuesdays-Friday.
But don’t worry! That means we’ve got another 200 episodes ahead for you this year. And Tuesdays and Thursdays will continue to be interviews with marketing mentors from St. Louis and, occasionally, beyond! I’m really excited to share those with you.
I also want to give a big shoutout to Holly and Trish, who help me with the show and who you’ll see again in future episodes. They’re always here behind the scenes, and I couldn’t do this show without them. I’ve said this before, and I’ll say it again – every aspect of our production is done with human hands, from writing the scripts to the final cuts, and even though our podcast platform keeps trying to push AI features on us, the only thing we really use AI for is transcripts. So the hard work that goes on behind the scenes is the result of a lot of passion and love for what we’re doing, and we do it for you, our listeners!
So, thanks for tuning in, and please keep doing all those things that help us out – leave a nice review, post us up on social media, hit the like button, subscribe on your favorite podcast platform and, of course keep listening! We appreciate you!
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