Lenovo

Brand, Brand Strategy and its Interpretation in Analyzing Brand Integration:

The Global Brand Strategy of Lenovo

Abstract

Purpose – This study aims to apply the reviewed literature of brand identity, brand strategy, and product positioning to analyze the lessons and improvements on how Lenovo, a No.1 PC manufacturer in China, implements brand integration as part of its global brand strategy to increase brand awareness and recognition.

Approach –This study introduces multiple methods to analyze the pros and cons of brand integration, and brand & product positioning such as product segmentation and perceptual map as well as the company’s revenue comparison.

Findings – Lenovo’s co-branding strategy in its first two phases of global brand strategy benefit its revenue growth dramatically but in limited level to its own brand awareness. And the global sales loss happened after Lenovo forgone co-branding with IBM brand on its ThinkPad/ ThinkCentre brand lines in its third phase of global branding strategy. Moreover, the unsatisfactory sales performance forced the company to trade-off the premium price of ThinkPad in attempt to cater to more consumers, gaining market share and revenue growth, but only result in the opposite situation due to the unclear repositioning of ThinkPad.

Research limitations/implications – The inaccessibility of the overall statistics on the sales of ThinkPad by Lenovo in overseas market over the past five years impacts the accuracy of the analysis result. Besides, the depth of the study is hindered due to the lack of Lenovo’s investment in branding and marketing promotions, as well as sales volume of its major competitors such as US, Europe, etc.

Practical implication – Leveraging a well-known ThinkPad brand can expedite Lenovo’s access to the cutting-edged technology and distribution channel setup, however, it will takes a long process to build and increase a strong brand of Lenovo globally. Apart from focus on quality and technology innovation, Lenovo should emphasize its value-added brand positioning, i.e. nurturing the brand in the dimensions of relationship, personality and culture. The separation of Lenovo and ThinkPad should be the best solution for the sake of maximizing each brand equity.

Originality/Value – This study is an attempt to discuss disconnection of distinctive brands like Lenovo and its sub-brands ideapad/ideacentre from ThinkPad / ThinkCentre to maximize each brand equity.

Key words – Lenovo, brand strategy, brand architecture, co-branding, brand identity, brand equity, brand positioning and repositioning, IBM, ThinkPad, ThinkCentre, ideapad, ideacentre

Literature Review

According to Arnold (1992), brand strategy is the process whereby the offer is positioned in the customers’ mind to produce a perception of advantage. And strategy implies the execution of the organization’s vision, mission, and objectives. In another word, the essence of the brand needs to be reflected in everything the company does, especially those that impact the consumer. When making branding strategies, a company should first have an insight into their brand and brand equity.

Brand equity is the differential effect that knowing the brand name has on customer response to the product or its marketing (Kotler, 2009). A successful brand has high brand equity and its image (B) can be thought of as the combination of three elements: a good product (P), a distinctive identity (D), and added values (AV), i.e. B=P*D*AV. Especially the brand preference depends on added values that give customers confidence that this product has qualities, status or associations not possessed by alternative choices (Doyle, 2008). It helps customers navigate the choice process by reducing risks and saving time of evaluation (Doyle, 2008). Brand management centres on creating perceived added value for the company’s offer among customers, which can be achieved by shaping the brand’s identity. Brand Identity is everything the company wants is brand to be perceived by customer (Temporal, 2002). It has six dimensions, which is also called now as ‘brand identity prism’ (Kapferer, 2007), namely, physical, reflection, relationship, personality, culture and relevance (Kapferer, 1997). The identity of strong brands reminds us that identity is not just a matter of functional attributes (Kapferer, 2007). With time, brand associations typically move up from tangible to intangible values –‘No brand should be without a strong intangible component’ became the top priority of 10 key principles of strategic brand management (Kapferer, 2007). Due to the increasing fierce competition and rapid imitation, the focus of keeping customers in marketing highlights the building lasting relationships on brand management, namely, classifying the different types of relationships consumers have with brands (Fournier, 1998), or the different types of interactions companies engage in with their clients (Rapp and Collins, 1994; Peppers and Rogers, 1993).

Kapferer (2007) claims the establishment and recognition of brand identity is one of the key stages in the process of brand globalization. That is, the brand must have an identity that will serve as a medium for its globalisation, specifically for its brand positioning and brand strategy. Clearly, for existing brands, positioning derives from identity. But it exploits a specific, coherent and salient aspect of identity at a given point in time in a given market and against a precise set of competitors. At the level of global brands, the brand positioning emphasizing a unified identity should occupy a distinct place in the target market’s mind (Kotler, 2000), ensure the distinctive position of the products of a company from its competitors offerings, maintain or increase market share by satisfying current or potential customers, and finally achieve higher revenue (Hassanien and Baum, 2002). Bingham and Raffield (1995) identified six positioning alternatives for firms: price, technology, product quality, distribution, image and service. Although repositioning is increasingly inevitable as the changing marketing environments that influence organisations (Trout and Rivkin, 1995; Kotler, 1997), any decisions companies need to make about repositioning will demand careful consideration of all of the brand’s attributes (Park et al., 2002).

