LEGO China market strategy case study

LEGO China plans to open 80 more shops in 2021: LEGO’s China market strategy

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LEGO is winning the Chinese market via providing the ultimate user experience. Through its omni-channel strategy, LEGO China creates meaningful experiences for its customers at every touch point. The experience as part of the whole product, improves customer satisfaction. The ultimate result of this satisfaction is that customers and LEGO get to know each other. This way, LEGOs China gets consistent feedback on what customers want and can forward this information to their R&D team. Increased customer satisfaction leads to repeated spending and lower customer acquisition costs, which caused LEGO to thrive in the China market.

Founded in 1934, LEGO is a private Danish toy company known around the world for its classic bricks. After 90 years of operation, the company has now become a brand with huge value attached to it. Currently, LEGO ranks 92nd on Forbes’ 2020 Global Brand Value 100 list and 75th on Interbrand’s Top 100 Global Brands list.

The history of LEGO in China

In 1993, East Asiatic Company, a Danish firm, officially launched the distribution business of LEGO in China, opening a 20-square-meter store in Beijing Lufthansa.. However, in the 1990s, when per capita monthly income in China was only a few hundred yuan, LEGO’s retail price ranged from tens to thousands of yuan, limiting its customers to high-income groups.

Even so, LEGO did not give up on its plans for China. In 2001, ZhiLe Ltd was established as the exclusive distributor for mainland China, responsible for the retailing and marketing activities of LEGO in China. To raise LEGO’s profile, ZhiLe started a series of promotion activities. In 2001, LEGO China offered free accessories to consumers, including LEGO alarm clocks, LEGO watches, LEGO posters, etc.

Nevertheless, due to the initial low popularity of LEGO in China, ZhiLe Ltd. only introduced some basic models of LEGO series, while some big models, such as  the LEGO Star Wars series, were not sold in China.

New offline stores sell LEGO products in China

In 2006, Kidsland, a wholly-owned subsidiary of ZhiLe Ltd, was officially established. It opened stores in Beijing, Shanghai, Guangzhou and other places, selling LEGO, Transformers, Pony Polly, and more. In the same year, Toys “R” Us entered China and began selling exclusive LEGO products such as the LEGO Exo-Force Series. In 2007, Kidsland opened its first LEGO Store in Beijing, selling only LEGO products, including toys and other accessories (backpacks, key chains, etc.). Since then, LEGO’s popularity in China began to rise, and more LEGO series products started to be introduced in the country, including LEGO Star Wars, LEGO Batman and other series that were unavailable in China before.

In 2012, Kidsland opened China’s largest experience store in Beijing, with two-thirds of the area being the experience area. A year later, the Shanghai New World Experience Store also opened. As a result of its success in China’s first tier cities, Kidsland further expanded its business into second and third tier cities. By 2015, Kidsland has opened more than 80 LEGO Stores in China.

LEGO aims to be the no. 1 toy brand in China

LEGO has stepped up its exploration of the Chinese market since 2016. Within a year, LEGO launched the LEGO Discovery Center, announced the location of the first LEGO park in China, and opened the China’s first officially owned LEGO flagship store in Shanghai. Simultaneously, a LEGO factory was set up in Jiaxing, allowing LEGO products to be available in China at a pace that matches the rest of the world. The former LEGO CEO, Jørgen Vig Knudstorp also talked about his commitment to building the company into the No. 1 toy brand in China during an interview in 2016.

The accumulations of these initiatives lead LEGO China to achieve a net income growth of 22.07% and 17.89% in the Asia-Pacific region between 2019 and 2020 according to LEGO’s annual reports. During the 2020 Covid-19 pandemic, LEGO China even took nearly half of the online toy retail market, accounting for 46% of total toy sales in the first half of 2020 while nine local brands shared the remaining 54% market share.

Overview of the toy market in China

China is gradually becoming the world’s biggest toy market. According to statistics released by the China Toys and Infants Association (CTIA), the total retail sales of toys in China reached 75.97 billion yuan in 2019, up 8% year over year.

Total Chinal toy market retail sales 2017-2019

Data Source: China Toys and Infants Association, Total China annual toy retail sales 2017-2019

Although toy sales in China are still dominated by offline channels, which account for 67% of total retail sales (CTIA, 2019), the share of online channels is bound to increase with the development of e-commerce in China. On Jingdong.com, the e-commerce platform which attributes the most online toy sales, LEGO has more than 13 million subscribers who continuously following the toy brand’s latest news and products.

LEGO’s official Jingdong store with more than 13 million subscribers

Source: Jingdong.com, LEGO’s official Jingdong store with more than 13 million subscribers

LEGO’s China market strategy

Constant innovation

Innovation has long been one of LEGO’s core competencies. According to the CEO, each year, about 55% of LEGO’s product portfolio is new. The basis for such strategy is LEGO’s strong story telling ability to monetize IPs, including both LEGO originals and others. For example, the LEGO’s Star War series which launched in 2014 is still by far one of the most popular products even after 6 years. Other well-known LEGO original IPs such as LEGO Friends, LEGO Ninjago, LEGO Legends of Chima also proved to be successful in the market.

LEGO China’s localized innovations

On the basis of innovation, LEGO China developed a series of products to cater the Chinese market. Back in 2003, LEGO launched an ancient Chinese themed kit called “Dragon Castle” in its Oriental Expeditions series. In 2016, after increasing its investment in China, the company updated the Ninjago series by adding more Chinese elements, such as dragons and a tea-loving saint character. In 2020, LEGO released the Monkie Kid Collection  inspired entirely by a Chinese legend, The Monkey King. The collection soon became one of the top-sales in the Asia-Pacific market, according to LEGO’s 2020 Annual report.

