Lenovo Bridging East and West to Build a global brand

Lenovo is an innovative, international technology company formed as a result of the acquisition by the Lenovo Group of the IBM Personal Computing Division. As a global leader in the PC market, Lenovo develops, manufactures, and markets cutting-edge, reliable, high-quality PC products and value-added professional services.

Founded in 1984 as Legend Group Ltd., a spin-off of the Chinese Academy of Science, with a seed capital of US$25,000 and a group of eleven scientists led by Mr. Liu Chuanzhi, Legend was the first company to introduce the PC concept in the People’s Republic of China. Legend was also established to distribute computers such as HP, IBM, AST, and Compaq in 1984. Since 1997 the company has been the leading PC brand in and around China with annual revenues (as of May 2005) of approximately US$3 billion.

Lenovo brand PCs? have been the best seller in China for seven consecutive years. In 2003, the former Legend Group Limited launched its new brand Lenovo to cater to the group’s future business development and laid the groundwork for its expansion into overseas market. Subsequent to the acquisition of the IBM PC division, they now have 7.8% of the world PC market. Lenovo PCs? also ranked number one in the Asia Pacific (excluding Japan) market with a 55% market share at the end of 2005 . With the integration of the IBM PC division, more than 10,000 employees from IBM joined Lenovo with a resulting climb in sales to US$12 billion (2005). Lenovo paid US$650 million cash and US$600 million in shares in the IBM transaction. Much of this value clearly stems from the IBM brand, both removing it as a competitor and acquiring it, rather than its tangible assets such as the equipment and existing operations. Lenovo group management team currently owns 42% of the company’s stock, IBM 13.4% and TPG, General Atlantic and Newbridge Capital 10.2%. Lenovo was listed on the Hong Kong Stock Exchange in 1994 and is a constituent stock of the Hang Seng Index. It’s American Depositary Receipts (Stock code: LNVGY) are also being traded in the United States.

