Why Are 3M and Lego Doing So Well Right Now?

Modern business leaders know that value creation through innovation must go hand-in-hand with value capture via pricing. Inflation, shifting supply chains and geopolitical uncertainty force companies to align pricing and innovation strategies to be better positioned to sustain profitability and growth.

Now is not the time to retrench 100%. Protecting margins is a must. Investing in both innovation and pricing can be a game changer in the middle of chaos.

The Current Environment and Why the Two Must Align

Innovation without sound pricing risks leaving value on the table, while pricing without innovation risks commoditization and margin erosion. Economic volatility makes both extremes more dangerous. Investing in new products or technologies can be costly; capturing that value late, or not at all, can undermine the return on innovation. On the other hand, rising costs demand smarter pricing to preserve margins and fund future innovation. This is why most firms are now using “profitable growth” as a new strategic priority.

A Living Example: 3M’s Latest Performance

3M’s second‑quarter results, reported July 18, 2025, offer a concrete illustration. The company reported GAAP operating margin of roughly 18%, while its adjusted operating margin was around 24.5%, up nearly 290 basis points year-over-year. EBITDA for the quarter ending March 31, 2025, was $1.536 billion and trailing 12‑month EBITDA stood at $6.142 billion (3M Reports Second-Quarter 2025 Results, Increases Full-Year EPS Guidance :: 3M Company (MMM). 

Wait, what? In the middle of a recession, tariffs, inflation, and supply volatility, an industrial company is able to generate this level of operating margin? 

Though these margins aren’t literally 25% EBITDA margin on revenue, the adjusted operating margin approaching the mid‑20s reflects a strongly profitable position. Meanwhile, innovation remains deeply embedded in the company’s culture: R&D spending has held steady at about 6% of sales, well above the industrial average of 3.5%. 

In 2024, 3M launched 169 new products, a 32% increase year over year, and targets 1,000 new product introductions over the next three years. Q2 2025 alone saw a 70% increase in product launches, and the company cited a 15% boost in sales from its R&D and new product initiatives (3M sees ‘strong’ Q2 with $6.3B net sales | Manufacturing Dive).

3M is also extreme about protecting margin with EBIT-based pricing—setting an operating margin goal and then pricing products to meet that goal—and the value-based pricing of their innovations.

3M demonstrates a clear link between high innovation intensity and strong pricing power. Its above‑average margins and ability to raise earnings guidance, even under tariff worries, stem in part from authoritative pricing of differentiated products. Innovation gives it leverage; pricing discipline extracts that leverage.

What This Means for Business Leaders

In high‑volatility markets, leaders should treat innovation investment and pricing strategy as two sides of the same coin. Key takeaways:

• Aim for innovation that delivers distinct, customer‑valued features with strong willingness to pay.
• Use pricing systems that differentiate by value, not just match competition.
• Prioritize new product development with strong margin potential, price competitiveness and high perceived value.
• Align commercial excellence practices (such as dynamic pricing and quoting) with R&D pipelines to capture value quickly.

Aligning Innovation and Pricing: Practical Steps

First, ensure your innovation efforts are prioritized based on their ability to create differentiation value, then build pricing models that reflect that value, not just cost-plus margins.

Second, invest in capabilities that connect product launches to pricing adjustments: internal quoting tools, customer segmentation and value-based pricing frameworks.

Third, monitor and measure both innovation rate and pricing uplift side by side: product launch volume, new‑product sales growth, pricing mix, margin expansion.

Beyond aligning innovation and pricing, sales and marketing also need to join the party. Full alignment around differentiation value and a premium that can be defended is critical.

How Innovation Power Drives Pricing Power: the Lego Example

Lego demonstrates perfectly how sustained innovation can strengthen pricing power in volatile markets. Innovation power—bringing fresh, differentiated offerings to market—creates distinct value in customers’ eyes. Pricing power follows naturally, because when customers perceive real value, they are willing to pay for it.

Innovation at Lego is robust and deliberate. In 2024, Lego grew revenue by 13% to DKK 74.3 billion (about USD 10.1 billion) and increased operating profit by 10% to DKK 18.7 billion (roughly 26%), even as the global toy market declined 1%. Lego’s diverse portfolio included 840 products, its largest ever, with strong momentum in themes like Botanical, Star Wars, Technic, City and partnerships spanning Fortnite, Formula 1 and Nike. 

These innovations command value and allow Lego to preserve margins. Despite higher investment in sustainability and digital play, Lego maintained strong operating profit growth, which shows its ability to price premium offerings without eroding profitability.

Strategic innovation also supports pricing discipline. Lego tripled its software engineering team since 2022, bringing digital experiences in-house and complementing its physical product lines. This hybrid digital-physical approach has broadened appeal for tweens and adult fans alike, supporting stronger pricing and customer loyalty.

In short, Lego’s innovation power, launching new sets, digital tie-ins and sustainable materials, is translating into pricing power through consistent margin strength and customer willingness to pay. With revenue growth outpacing the broader toy market and margins rising, Lego shows that when innovations deliver clear and differentiated value, companies can confidently capture it through pricing.

So What?

There are many more examples of industrial companies that have combined innovation and pricing power. I could tell the stories of Cisco, Honeywell, Schneider Electric and Parker. There are also many small and medium companies that have embraced a similar approach. In unstable economic times, the balance of innovation and pricing becomes central to sustaining competitive advantage.

3M’s operating margin at roughly 24–25%, backed by consistent high R&D intensity, shows the payoff of linking product innovation and disciplined pricing. For business leaders, this means building tight feedback loops between R&D, commercial teams and pricing strategy.

When innovation drives breakthrough value, pricing must be calibrated to capture it. And pricing strategy without innovation leaves growth vulnerable. In volatile markets, companies that treat value creation and value capture as inseparable have the strongest resilience and profitability.