Research Update—Customer Experience Case Studies

Through Engagement and Interaction,

The LEGO Group Nurtures Loyalty
Among Consumers
By Lauren Gibbons Paul

More than 50 years ago, Ole Kirk Kristiansen founded The LEGO Group. He named it Figure 1
after the Danish words “leg gotd,” meaning “play well.” Today, as the fourth largest toy
company in the world, The LEGO Group not only helps adults and children do just that, The LEGO Group at a Glance
but it also strives to play equally as well with its own customers.
Business description: Privately held,
fourth largest toy company in the world
As a company whose trademark is its colorful building blocks, it is hardly surprising
that LEGO regards customer experience from a pyramid perspective. “We have a Location: Billund, Denmark
unique situation,” observes Conny Kalcher, the Slough, U.K.-based vice president of Products and services: Construction
Consumer Experiences at The LEGO Group. “The people who buy the products are toys, programmable robotics, educational
most often parents or grandparents, but the people who consume the products are products, board games, video games,
kids. We work on consumer experience with both of these groups,” she says. The amusement parks, retail stores
company views customer experience through the prism of loyalty management—in Annual revenues: $3.07 billion (2010),
other words, ensuring its very different types of constituents all get a valuable up 37.3% over 2009
experience, inspiring their loyalty and then rewarding them for being loyal customers.
Number of employees globally: 9,000

In fact, The LEGO Group segments consumers into several categories, based on Number of toy developers: 115
their affinity for the LEGO brand, Kalcher says. At the top of the pyramid are the lead Global toy market share: 5.9% (2010),
users—the adults and children who engage most heavily with the company, to the up from 4.8% in 2009
extent of helping to co-create LEGO products. The next segment down is the one-to- LEGO Club members: Over 4 million,
one layer, consisting of people with whom LEGO maintains an ongoing dialogue. The worldwide
third layer is the connective community layer, or people who spend time on The LEGO
Group’s online collaboration platform, where they can share files and work with staff in Source: The LEGO Group

a secure environment, Kalcher says. And finally, the base of the pyramid is the active
household layer—people who have bought LEGO products at some point in time.

All consumer types want something different from the LEGO brand, Kalcher says,
so their relationships with the company are varied. Loyalty management software
from SAP, integrated with The LEGO Group’s SAP ERP and SAP CRM platform,
helps ensure rewards offered to each group are synchronized with what they value
and their level of engagement with the brand. This move reflects the results of a
recent survey by Bloomberg Businessweek Research Services, in which companies
with tightly integrated applications reported a 20 percent improvement in the
customer experience they were able to offer (see Figure 2, “Integration’s Impact,”
on the next page).

From Monologue to Dialogue

It is The LEGO Group’s self-proclaimed job to move as many people up the pyramid
as it can, changing the consumer relationship from a monologue to a dialogue. For
example, not long after the company first developed its line of programmable robotics/ Lauren Gibbons Paul has written
construction toys—MindStorms NXT—in conjunction with the Massachusetts Institute extensively on customer relationship
of Technology, the software that enables the robots to perform different operations management and customer experience
management topics for more than 15
was hacked. Rather than condemn the people behind the system infiltration, LEGO
years. She has written for Peppers &
decided to befriend them. “We had to make a decision about whether we would work
Rogers Group, Forrester Research and
with these people or sue them,” Kalcher recalls. “We decided to work with them.” leading business technology publications.

1 | BLOOMBERG BUSINESSWEEK RESEARCH SERVICES JULY 2011

Research Update—Customer Experience Case Studies

The result: These consumers co-created the second generation of MindStorms with The
LEGO Group, she says, because they knew even better than the company’s engineers The LEGO Group’s Customer
what they wanted the robot to do. “By working with them, we [get to] know the lead Experience Challenges
users on a personal level,” Kalcher says. Lead users are introduced to the company and 6 In 2004, LEGO suffered a loss of
The LEGO Group involves them in special projects for which they have a passion, such roughly $191 million after venturing
as Web, game and community development. “They can become part of the company into new areas, such as action figures.
and still be doing their day job,” she says. Thanks to their input, LEGO’s new offerings The toymaker needed to refocus on its
match real-world demand. construction toys and related customer
experience. Focusing on customer
One segment of lead users is known as LEGO Certified Professionals. This sub-group is experience and loyalty management
interested in turning their LEGO hobby into a part-time or full-time business, Kalcher would help it return to growth.
says. Currently, there are about a dozen Certified Professionals worldwide. “They come 6 The company has been a leader in the
to us with a business plan, and we grant them the right to use the logo, and then we worldwide toy market for decades. But in
stimulate the long tail,” she says, referring to Chris Anderson’s book titled The Long recent years, toys based on electronics
Tail: Why the Future of Business Is Selling Less of More (Hyperion, 2006). The long have come on strong. LEGO needed to
ensure it remained relevant to lessen the
tail theory, according to Anderson, is that our culture and economy are increasingly
impact of increased competition.
shifting away from a focus on a relatively small number of mainstream products at the
head of the demand curve to a larger number of niches in the “tail.” 6 LEGO’s offerings have not yet gained
popularity among consumers in emerging
markets such as China, Mexico, Brazil
One Certified Professional is a former real-estate lawyer from New York, whose
and India. Future consumer experience
business is now building LEGO models for clients using LEGO Architecture, a high-end work will target these areas, according to
series geared primarily for adults. “We think by involving consumers in the things they the company’s 2010 company profile.*
are really passionate about, they will become ambassadors for the brand,” Kalcher
says. “That is really powerful.” *The LEGO Group. “Company Profile: An
Introduction to the LEGO Group, 2010.” http://
cache.lego.com/upload/contentTemplating/
The Power of Community AboutUsFactsAndFiguresContent/otherfiles/

