21 Aug LEGO In Times of Small Data
The solution that rescued the company from a potential bankruptcy: an old pair of sneakers.
By Martin Lindstrom
It was early 2003 and LEGO faced serious drawbacks: after losing 30% of its turnover in 2002, another 10% vanished in 2004. “We are standing on a burning platform, we lose money with a negative cash flow, and a real risk of defaulting could lead to the disintegration of the company,” said Jørgen Vig Knudstorp, the company’s CEO. What happened to the Danish toy manufacturer to fall that much in such a short time? It could be argued that the origin of its problems dates back to 1981, the year in which Donkey Kong, the first portable game, hit the market. I started offering advice to LEGO in 2004, when the company asked me to develop its global brand strategy. I did not want the company to let go of what it had done well for such a long time, but no one could deny the growing ubiquity of digital products.
From the mid-90s onwards, LEGO be- gan to move away from its core product – blocks – and focused on its diversified but uncoordinated theme parks empire, children’s clothing lines, video games, books, magazines, television shows and retail stores. At some point during that same period, management decided that, because the millennials were impatient, impulsive and restless, LEGO should start building larger blocks. All Big Data studies (i.e. the analysis of large volumes of data) commissioned by the company arrived at the same conclusion: future generations would lose interest in the brand. LEGO blocks would follow in the footsteps of Chinese sticks, stickball (a street version of base- ball) and the blind cock. The so-called “digital natives” – that is, those born
after 1980 and getting to adulthood in the information age – did not have the patience to play with LEGO blocks and they would leave the interest in building with blocks behind. In other words, they would lose their capacity for fantasy and creativity, if they had not already lost it, because computer games were more attractive to them. Each study conducted showed that the generational need for instant gratification was more powerful than what a brick could offer.
Faced with such a forecast, it seemedan impossible mission for LEGO to reverse the situation. But, in fact, it did. The company sold its theme parks. Lego maintained its successful brand strategic alliances with Harry Potter, Star Wars and Bob the Builder fran- chises. The company also reduced the number of products and entered into new little exploited global markets.
However, it is likely that the most radical change in LEGO’s thinking was the result of an ethnographic visit we made in early 2004 to the home of an 11-year-old boy living in a city in Germany. Our mission? Find out what was what stood out for LEGO. That day, executives discovered that everything they thought they knew, or everything they had been told about children in the late twentieth and early twenty-first century and their new digital behaviours – including the need to compress time and obtain instantaneous results – was wrong.
In addition to being a LEGO fan, this 11-year-old German boy was a passionate skateboarder. At some point, when we asked him which his proudest possession was, he pointed to a pair of worn Adidas sneakers with holes on one side. Those sneakers were his trophy, he said. They were his gold medal; his masterpiece. More than that, they were a test. They were hung in the room so that everyone could see them and admire them. And he explained that the worn side was because he skated at the ideal angle. The heels were scratched and flat in an unmistakable way. The sneakers’ look and the im- pression they conveyed showed him, his friends and the rest of the world that he was one of the best skaters of the city.
Immediately, the LEGO team understood that theories of time compression and instant gratifica- tion were unrealistic. Inspired by what that 11-year-old German boy had told them about his old Adidas sneakers, they realized that children achieve social respect from their peers when they reach a high level of ability in whatever skill they have. If that ability is valuable, and worth it, they will practice it until they achieve what they want, regardless of the time it takes them. For children, it was all about doing what it took and having something tangible to show as a result … in this case, a pair of destroyed Adidas which most adults would not look twice.
Until then, LEGO’s decision making was based entirely on Big Data mountains. But it was the small data and an accidental perception – a pair of skater shoes from a LEGO fan who helped transform the company. From that point forward, the company focused again on its core product, and even raised the bet. They not only decided that the blocks would regain their normal size; but added more blocks, still smaller, to its boxes. The blocks had more details, the instruction manuals were more demanding and the construction challenges required more work than ever. Everything indicated that, for the users, LEGO was synonymous of call, provocation, dominion, skill and, last but not least, experience gained with effort. It was a conclusion that complex predictive analysis, despite their recognized ability to achieve “average” results, had overlooked.
Ten years later, during the first half of 2014, immediately following the worldwide success of The Lego Movie and related merchandising sales, corporate revenues increased by 11% to over $ 2 billion. For the first time
in history, the company had beaten Mattel, becoming the leading toy manufacturer on the planet.
author of seven books – the most recent was titled Small Data: The Tiny Clues That Uncover Huge Trends – is one of the most internationally recognized brand experts. He was considered one of the 100 most influential individuals in the world by TIME magazine. In 2016, Thinkers50 ranked him among the top 20 business thinkers and, for the third year in a row, he was ranked
as number one among brand experts. For more information, visit Martin-Lindstrom.com/smalldata.
The Value of small Data
Believe it or not, almost all the knowledge I gained as a global brand consultant came up in the same way: looking for what I call “Small Data”, seemingly insignificant behavioural observations that point to one or more unmet customer needs. What I found is that small data shapes the foundations of revolutionary ideas or the way to transform a brand. It could be about developing a new key for Porsche owners, designing a credit card for billionaires, helping reverse the fate of a tumbling supermarket chain or trying to position the Chinese automotive industry to compete globally.
A well-known proverb says that if you want to understand how animals live, you should not go to the zoo, but to the forest. And that is precisely what I do. In the last 15 years I have interviewed thousands of men, women and children in their homes in 77 countries. I travel on a plane or stay in a hotel room about 300 nights a year, which gives me the continuous opportunity to observe people and their cultures from their perspective, always looking for Small Data. In it lies today, and forever, the clearest proof of who we are and what we want. Even when, as LEGO executives discovered more than a decade ago, it was all about an old pair of Adidas sneakers with worn heels.