Lenovo: Building a Global Brand Case Analysis

Dr. Diane BadameFall 2015

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Case Agenda

Issues

Situation Analysis

Alternatives

Recommendations

Postscript

Case Takeaways

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Learning Outcomes for the Lenovo: Building a Global Brand Case

Explore the marketing benefits and challenges of a cross-border acquisition.

Understand the issues associated with a brand transition and discuss how equity can be transferred from one brand to another.

Review a range of brand architecture options for a recently merged company.

Explain how to apply the prerequisites for successful employer branding.

Discuss the role of Olympics sponsorship in building a global brand positioning.

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Analysis of the Lenovo: Building a Global Brand Case

1. Issues 2. Company or Business Unit’s Strategic Direction3. Customer Analysis4. Industry Analysis5. Competitive Analysis6. Current Brand Strategy

A. Brand Image and StrategyB. Brand Building AssessmentC. Brand Growth Assessment

7. Recommended Brand StrategyA. VisionB. PurposeC. Big IdeaD. Five Sources of ConnectivityE. ValuesF. GoalsG. StrategiesH. Tactics

8. Risks Associated with Recommendations9. Additional Questions to Enhance

Comprehension of Case Analysis10. Projected Profit-and-Loss Statement 11. Case Summary12. Lessons Learned

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Lenovo: Building a Global Brand Case Questions

1. How are the issues in the case?2. Why did IBM want to sell its PC business? Why did IBM sell to Lenovo? 3. What explains Lenovo’s success prior to the acquisition?4. What challenges did Lenovo face after the acquisition?5. How should Lenovo handle the brand management challenges associated with the

acquisition?6. How is Lenovo utilizing prerequisites for successful employer branding or are they?

Please explain.7. Where is Lenovo on the brand relationship spectrum? Should it be in a different

place? Why or why not?8. Does Lenovo have in place what is needed for global branding success? What

marketing strategies do you recommend going forward?9. What were the lessons learned from the case?

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Issues

What are the most appropriate strategic roles and positioning of the Lenovo and Think brands and whether and how to continue to leverage the IBM logo?

Short-term challenges include retaining the best IBM employees (especially top salespeople and designers) and the IBM customers Lenovo has inherited.

Cultural integration between IBM and Lenovo. Negative perception of Chinese Lenovo products and how customers feel knowing that

Lenovo, not IBM, now owns the brand. To what extent will Lenovo’s Chinese heritage impede its ability to become a global brand? Branding

– How rapidly should Lenovo drop the IBM name from its products?– How much of the budget would you put behind the Lenovo brand versus the Think brand?– What should the positioning be of these two brands and how can each support the other?

Need for new Think products to show more value while respecting the essence of the Think brand.

How to set the stage for Lenovo’s sponsorship of the 2008 Beijing Olympics realizing a clear global positioning is needed along with a powerful product line to support it.

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Four Brand Architecture Proposals1. Master brand solution – Lenovo would be the master brand and Think would become a

subbrand of Lenovo. Think is closer to being a global brand, Lenovo is only known in China. Think is currently a more premium brand than Lenovo. How easy is it to have a

mainstream master brand with a premium subbrand (compare Ford plus Lincoln or Loblaw’s plus President’s Choice)?

Resource constraints also suggest that Lenovo needs to move quickly to put all its limited marketing dollars behind a single brand.

2. House of brands solution – This approach implies equal resources behind the Lenovo and Think brands (with ThinkPad and ThinkCentre possibly being treated as two separate brands). Lenovo lacks the resources needed to develop more than one global brand. That global brand has to be Lenovo because of the upcoming Bejing Olympics.

3. Hybrid solution – Think could be a hero subbrand to Lenovo, analogous to Sony Playstation and Apple iPod. Over time, the strong subbrand (in this case Think) would hopefully transfer some of its equity (premiumness, innovativeness) to elevate the Lenovo masterbrand.

4. Lexus/Toyota solution – Lenovo would be positioned as a mass market brand (analogous to Toyota) and Think would be positioned as a premium brand (analogous to Lexus). The challenge is one of resources because the Lexus model requires investment in an entirely different sales, distribution and service infrastructure. Does Lenovo have the resources to afford this approach?

Lenovo Positioning: Efficiency Plus Innovation

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Commodity Innovation

Everyone

A Few

Is this East Meets West Positioning Feasible?

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Two Lenovos?

Relationship marketing Corporate customers Think Ultimate business tool Rock solid, thoughtful design Innovation/Efficiency West?

Transaction marketing Small businesses 3000 Smart choice Worry-free, exciting/stylish,

great value Efficiency/innovation East?

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Principles to Guide Lenovo Management’s Decision-making Regarding the Brand Transition Management needs to establish Lenovo as its preeminent global brand, and the marketing

efforts associated with the 2008 Summer Olympics must focus on a single positioning for the Lenovo brand.

Given the much larger annual marketing expenditures of HP and Dell, Lenovo cannot afford to dilute its marketing efforts for long across more than one global brand.

Lenovo’s success depends not only on building global brand awareness for Lenovo but on significant product innovations and advertising under the Think brand that will, especially in the short run, reassure and retain former IBM customers and employees.

A separate strategy may be appropriate for China where Lenovo is the market leader, enjoys high brand awareness and has a value brand image. In the rest of the world, the Lenovo brand is relatively unknown and Lenovo has the benefit of a blank slate.

