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A Not-So Average Day in Economics: Happy Birthday, LEGO!

Everyday is usually awesome, but today, August 10th is an extra-awesome one because it’s Lego’s birthday! My childhood memories will always be filled with fond memories of endless Lego-building, Legos, and trips to Legoland.

Legoland: One of my fondest childhood memories

But what is the magic of these little plastic bricks that are worth even more than gold? Yes you read it right…they are that valuable!

The first toy car built by Ole Kirk Kristiansen in 1932.

Lego’s success comes from its business strategy of “Lego System in Play.” This means that each set pretty much has the same basic bricks, but over time (and several hundreds of dollars later) kids will be able to produce something bigger, better, grander. When a family decides to invest in a Lego set, it becomes a Lego household altogether.

This doesn’t mean, however, that Lego has not had its own challenges. When it lost its patent on its interlocking bricks, several competitors such as Mega Bloks, KRE-O and others started producing cheaper alternatives to Lego’s more expensive product. Lego started to bleed money and was forced to revisit its marketing strategy but held steadfast to its commitment to quality; a strategy that clearly paid off in the long-run.

Companies like Mega Bloks and Kre-O provided stiff competition to LEGO due to being cheaper alternatives

In the short run, however, and faced with stiffer competition, Lego decided it would begin to create several spin-off product lines to see what stuck. Only one seemed to keep the company afloat that proved to be such a hit to boys…enter, Bionicle.

The Bionicle product line was so successful that it inspired several films, TV shows, books and more.

But its financial woes didn’t seem to improve in spite of Bionicle’s success. In 2004, however, CEO Knudstorp started to eliminate unprofitable sets. He also realized that those sets that have narratives or storylines to support them seemed to be more popular, like Bionicle and, eventually, Star Wars. Lego continued to ride this streak by obtaining licensing agreements with established brands, like Harry Potter, Marvel, Disney, etc; a move that clearly paid off for them. It is important to note, though, that these agreements work perfectly well because Lego continues to stand by its promise of safety and quality.

These are just some of the brands that LEGO struck licensing agreements with, allowing them to create characters from these brands

Lego’s future remains bright and remains to be the most valuable toy brand for the ninth year running. So, if you have a bunch of legos sitting in box somewhere, maybe it’s time to dust them off…they may be one of the best investments your parents have given you. The Lego universe, after all, is built on a foundation created by these interlocking plastic bricks that will be difficult to topple down.


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