Lead users can demonstrate the brand’s potential in a much stronger way than the
company itself can, Kalcher says. In fact, another sub-segment, known as LEGO
Ambassadors, arranges LEGO events all over the world. “They are displaying their
passion for LEGO products at these big shows,” she says, in addition to
demonstrating to families what can be done with the products. Such shows Figure 2
draw 2.5 million visitors a year, according to Kalcher. In total, there are 70
LEGO Ambassadors from 24 different countries. Integration’s Impact
Respondents with tightly integrated applications rated their
Other LEGO communities have also sprung up, such as the Kids’ Inner Circle company’s customer experience much higher than others.
and adult LEGO User Groups (LUGs). They refer to themselves as “AFOLs” (Respondents were asked to rate their company’s customer
(Adult Fans of LEGO), and the company has developed relationships with experience on a scale of 1 to 5, where 1 is a poor experience and 5
is an excellent experience.)
more than 50 such groups, which have 55,000 registered members with their
own Web sites, blogs and discussion forums. Overall respondents 3.62
O
All of The LEGO Group’s work to interact and engage with its consumers seems
to be paying off. The company has approximately 9,000 employees globally, Respondents with tightly integrated applications 4.34
including over 115 toy developers, and the LEGO Club has over 4 million Base: 1,004 respondents from midsize to large companies, worldwide
members worldwide. In spite of the worldwide recession, company revenue Source: Bloomberg Businessweek Research Services, 2010
was up 37.3 percent in 2010.

LEGO drives loyalty by creating targeted experiences for its different consumer groups,
as customer experience consultant Steve Curtin discovered when his young sons

2 | BLOOMBERG BUSINESSWEEK RESEARCH SERVICES

Research Update—Customer Experience Case Studies

attended a Star Wars-themed birthday party at their local store.1 All of the party guests
were treated to goodie bags containing a copy of the LEGO Club Magazine, a membership Elements of The LEGO Group’s
card, a store coupon, a “Builder’s License” and a tips-and-tricks card. Soon, his sons Customer Experience
were extending their LEGO experience by immersing themselves in more LEGO activities 6 LEGO segments consumers into different
(including building models, reading their magazines and going online to the Web site). groups (such as children, parents,
While at the Web site, they identified models they would like to buy with the store grandparents and adult enthusiasts) and
coupons they received. LEGO is particularly successful at creating these types of tailored provides different resources and rewards
cross-channel interactions, he says. Meanwhile, The LEGO Group offered a number of for each group (including discounts,
benefits for the birthday child’s parents—another constituency—such as the inclusion special content and access to LEGO
of invitations and thank-you notes, to make their lives easier, along with the purchase developers, where appropriate).
of the party. “While the children are busy building LEGO models,” Curtin says, “LEGO is 6 LEGO monitors and interacts with
building loyalty through value and the customer experience.” consumers and lead users through its
Web site, blogs, discussion forums,
Enabling Consumer Centricity online collaboration platform and
face-to-face meetings, in addition to its
use of sentiment analysis tools.
Getting to this high level of consumer interaction and engagement required
organizational change. About three-and-a-half years ago, Kalcher says, in a move to 6 By engaging with and listening to
refocus on the customer, LEGO centralized all of the departments that have direct consumers, LEGO discovers which
experiences and product features
contact with consumers—including consumer service, community, clubs, loyalty and
enthusiasts want to see and incorporates
consumer insights.2 “It was a bold step,” she says, “but it has given us space to develop real-world demand into its new offerings.
that area much faster.”
6 LEGO provides additional perks for its
elite adult aficionados, including the
To understand consumers even better—and even interact with them directly—The LEGO chance to ascend to the coveted LEGO
Group is looking into using sentiment analysis tools, which enable an automated way to Ambassador status.
“listen” to what people are saying about a company on the Web and alert that company’s
management to whether things are going in a positive or a negative direction. LEGO is
also conducting an audit to determine the best way to leverage social media, and it plans
to establish a Facebook page for consumers who are older
than 13. In this way, the company is in line with many other Figure 3
businesses that intend to increase their use of social media. In
a recent survey, respondents named social media and online Social Media Is Top Investment Area
communities as the top investment for their digital marketing The majority of respondents said they plan to spend their digital marketing dollars
dollars (see Figure 3, “Social Media Is Top Investment Area”). on social media and online communities (percent of respondents).