A consistent global positioning must be developed for the Lenovo brand. Given Lenovo’s heritage of product innovation (and the increasing availability of talented Chinese engineers) and its access to low cost manufacturing, Lenovo might be the brand that can bring innovation to the marketplace at the lowest possible cost. (Competitors Dell and Acer focus on cost efficiency rather than product innovation while Apple and IBM focus on innovation rather than low costs.)

The Think brand equity must not be exploited (and diluted) opportunistically. The Think brand, especially in China, should probably not be attached to existing Lenovo products to bolster their premium image or be driven through Lenovo’s existing 5,000 retail outlets.

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Lenovo Positioning: Keys to Success

1. Exploit China as a cash cow

2. Crack the U.S. channels

3. Clean break with IBM

4. Do not over-invest in Think

5. Hot new products under Lenovo brand

6. Before Beijing Olympics

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Postscript Lenovo moved to a two product line strategy – the Think family of products was premium positioned and the

3000 family for Lenovo’s mainstream proposition. X41 Table Series – Launched in April 2005 soon after the acquisition to show former IBM customers that Lenovo could be

trusted to continue the Think tradition of excellence. Positive trade and media response unfortunately credited IBM rather than Lenovo, partly on the basis that IBM engineers had to have been behind the product development. The Lenovo name only appeared on the back of the product as the manufacturer. The IBM logo remained on the front.

Think Pad Z60 – Launched ahead of the Turin Winter Olympics in January 2006, the objective was to show that Lenovo understood the brand essence of ThinkPad and could make the ThinkPad product line even better. The new models came with an optional titanium cover, a wider screen, a built-in broadband card, improved keyboard and other features. The ThinkPad Unleashed advertising campaign reinforced the spirit of innovation. While the Lenovo brand name appeared prominently in the ads, the product remained the hero, still bearing the IBM logo on the front cover.

3000 Family – Lenovo launched worldwide in March 2006 the 3000 family of Lenovo PCs, targeting a different market segment (small business) from the Think family. A number (rather than a name) was used as a subbrand to minimize distraction from the Lenovo brand. Sample print ads show the users whom Lenovo is targeting rather than focusing on the product as hero (as in the ThinkPad ads). The emphasis is on problem solving and reducing risk by choosing Lenovo. Small businesses depend on one or tow Pcs to function trouble free so the “Lenovocare” servie concept is especially likely to be valued by this segment.

The 3000 launch varied in success from one region to another. In some markets, like the U.S., the line was viewed partly on competitive pricing as a low-end product and thus did not help to elevate the Lenovo brand.

However, Amelio’s emphasis was on penetrating emerging economies, especially India, where many consumers did not yet have established brand preferences versus trying to crack the cluttered U.S. market.

Following the acquisition, certain former IBM customers did shift business to Dell and HP. Fortunately these revenue losses were cushioned by increased sales in China, perhaps reflecting local

enthusiasm for China’s first global brand.

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Postscript (Continued) Lenovo’s profitability was enhanced by cost-cutting (consolidation of computer parts

procurement) and supply chain efficiency measures introduced by Bill Amelio, the CEO who had previously worked at Dell with many executives from Dell joined Lenovo.

To reaffirm new product launches at the premium end of the market, Lenovo introduced the X60 Think Tablet in 2006 promising “portability without compromise”, which included a powerful Intel Core Duo processor and built-in wide-area wireless broadband.

In a 2006 Wall Street Journal Asia reader survey of China’s most admired companies, Lenovo ranked third after Haier and China Merchants Bank.

As part of a public relations strategy to improve reputation of the brand, Lenovo became a corporate sponsor of the World Economic Forum and a sponsor of President Clinton’s Global Initiative and became an official PC partner of the NBA.

The company’s financial performance, however, remained challenged. Lenovo’s profits dropped 85% in the period April 2005 to March 2006. Lenovo’s operating margin was 1.7% in the quarter ending June 2006 compared to 3.7% in the year after the acquisition.

During the 2008-2009 financial crisis, Lenovo’s performance dropped significantly. They lost $200 million in one quarter.

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Postscript (Continued) Yang Yuanqing was asked to return as CEO of Lenovo and has turned things around,

pursuing a strategy the company calls “protect and attack” – defending its core market in PCs while moving into new growth areas such as mobile and the cloud.

In early 2014, Lenovo made two more eye-popping acquisitions, spending $2.3 billion for IMB’s low-end server business and $2.9 billion for Google’s Motorola Mobility unit.

In 2013, Lenovo acquired CCE, a leading Brazilian electronic company and becomes Number One in global PC sales.

Forecasted revenue in 2015 for Lenovo is $46.296 billion with net income after tax at $829 million, a 1.8% profit margin.

Lenovo is now the third largest seller of tablets and fifth largest smartphone brand in the world.

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Case Takeaways

Explore the marketing benefits and challenges of a cross-border acquisition.

Understand the issues associated with a brand transition and discuss how equity can be transferred from one brand to another.

Review a range of brand architecture options for a recently merged company.

Explain how to apply the prerequisites for successful employer branding.

Discuss the role of Olympics sponsorship in building a global brand positioning.

Lenovo: Building a Global Brand Case Analysis

Dr. Diane BadameFall 2015