The new company formed the third largest PC enterprise in the world. Stephen Ward, a former IBM Senior Vice President (SVP), and first Chief Executive Officer (CEO) of Lenovo post-acquisition announced “that new products will be launched under the Lenovo brand worldwide. The new Lenovo, boasting the world-famous laptop brand ThinkPad? and the well-known brand Lenovo, will have more than one third of China’s PC market and hold a leading position in the world PC market”. The former CEO Yang Yuanqing stepped down and became the Chairman of the Board. At the end of 2005, William Amelio from Dell Asia was nominated to become the new CEO with the task to improve the already excellent operational performance. In becoming such a stronghold in the Chinese market, specific competitive advantages contributed to Lenovo‘s success: Strong brand recognition in China. The corporate brand name Lenovo acts as an umbrella for several sub-brands of correspond¬ing product lines. Good relationship with government and educational institutes. The Chinese Academy of Sciences was the biggest founding shareholder of Lenovo, undoubtedly a big benefit to the firm. Highly efficient operations. In terms of supply chain management, Lenovo achieves a lead time of 3 to 5 days on the average for order fulfillment, 2 days shorter than the 7 days promised by Dell. Diversified distribution channels. With an in-house sales team, Lenovo can cover large enterprise clients itself. By coordinating with the Value-Added Resellers (VARs?), small and medium size customers can be reached. Through business partners-owned chain stores and franchised shops, Lenovo can penetrate into both the urban communities and rural sectors. Additionally, they operate multiple internet shops. Market leadership in China with more than 30% market share and broad product portfolio for both consumer and commercial segments. Lenovo‘s business performance has proved that the group has deep insight into the China (PRC) IT market and clear grasp of user needs. A significant part of Lenovo‘s success has been its ability to retain leadership in supply chain systems. The close relationship with the upstream suppliers, most of them Taiwan electronic companies, and own manufacturing facilities in the mainland of China, lead to a rapid inventory turnover. Lenovo has already penetrated the local market deeply with the help of over 6,000 retailers and distributors. They cover business and individual clients. With a specific approach which Lenovo calls relationship-model and transaction-model they treat these client groups separately and thoroughly. Lenovo has also built up strategic alliances with international tech¬nology giants such as Intel and Microsoft to improve their position in the application markets. The Lenovo’s Brand Development Before the IBM PCD Acquisition Lenovo‘s brand story really started in 1992 when it started to promote its corporate name Legend (Lianxiang) and created the concepts of Legend 1+1, Household Computer and Economic Computer. In the early 1990s, the company launched an advertising campaign with the slogan “What is the world going to be if we stop dreaming?” It had a good impact on the Chinese public who viewed the slogan as romantic. An internal survey conducted in 1991 indicated that 12.9% of the customers learned about Legend from this slogan, and 7.6% of them bought the Lenovo PC because of it. Through a series of marketing campaigns such as Legend Computer Express and Grand Training Program in the summer of 1991, Legend broadened awareness and recognition of its brand name, thus building a loyal customer base. By being the first major company for personal computers in China, the company set up leading industry examples and became the dominant PC brand nationwide. In the early 2000s, Lenovo was facing pressure from slow growth on demand, intensive competition, diversified customer requirements, and commoditized products and markets. In order to respond to this challenge, the company divided individual clients into three segments: starters, mainstreamers, and senior players. To better target these new market segments it introduced new subbrands such as Tianjiao, Fengxing, and Jiayue. With these subbrands, Legend delivered different associations of easy life, passion, and harmony. These associations allowed these subbrands to provide not only functional benefits but also additional self-expressive benefits to different customers. In 2003, the company changed its brand name from Legend to Lenovo for the purpose of internationalization. They took the “Le” from Legend to honor their roots and added “novo,” the Latin word for “new,” to represent the innovation at the core of the company. The new name represents the innovative and legendary company more accurately. During this period, Lenovo focused on incorporating emotional values into the brand, portraying this through the metaphor of brand personality traits such as honest, innovative, passionate, and easy-going. Lenovo selected brand personalities consistent with the emotional values of the brand and the target consumers’ lifestyle so that consumer and brand personalities were brought into alignment. The same year, some key issues guided the decision to develop the new branding theme “Only if you dream …” First, a successor to the romantic “world and dreaming” theme was long overdue. Second, the cost of creating a new branding theme and transitioning customers to it, although huge, was within the capacity and will of Lenovo. Third, the 联想 (Lenovo) equity and program, rather than being wasted, could be leveraged by link with the new theme. With this new branding theme, Lenovo positions its brand as: integrity, innovation, professional service and easiness. The Lenovo Brand’s Role Pre-acquisition: Corporate Brand vs. Subbrands The research about the power of subbrands in the area of computers and related products indicates that the equity of subbrands in the high-tech area is remarkably weak in comparison to corporate brands. In fact, less than 12% of respondents even knew that Vaio was made by Sony, even though by attitude measures, Vaio is one of the strongest notebook brands. This finding is consistent with a much earlier not published Compaq study that found its Presario brand having less equity than expected. Why do subbrands in the high-tech area have such low equity? First, corporate brands, such as Dell, HP, and IBM are very intensely and extensively promoted, especially during the early days of the category. Second, subbrands have generally failed to develop a point of sustainable differentiation and as a result, lack a brand personality and a substantial reason to exist. To tackle this problem, the central brand group at Lenovo took control of the proliferation of new brands. A business unit had to demonstrate to the brand group that a new subbrand had reason to exist. If they could demonstrate its