When brand managers decide brand strategy, the added-value lever on which a product is based should be taken into consideration as an important parameter in choosing different brand architectures. A single (corporate) brand umbrella or master brand strategy is often recommended when the added value in a particular market is linked to reputation and scale (Kapferer, 2007). However, the more segmented the market, with top-quality, personalised products, the more one has to favour either an endorsing brand strategy or a new portfolio of product brands.

Besides, cost factors have to be considered. Doyle (2008) gave insightful explanation and said that the objective of adopting brand strategies is to increase long-run economic profits, which leads to an orientation to sharing brand names For companies in its initial phase of going global with limited resources, the simplified brand lines can reinforce each brand’s selling power and reduce marketing cost, provided that the company has complementary products.

Another factor that can not be neglected in formulating brand strategy is the country background of a brand. COO (Country of Origin) refers to the impact that generalisations and perceptions about a country have on a person’s evaluation of the country’s products and brands (Nebenzahl, Jaffe, and Lampert 1997; Lampert and Jaffe 1998; Dinnie 2004). COO helps or hampers the development of brand equity in the new market. Yet to some extent, acquired brands can produce a short-cut to overcome the negative effect of COO in brand globalization (Ying, 2008) and co-branding provides a buzz around the brand among opinion leaders to create an image (Kapferer, 2007) facilitating brand into global arena, but it is not a substitute or alternative for brand building in the long term. Co-branding can generate greater sales from the existing target market as well as open additional opportunities with new consumers and channels as it can increase cash flow through increased number of touch points between brands (Srivastava et al., 1998). In addition, co-branding can reduce the cost of product introduction and help stage a brand into a new market by leveraging the existing brand with global awareness. This is reflected in the increasing number of cases of mergers and acquisition of such kind worldwide. Undeniably, it can boost the business of a company but does not necessarily mean the success of integrating brands (Swystun, 2001). It is difficult to change an established brand identity and a good ‘fit’ between brands is essential to the successful ‘marriage’. For a company going global, a distinctive and consistent brand identity should be nurtured and matters most in distinguishing itself from other competitors despite of manufacturing the same high quality products.

Clayton M. Christensen (2004) noted that most organizations can acquire resources, but it is the application of the process (how to solve problems) and values (past investments) that distinguish a company. And branding strategy is the process of such kind as one of the key factors which will ultimately determine a company’s future success.

About Lenovo and its internationalization and global brand strategy

Founded in Beijing, China, Lenovo is No.1 PC manufacturer in China and the world’s fourth largest PC maker with its revenue in 2007-2008 reaching 16.4 billion US dollars and its market share in China stabilize at 29%-30%. In 2004, its acquisition of IBM PC business (‘Thinkpad’ brand) for 1.25 billion US dollars made the company the world’s No. 3 PC company after Dell and HP and signified the beginning of its steps into international market. Since then, Lenovo has established more than 200 branches in 66 countries (Lenovo official website: http://appserver.lenovo.com.cn/About/aboutus_overview.html, accessed Nov 23, 2009). Lenovo’s sports marketing, the Olympic marketing, and co-brand marketing strategy enhance the brand image and capture the market share. Its global branding strategy incorporates three phases. In the first phase – focused on the continuity of the brand in overseas countries to strengthen the relationship between the Lenovo and Thinkpad; In the second phase – to consolidate the high-end business Thinkpad image. And in the third phase – to accelerate Lenovo brand building (Gu, 2006).

We can compare Lenovo’s branding strategy with its revenue over the past five years. Investment in the brand must come first to ensure revenue enhancement. (Jeff Swystun, 2001) From the comparison, the dramatic revenue growth in 2004-2006 seems to verify that the branding strategy of leveraging IBM brand and reinforcing ThinkPad benefit the corporate performance. Meanwhile, however, Lenovo’s global brand awareness got increased during the process? Since Lenovo had the right to use the IBM brand only for five years until 2010, the company decided to drop it two years ahead of schedule, such was its confidence in its own brand (http://www.economist.com, 2008). Despite of the right move, the result is the decrease in the corporate revenue: Lenovo’s sales volume was down by 5 percent in the third quarter 2008, sales revenue dropped by 20 percent, and market share declined from 7.5 percent to 7.3 percent (Ming, 2009), especially, the sales in America and Europe fell by 17% in the 3rd quarter compared with the same period last year due to the sluggish demand in those markets and notably, its domestic sale grew and accounted for 48% of its total sales(http://www.economist.com, 2009). Actually, the unsatisfactory result can be attributed in a sense to the abrupt brand shift from IBM ThinkPad to Lenovo ThinkPad. Whereas, the point is that it is not the inappropriate timing to forgo co-branding with IBM brand, but it is during the initial phase of implementing global branding strategies when Lenovo did not handle well the relations between leveraging IBM brand and, more importantly, enhancement of Lenovo brand’s identity and differentiated advantage in its new market outside Asia where the brand name was little known, especially in US and Europe, the focus of Lenovo business outside China.

