Lego and Gatorade: Innovation as “Dating” Your Customers, Not Fighting Competitors

David Robertson, MIT Sloan Senior Lecturer, speaker, and author joins the Outside In podcast and explains why any innovation success – whether it’s a sports drink or a plastic brick toy – is cyclical and requires looking both inward, at the brand’s essence, and outward, at customers.

Charles Trevail

CEO at C Space

When a brand loses its way, when it believes that its products are becoming irrelevant, one of the first remedies it turns to is cost cutting, followed by an urgency to innovate. Re-examine the brand purpose. Make more products. Take fewer risks. Copy the competitors. Pray something works. In the process, a brand can stray from its core and move closer to failure unwittingly.

Rarely does this cycle result in innovation success. Growth happens when a company stops fighting competitors or disruptors and starts looking both inward, at the brand’s essence, and outward, at customers. Or, as author and innovation expert David Robertson puts it, when it starts “dating” its customers.

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Robertson, who joined me on the Outside In podcast, is a Senior Lecturer at the MIT Sloan School of Management, an accomplished speaker, and author of several books on innovation, including the award-winning Brick by Brick: How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry.

“A lot of things happen when you stray too far from what you know well. But also when you stray too far from your brand,” cautions Robertson. He tells the story of how, in the late 1990s and early 2000s, Lego, the Danish toymaker synonymous with innovative thinking and creativity, came dangerously close to innovating itself out of existence.

Things hadn’t always been so dire for Lego. From 1978 to 1993, the company enjoyed 15 years of strong growth and became one of the most iconic toy brands in the world. Then video games became more popular, and the notion of child’s play changed. This led Lego to believe its signature interlocking plastic brick was becoming passé. In response, Lego tripled the number of products it launched each year between 1993 and 1998. It also launched new types of toys, like the action figure line called Galidor: Defenders of the Outer Dimension. Brick-less and, in many ways, soul-less, Galidor looked nothing like a Lego toy. It confused people. As Lego continued to launch other brick-less toys, costs rose and profits fell. There were layoffs. In 2003, Lego almost went bankrupt.

Robertson says the fundamental mistake Lego made, and other struggling brands make, is neglecting to innovate around a key question: What would the world miss if we were gone? For Lego, it was the brick. “Nobody wanted an action figure from Lego,” he points out. “We expect a plastic brick. And if Lego’s not offering a plastic brick, we have no reason to do business with them.”

“Let’s accept that we need to always innovate a product – we need to make it better and faster and cheaper and so forth. And we always need to be looking at the next revolutionary thing that’s happening. But in that core of our business, we should be looking at how we can innovate around the product to make that product more compelling, valuable, and useful for our customers.”

How does a brand make that discovery? And, how much “new” are customers willing to accept around a brand’s core product versus what breaks the boundaries of what the brand is?

Robertson points to Gatorade’s innovation story, which he writes about in Harvard Business Review and also details in his latest book, The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation. In 2008, the PepsiCo-owned brand was “in freefall,” losing market share to Coca-Cola’s Powerade. Gatorade’s solution was to introduce a slew of new drink flavors. Just like Lego, costs rose and revenue fell. Adding more wasn’t making the problem better, it was making it a lot worse.

It wasn’t until Gatorade looked closely at its core consumer, the serious athlete, that things started to turn around. They discovered that athletes had specific needs beyond hydration; for instance, carbo loading before sporting events (Olympic sprinter Usain Bolt’s carb of choice was Skittles candy) and drinking protein shakes after to recover. Gatorade reduced the number of new drink flavors and instead focused on creating complementary products around their signature drink. It was called the G-Series, a suite of products that included drinks, protein bars, and energy chews, which all sold well and generated additional revenue. But what was really eye-opening was that revenue from Gatorade’s core product – the drink – increased significantly. By 2015, Gatorade commanded 78% of the US market – holding Powerade to just 19% – and sales grew from around $4.5 billion in 2009 to $5.6 billion.

Innovation success is cyclical, whether it be for a sports drink, a plastic brick, or anything else. For Lego and Gatorade, rediscovering their brand essence and “dating” customers – understanding their hopes, desires, fears, and motivations – helped answer that key question: What would they miss if you were gone?

As Robertson sums up, “Sometimes the right way to make your product more valuable is to respect that product, understand what people are trying to do with it, and then innovate around it.”

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