The LEGO Dragon Castle Kit available in  China

Source: LEGO.com, The LEGO Dragon Castle Kit

The Monkie Kid™

Source: LEGO.com, The Monkie Kid™

LEGO’s digital innovation

After global sales slumped in 2017, LEGO decided to breathe new life into its products by increasing investments in digital services. Not only has LEGO created official stores on Tmall and JD.com to increase online distribution channels, but also launched the LEGO Mario Bundle, the first LEGO product that combined the classic video game experience with LEGO.

For China specifically, LEGO has collaborated with Tencent, one of the biggest media and video game developers in China, to develop the “LEGO Video” section on Tencent Video and the video game “LEGO infinite”. As a result of all these innovations, LEGO’s sales in the Asia Pacific market increased by 22% in 2020, while global sales increased 13%.

the LEGO Mario product

Source: LEGO.com, the LEGO Mario product

Enhancing offline purchasing experiences

LEGO has integrated the decor of each official flagship store into the local culture to bring a different experience to offline customers. For example, in the LEGO store in Beijing, there is a LEGO Forbidden City, while in Shanghai, it is the Oriental Pearl TV tower. LEGO’s strategy for offline stores is to create an immersive experience that puts users in the LEGO world by “LEGOizing” some of the most familiar landmarks and objects, creating a memorable, fun and immersive experience.

Oriental TV Tower in Shanghai LEGO Official store in China

Source: Dianping.com, Oriental TV Tower in Shanghai LEGO Official store

Forbidden City in Beijing LEGO Official store in China

Source: Dianping.com, Forbidden City in Beijing LEGO Official store

At the same time, the toy brand is also accelerating the distribution of LEGO education classes in China. LEGO education created 10 different types of courses according to the age of the child, from the age of 2 to the age of 11 and above. The content ranged from early education to basic programing language such as Python. In 2017, LEGO also launched LEGO Boost, a kit that can be programed for education purpose. This product is also available online and in-store purchases. The program publicize “Cultivating Students’ Innovation, Self-Confidence and Learning Ability” to create unique learning experience, and cater to the educational needs of Chinese parents for their children. What is more, since the main target customer segment is children, LEGO education enables LEGO to expand its brand awareness and improve brand image among its customers and foster purchasing activities on other products.

The LEGO Boost product China

Source: LEGO.com, The LEGO Boost product

LEGO China’s challenge of trade mark protection

It is no secret that China has a long history of counterfeit brands, and unfortunately for LEGO, its plastic bricks are all too easy to imitate.. As a result, LEGO has always attached great importance to trademark protection in the Chinese market. Jacob Kragh, general manager of LEGO China, believes that pirated LEGO products on the market can cause families who intended to buy LEGO to buy imitation products by mistake, thus creating a “non-uniform” LEGO experience and affecting their own reputation.

LEGO’s most used tactics in the face of fake brands is litigation. The first LEGO lawsuit against a pirated brand dates back to 1999, alleging Kegao Ltd. infringed the copyright of 56 of its LEGO bricks and won. Since then, LEGO has always been fighting against fake LEGO brands; one of the most famous ones would be lawsuit against LePin in 2016. In the subsequent search, the court found out that LePin has produced and sold more than 4.24 million boxes of infringing products, with a total sales amount of more than 300 million yuan. The CEO of LePin was eventually sentenced to seven years in prison and fined 90 million yuan, one of the biggest victories in  China’s intellectual property protection history.

In addition, LEGO is also working with the Chinese government to raise copyright awareness among young people. On June 7, 2020, LEGO and China Intellectual Property News jointly launched the “Intellectual Property Knowledge into the Campus” activity, which interacts with students in the way of live broadcasting, shares intellectual property knowledge, and helps children cultivate the awareness of trademark protection and establish the concept of intellectual property protection.

Counterfeit Brands of LEGO in China

Source: Zhihu.com, Counterfeit Brands of LEGO

Copying LEGO China’s teaching business model

Despite its strong protection on trademarks of toys, LEGO is unable to stop others from coping the LEGO Teaching business model. For example, one of the biggest copycat LEGO teaching brands, Sooper Builder, has more than 300 stores in 20 provinces and more than 120 cities in China, providing LEGO education services to more than 100,000 families.

There are several reasons for this. First, there are no technical barriers to LEGO education; any person with a box of LEGO can establish a LEGO education institution. As long as they are not using “LEGO” as part of their trademark, these counterfeit brands are fine. Second, LEGO official has no clear definition of what it takes to be a LEGO education teacher, such as a teacher qualification certificate, so the concept of a “Qualified LEGO teacher” does not exist. This implies anyone is “qualified” to start a LEGO teaching program

LEGO teaching copycat brand Sooper Builder

Source: sooperbuilder.com, LEGO teaching copycat brand Sooper Builder

What brands can learn from LEGO’s China market strategy

  • LEGO constantly innovates to give customers new experience. Part of these innovations is localizing to the Chinese market through incorporating cultural elements into their products.
  • LEGO protects its intellectual properties to give customers a uniform and high-quality experience. This is important for any toy company in China, as many consumers are not aware that the product they are buying is a copycat, but still may be disappointed by a lower quality experience.
  • LEGO enhances its offline channels to provide different purchase experience from online purchases, including carefully designed official stores and LEGO teaching sites.
  • However, because of the low entry barrier, LEGO is unable to prevent counterfeit LEGO education institutions for now.

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