To gain an insight on the brands strategy, we can look at ‘Lenovo brand architecture transition’ below for the major product lines and brand integration in the early 2008. After the brand integration, under the corporate umbrella brand of Lenovo, the streamlined product brands resulting in global marketing cost-effectiveness can be categorized into ideaPad and ideacentre sub-brands for consumers and ThinkPad sub-brand for consumers and commercial segment and ThinkCentre sub-brand for companies. Notably, there is a change in customer positioning for ThinkPad by serving companies only switching to companies primarily and consumers secondly served with individual models of ThinkPad products. This is to meet the increasing needs for consumer PC. Besides, ThinkPad is expanding its position from high-end only to both middle and high-end in light of Lenovo’s pricing system. And a question comes to arise: Is Lenovo ThinkPad is as good quality as IBM ThinkPad? Lenovo’s reaction to the sceptical voices is the price cut of ThinkPad is to cater to those customers feeling pinch in the current situation. But the transition risk should be foreseen that the customers who know ThinkPad very well may not have that sense of advantage that the original brand identity confers, and eventually the transformation may harm the brand equity.

Let’s look at the brand positioning of Lenovo and its competitors. Over time, PCs has become ubiquitous and play a growing role in many important aspects of daily life. Consumers are therefore looking for more innovation (Quelch and Knoop, 2006) with appropriate pricing. Capping the product features of each company in terms of innovation and pricing, we can see that HP, Dell and Acer-the strong competitors of Lenovo in US and European market –are all positioned as economy brand whereas Lenovo as bargain brand positioned as overall high level of innovation and IBM as premium brand. Highly recognized by its customers, ThinkPad brand, with high innovation and high price of a differentiate advantage, best represent the culture of IBM brand. The branding strategy should first take into consideration the environment and customers (Doyle, 2008). Although Thinkpad brand has nothing to do with IBM after the acquisition, the customer’s perception of high level of innovation and pricing of Thinkpad brand is deep-rooted, thus, it is not necessary and even harmful to its original image in its customer’s mind for any attempt to lower its pricing arrange. As for Lenovo brand, on one hand, competitive pricing is the core value that the company embraces to contest its key competitors internationally, and on the other hand, like many other Chinese company going global, it still take time for Lenovo to get away from ‘Made in China’ image interpreted as manufacturing cheap products. Thus, the implementation of its bargaining pricing system in its another brand line ideapad and ideacentre can embody its differentiating advantages – lower price but good quality and higher level of innovation – and lower the entry barrier to the consumers in the new market(Doyle, 2008). Of course, this is what Lenovo is doing, promoting its idea brand line in US, Europe and other major overseas market (Lenovo official website: http://appserver.lenovo.com.cn/About/aboutus_overview.html, accessed Nov 23, 2009). It can be concluded that there is distinctively different brand identity between ThinkPad/ ThinkCentre and Lenovo and its sub-brands ideapad/ideacentre.

Discussion on improvement

In developing a global brand, Chinese companies could choose between a traditional and modern approach (Ewing, Napoli, and Pitt, 2001). And Lenovo has adopted the modern (although more risky) approach that accelerates internationalization via joint ventures and acquisition of foreign brands, enabling them to leapfrog to the advanced stage in the process. Product differentiation and brands management separation – Lenovo should resume the high-end brand identity of ThinkPad targeting companies and high-end consumers to gain premium price and high margins. And this branding strategy can not waver surrendering to the current economic conditions. And for the medium and lower-end market, idea brand line can play its flexible role catering to different subdivision market. In addition, the ideapad/ideacentre identity should be enriched to increase its value-added specifically in its relationship and personality prospective to differentiate with other competitors’ brands. Apart from product promotion, creating customers’ product experience should be the remedy to have them gain better knowledge of the new entry brands and enhance the recognition of Lenovo.

Most important, ThinkPad/ThinkCentre brand should be separated from Lenovo and its sub-brands. The case of the separation of product brand Lexus and company brand Toyota means the success of the both brands even though few know Lexus brand is under Toyota.(Jean-Pierre and David, 2002) .

Conclusion

This study emphasizes on the analysis and discussion on the brand integration of Lenovo, idea brand line, and IBM’s ThinkPad brand, which features an indispensible process of implementation of global brand strategy by Lenovo. The strategy of co-branding of Lenovo and IBM in ThinkPad products in the initial phase impelled the process of Lenovo brand into international arena. At the same time, however, Lenovo should have engaged in its own brand identity and equity, which will alleviate the loss arising from the disconnection of IBM and Lenovo. An effective positioning/repositioning brand strategy should highlight the consistent process of enhancing brand awareness. At this point, Lenovo took a either slower or inappropriate action which entail improvement and transformation. As for the established ThinkPad brand, the dimensions of its brand identity should be taken into full consideration otherwise any branding initiatives will damage its brand value through confusing or depriving the sense of status and pride from its customers. To avoid the collision of two distinctive brand identities – ThinkPad and Lenovo with its sub-brands ideapad/ideacentre, disconnection is the best solution to maximize brand equity.

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