In addition, The LEGO Group has introduced VIP, a consumer- Q: Where are digital marketing dollars likely to be directed?
loyalty program based on SAP Point of Sale to manage loyalty
O New social media and
rewards and points redemption and using SAP’s CRM software 65%
online communities
to store the information. The global program is available in all
Internet media channels 44%
of LEGO’s retail stores in 24 countries and online. “Our aim
is to develop it going forward, so it becomes an engagement Mobile messaging 33%
program as well as a loyalty program,” Kalcher explains. “The New methods of online
more consumers engage with us, the more we offer them content
31%
things that are meaningful to them.” 7
Base: More than 500 senior marketers worldwide
Source: CMO Council and Deloitte Consulting. “State of Marketing: Outlook, Intentions, and
Investments for 2010.” http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/
Documents/us_consulting_CMOCouncil_050510.pdf

1 Steve Curtin. “Building Loyalty Through Value at the LEGO Store.” Blog, Sept. 1, 2009. http://www.steve-
curtin.com/blog/2009/09/01/building-loyalty-through-value-at-the-lego%C2%AE-store/
2 Richard Stollery. “LEGO Rebuilds Customer Loyalty, Brick by Brick.” Mail Media Unit, Aug. 12, 2009.
http://www.anpost.ie/AnPost/AnPostDM/News/DMNews/2009/Richard+Stollery+-+Lego.htm

3 | BLOOMBERG BUSINESSWEEK RESEARCH SERVICES

Research Update—Sponsor’s Perspective

Driving Customer Engagement and Loyalty

The Loyalty Management module within the SAP CRM application provides a global
Recipe for Success
foundation for consumer products companies like The LEGO Group to enhance their
customer relationships. The key SAP ingredients to enhance
customer relationship management include:
The SAP CRM Loyalty Management module helps customers achieve several goals. 6 SAP CRM modules
They can use it to implement a loyalty program to better engage their best customers ‡ Campaign Management
no matter which channel those customers prefer—telephone, retail stores, kiosks or ‡ Loyalty Management
‡ Segment Management
even online “stores” maintained by a third party. The other SAP CRM modules also
‡ Interaction Center
support transactions conducted via mobile devices and social networking tools such
as Facebook. In addition, the overall CRM infrastructure is scalable and supports high 6 SAP Point of Sale
volumes of transactions—several organizations using the Loyalty Management module 6 SAP ERP
already support millions of customers.

Implementing the SAP CRM Loyalty Management module can be done in as little as three
months. Typically, clients like The LEGO Group have support from SAP Consulting or any
of SAP’s implementation partners. Clients report the time to value can be as little as a
few months.

Part of the fast payback for the consumer packaged goods companies, utilities, retailers
and others that have already implemented the Loyalty Management module within SAP
CRM comes from the native integration with other SAP enterprise components, such
as Point of Sale and ERP. This integration enables companies to provide complete,
end-to-end process automation and a 360-degree view of the customer. Employees
have complete information on customer accounts, along with customer activities like
purchases and interaction history across all touchpoints.

The bigger value of the SAP CRM Loyalty Management module comes from the ability
to analyze the performance of loyalty programs and to optimize these programs.
Companies can gain key insights from the real-time loyalty analytics and dashboards
to refine their strategy. The timely insights can lead to the ability to make mid-course
adjustments, more accurate targeting and personalized rewards. In addition, companies
can mix and match the types of rewards (gifts, cash, coupons or others) offered to
loyalty-program members. Implementing these insights enables organizations to
optimize the revenue and profitability of their customer relationships.

For More Information

For more information about SAP’s Customer Relationship Management modules,
including Loyalty Management, Campaign Management and Segment Management,
please visit this Web site: http://www.sap.com/index.epx#/solutions/business-
process/customer-relationship-management.epx

This research project was funded by

a grant from SAP.

© Copyright 2011. Bloomberg L.P.

All rights reserved.
BLOOMBERG BUSINESSWEEK RESEARCH SERVICES