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Thu December 13, 2012
Why Legos Are So Expensive — And So Popular
Originally published on Fri January 11, 2013 10:26 am
I went to Toys R Us recently to buy my son a Lego set for Hanukkah. Did you know a small box of Legos costs $60? Sixty bucks for 102 plastic blocks!
In fact, I learned, Lego sets can sell for thousands of dollars. And despite these prices, Lego has about 70 percent of the construction-toy market. Why? Why doesn't some competitor sell plastic blocks for less? Lego's patents expired a while ago. How hard could it be to make a cheap knockoff?
Luke, a 9-year-old Lego expert, set me straight.
"They pay attention to so much detail," he said. "I never saw a Lego piece ... that couldn't go together with another one."
Lego goes to great lengths to make its pieces really, really well, says David Robertson, who is working on a book about Lego.
Inside every Lego brick, there are three numbers, which identify exactly which mold the brick came from and what position it was in in that mold. That way, if there's a bad brick somewhere, the company can go back and fix the mold.
For decades this is what kept Lego ahead. It's actually pretty hard to make millions of plastic blocks that all fit together.
But over the past several years, a competitor has emerged: Mega Bloks. Plastic blocks that look just like Legos, snap onto Legos and are often half the price.
So Lego has tried other ways to stay ahead.
The company tried to argue in court that no other company had the legal right to make stacking blocks that look like Legos.
"That didn't fly," Robertson says. "Every single country that Lego tried to make that argument in decided against Lego."
But Lego did find a successful way to do something Mega Bloks could not copy: It bought the exclusive rights to Star Wars. If you want to build a Death Star out of plastic blocks, Lego is now your only option.
The Star Wars blocks were wildly successful. So Lego kept going — it licensed Indiana Jones, Winnie the Pooh, Toy Story and Harry Potter.
Sales of these products have been huge for Lego. More important, the experience has taught the company that what kids wanted to do with the blocks was tell stories. Lego makes or licenses the stories they want to tell.
And kids know the difference.
"If you were talking to a friend you wouldn't say, 'Oh my God, I just got a big set of Mega Bloks,' " Luke says. "When you say Legos they would probably be like, 'Awesome can we go to your house and play?' "
Lego made almost $3.5 billion in revenue last year. Mega made a tenth of that.
But Mega Bloks may yet gain on Lego.
Mega now owns the rights to Thomas the Tank Engine, Hello Kitty, and the video game Halo. And, on shelves for the first time ever this week: Mega Bloks Barbies.
ROBERT SIEGEL, HOST:
Our next story is an economic mystery. Our Planet Money reporter Chana Joffe-Walt stumbled over it while holiday shopping.
CHANA JOFFE-WALT, BYLINE: The other day, I went to Toys R Us after work to buy my son some Legos for Hanukkah. He's never had Legos before, so I was very excited. But did you know that a basic box of Legos cost 59.99? For just 102 DUPLO pieces, 60 bucks. They're plastic blocks.
UNIDENTIFIED CHILD #1: Legos cost a lot of money.
UNIDENTIFIED CHILD #2: Yeah, actually, they are expensive.
UNIDENTIFIED CHILD #3: Yeah, they're really expensive.
JOFFE-WALT: So when I met Luke Siegel, Mario Tanassay(ph) and Nicholas O'Sullivan, fourth grade Lego experts, I asked them: Is that normal? How expensive do Legos get?
UNIDENTIFIED CHILD #2: Oh, like 200.
UNIDENTIFIED CHILD #3: No. No. I've seen even expensive - no.
UNIDENTIFIED CHILD #2: There's an expensiver one that's $400.
UNIDENTIFIED CHILD #1: One fifty, max.
UNIDENTIFIED CHILD #2: No.
UNIDENTIFIED CHILD #3: Well, I've seen one that's 400 before.
JOFFE-WALT: Lego appears to be basically immune to competition. It has about 70 percent of the construction toy market. And the question is why? Again, these are plastic blocks we're talking about. Lego's patents expired a while ago. So how hard could it be to make a cheap knockoff?
I brought this question up with Luke, one of the 9-year-old Lego experts, and, you know, said something like, what's so hard about making Legos?
LUKE SIEGEL: They pay attention to so much detail. I never saw a Lego piece that has a little bump on it that couldn't go together with another one.
DAVID ROBERTSON: Lego spends a lot of attention on clutch power.
JOFFE-WALT: Expert of all ages agree on this, although David Robertson had a fancier term for what Luke is talking about. Robertson is writing a book about Lego's remarkable success, which, he says, has a lot to do with clutch power.
ROBERTSON: Clutch power, yeah.
JOFFE-WALT: What is that?
ROBERTSON: Yeah, the - well, what you want when two bricks stack together is you want that satisfying click.
JOFFE-WALT: David Robertson told me, look inside any Lego brick - he calls them bricks - and there are three numbers in there. Those three numbers tell you exactly what kind of Lego brick you are holding, say, a 2-by-4. They tell you when it was made, from what mold, and exactly what position in that mold.
ROBERTSON: So if this brick didn't fit right - if it was too loose or too sticky or snapped apart - they could go find mold 238 and look at the 15th brick impression in that mold so that they could fix it and make sure that it continued making every single one of the 60 million bricks that it's going to make exactly right.
JOFFE-WALT: For decades, this is what kept Lego ahead. But over the last several years, a competitor has emerged, with clutch power that at this point rivals Lego: Mega Bloks. Mega Bloks are plastic blocks that look just like Legos, snap onto Legos and are often half the price.
So Lego tried other ways to stay ahead, like suing. David Robertson says Lego tried to trademark its block, basically say nobody has the right to make a stacking block that looks like a Lego.
ROBERTSON: That didn't fly and it didn't succeed anywhere. Every single country that they tried to make that argument in decided against Lego.
JOFFE-WALT: Lego needed to do something Mega Bloks could not copy, something dramatic, big.
(SOUNDBITE OF MUSIC)
UNIDENTIFIED MAN: Build your own galaxy with (unintelligible) from Lego Star Wars. Each set...
JOFFE-WALT: Lego got exclusive rights to "Star Wars." If you want to build a Death Star, Lego Lego is now the only company that can make that happen.
ROBERTSON: As a business decision, it was may be one of the best ever.
JOFFE-WALT: And Lego kept going, licensing other properties.
ROBERTSON: There's the Lego "Indiana Jones" series, Lego "Winnie the Pooh."
UNIDENTIFIED CHILD #2: There is a "Toy Story" Lego.
UNIDENTIFIED CHILD #3: Yeah.
UNIDENTIFIED CHILD #2: Also, for my birthday, I want the Hogwarts castle from "Harry Potter."
JOFFE-WALT: David Robertson says buying rights to "Star Wars" and "Harry Potter" saved Lego. The money was huge. But more importantly, it taught Lego that what customers wanted to do with the blocks was tell stories. So Lego makes or licenses the stories customers want to tell. And by doing that, Lego has managed to keep lots of kids feeling the way Luke does.
SIEGEL: Like, if if you were talking to a friend, you wouldn't say, oh, my God, I just got a big set of Mega Bloks. Like, they wouldn't be like, oh, my God. When you say Legos, they would probably be like, awesome, can I go to your house and play?
JOFFE-WALT: But Mega Bloks can buy the right to stories too. And it is doing that and now owns "Thomas the Tank Engine, "Hello Kitty," the video game "Halo." And, on the shelves for the first time ever this week: Mega Bloks Barbies.
Chana Joffe-Walt, NPR News. Transcript provided by NPR, Copyright NPR.