sustainability, they could use a subbrand. The Lenovo brand worked for both industrial customers and consumers. The Lenovo persona was approachable but also serious, competent, and successful – very compatible with the corporate world as well as appealing to individuals. Taking Advantage of Corporate Brand Name The Lenovo brand became a corporate brand and a master product brand. The role of the Lenovo corporate brand, like many corporate brands, is first to provide trust and credibility to the Lenovo offerings based on the size, capability, heritage, and success of the organiza¬tion over time. Second, because Lenovo represents the organization that stands behind its products in spirit and substance, it can be a credible endorser that works at both a functional and emotional level. On the other hand, the use of Lenovo corporate brand as a master brand maximizes such brand portfolio goals as generating leverage, synergy and clarity. It also evokes the power and unique¬ness of the corporation as an organization, thereby creating differentiation for the product brand. The Lenovo brand played the major driving role in nearly all of the firm’s offerings in that it drove the purchase decisions and defined the user experience. The major Lenovo subbrands (Tian series desktop computers, Soleil and Xuri notebook computers, Wanquan series servers) largely played a descriptive role, serving to define the scope of the Dell product footprint. The Lenovo product brands Fengxing, Jiayue, Tianjiao and Yangtian desktop computers, Tianyi, Xuri and Soleil notebook computers, Wangquan servers also played a descriptive role, but, targeted different market segments and initiating an upward technology shift. Overall, the Lenovo brand plays the major driver role in nearly all of the firm’s offerings in that it drives the purchase decisions and defines the customer’s experience. Brand Management After Acquiring IBM PCD After Lenovo and IBM completed the acquisition of the PC unit of IBM, they marketed the birth of the third largest PC enterprise in the world. Lenovo got access to IBM’s powerful global brand through a five-year brand licensing agreement with strictly defined limitations. To retain the customer base and to develop new markets, Lenovo’s upcoming challenge is to leverage the excellent reputation for quality and service of IBM’s brand. Despite the fact that Lenovo is allowed to use IBM in the coming 5 years, but only on products, Lenovo has taken over IBM’s Think family brands including ThinkPad? and ThinkCentre?, which are the symbols of technical innovation, reliable quality and professional service. “The halo effect of the IBM brand allows Lenovo a broader range of options while its existing operations in China allow it to keep costs down. Thanks to IBM, Lenovo can have its cake and eat it too. The IBM brand brings kudos to Lenovo. It removes a barrier to Lenovo’s products - particularly outside of China. Lenovo now seems more reliable, more trustworthy. Even to customers who are fully aware that the product is no longer “made” by IBM, a stamp of approval from such a highly respected company means a lot in any market.” Lenovo, which as a brand name is popular in the domestic market, can be developed to dominate in some emerging markets like India and Russia and fill in the SMB and consumer market IBM left. Logically, brand transfers mean Lenovo would take a two-pole action: retaining ThinkPad? and ThinkCentre? brands, and developing other Lenovo branded products for different market segments geographically and demographically. However, the firm will not light-heartedly adopt a co-branding strategy or stick a co-brand logo like Lenovo-IBM to its products. It is sufficient for both companies to show that they are working together. They have announced a “commitment to ongoing operational cooperation, not merely in terms of IBM distributing Lenovo products, but each company acting as preferred partner to the other. Both companies have committed to supporting each other: Lenovo with PC products to complement IBM’s high-end servers and mainframes; IBM with customer relationships, service and support. An ongoing association between the two companies will bring fresh markets and new customer relationships to be leveraged.” In addition, using the IBM and ThinkPad? brand means for Lenovo a significant licensing fee. With only the co-brand logo, Lenovo’s image would always be in the shadow of IBM, and the brand recognition on its own is hard to be built once the brand licensing agreement expires. Logically, brand transfers mean Lenovo would take a two-pole action: 1. Emphasize the heritage of technology innovation, sound qual¬ity and service from IBM to Lenovo by launching advertising campaigns with the combination of corporate names of Lenovo and IBM (noticeable only on products pictures), and retain ThinkPad? and ThinkCentre? brands. Lenovo can build the corporate image of technology leadership, high quality products and excellent customer service. 2. Differentiate the product attributes in terms of performance, price, and targeted market segments by adopting the Think family brands and Lenovo‘s new 3000 product lines to different product classes and to different market segments from small business to consumers and geographically. The enterprise clients, who are willing to pay the premium price, should be served with Think series of laptops and desktops. Small and medium enterprises and small office/home offices (SOHO) can accept Lenovo’s 3000 products for a high ratio of performance to price. The mass consumer market would be covered with Lenovo’s consumer products. Fortunately, Lenovo‘s management in the new global headquarter takes such factors into account, and they carefully consider in their strategy how to build Lenovo into a strong master brand known for innovation, customer service and high quality. As the company builds up the Lenovo brand globally, they are carefully watching consumer’s awareness, preference and other metrics to determine when the right time is to switch over from the IBM brand to Lenovo. Also scheduled for change is the Access IBM button on the top row of the ThinkPad?, which allows a user to connect directly to IBM’s service desk. In the future, it will be labeled ThinkVantage?. In May 2005 Lenovo selected Ogilvy & Mather, one of the largest global marketing communications networks, to handle worldwide brand advertising for Lenovo. The campaign would include a range of media channels, including online ads, event sponsorships and perhaps television, in addition to print. The initial newspaper advertisement that Lenovo ran showed a man sitting in the shovel of a backhoe, work¬ing on a laptop computer. “How do you build new technology?” it says. “Start by building a new technology company.” The text-heavy spot goes on to explain the fusion of IBM‘s PC division into Lenovo. Building Brand as Icon and Company

In the stage of brand as personality, the Lenovo brand has become more than the PC. It represents values which go beyond the functions of a PC, and acts as an efficient communicator of the personality of the owner. The challenge for Lenovo now is to develop the brand further to make it accepted widely so that the Lenovo brand can be used to stand for something beyond itself, in short, to make it an icon. This would enable the customers to own the brand because they would understand and use its symbolic properties. At this point, the symbolic value of Lenovo brand expands to include categorical meanings as well as self-expressive ones. Categorical meanings symbolize customers’ group membership, social position, status and locate the individual in social-material terms. To reinforce the symbolism, Lenovo frequently uses some physical symbol to denote the brand. Its Lenovo, ThinkPad? and ThinkCenter?

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Fig. 1 Corporate and product logos logos can work for this purpose. These become shorthand means of identifying symbolic brands no matter what the local culture is. They’re aiming for one tagline worldwide; “New World. New Thinking.” At the same time, some changes are happening to customers and markets. First, it can be assumed that customers are interested in more than the brand. They hold corporations accountable for individual brand actions and may boycott any transgressor’s brand portfolio. Furthermore, they will use the new communication channels to broadcast any wrong doings to other consumers. Increasing consumer cynicism may demand that Lenovo‘s senior management formulate clear views about the values the firm adheres to and ensure that everything the firm does ties into these values.

Second, growing penetration of the Internet will allow more cus¬tomers to find out what they want to know about the Lenovo brand. Some consumers will become less receptive to mass market communication and will demand more open and specific communication. More efficient and flexible electronic data capture also enables Lenovo marketers to gain a deeper appreciation of small groups of consumers’ buying behavior, offering the opportunity for a new set of relationships to be forged between customers and Lenovo brand.

Third, markets are likely to become more splintered, as needs-based segmentation becomes more common. Lenovo‘s possible response could be a greater number of subbrands or descriptors designed to meet the needs of smaller and smaller segments as the firm did before. Fourth, no longer do managers think of only the physical product; rather, they think of products plus services. The era of the service industry has arrived and it has a major impact on how firms create value for their customers. The Lenovo brand can deliver not just a computer brand, but a computer brand with regular maintenance and integrated solution service through a series of communications directed from Lenovo to individual consumers. It is the service component that enhances Lenovo’s ability to create value, differentiate itself, and energize the Lenovo brand. Lenovo has started a process of building a brand as an icon and they have been re-thinking Lenovo’s brand to include the service element. This means a re-structuring of communications at all the diverse points of contact that occur between stakeholders and the firm and careful selection and training of staff about the brand. Through the Lenovo brand, management must explicitly consider what values they are communicating, how they can include customers in the creation of added value, and how they can maintain consistency of message. The Olympics Sponsorship

The right sponsorship, handled well, can transform a brand. Respondents to a Sponsorship Research International (SRI) survey on the effectiveness of Olympic sponsorship said such things as: “The Olympic emblem on products means they are famous and world-class” and “I feel more favorably toward a product because it is from an Olympic sponsor.” This survey confirmed that such sponsorship has a positive effect on product image and by extension, corporate image. In March 2004, Lenovo joined The Olympic Partner (TOP) Program of the International Olympic Committee (IOC) as the first Chinese company to become the computer technology equipment partner of the IOC for the period from 2005 to 2008. The sponsorship of the Olympics has the potential to influence the Lenovo brand in several ways.

Lenovo has managed to win out in stiff competition with high-profile multinational corporations for the right to be an Olympic partner. This bolsters a positive image of Lenovo as a global corporation, which helps to strengthen the foundation for overseas operations and exports. Lenovo’s ongoing Olympic sponsorship is also elevating the image of China and Chinese companies, and instilling pride in all Chinese people for being involved in the Olympic Games. At the most basic level, the TOP program provides credibility and associations of being a leader in computer technology. Considering the required computing capability and system stability, the Olympics would not use Lenovo if it were not superior. Thus, the TOP program can provide the ultimate in relevance and communicate more about the brand than product advertising could ever say. Meanwhile, there are more subtle possibilities. By choosing Lenovo, a customer can receive self-expressive benefits, as it is a way to associate oneself with the world’s top athletes and teams. However, the potential of an Olympic sponsorship is not being taken for granted by Lenovo. The company has been successful in creating links around the sponsorship with a host of brand-driven activities including promotions, publicity events, website content, newsletters, and advertising over an extended time period. Lenovo is well aware of how important the Olympics are as a marketing tool, and is maximize the communication effect that will be created during the Games. Furthermore, famous athletes have been selected as Lenovo brand ambassadors in specific activities, conveying a brand image that stresses friendship and humanity. In addition, Lenovo is supporting various foreign national teams to elevate their corporate image in important markets outside the host country. It is clear that a number of critical brand portfolio decisions have been made at Lenovo. The new Lenovo brand enables the firm not only to retain the existing customer base in China’s market and worldwide served with IBM‘s Think products, but also to address competitive threats and enter new markets. The relationships between brands are particularly important in defining new and transitioning business arenas. While the master Lenovo brand will provide an essential synergetic force in the portfolio, the subbrands like ThinkPad? and ThinkCentre? will inherit the reputation and recognition of IBM brand. After successful integration by overcoming cultural barriers and streamlining operational processes, the re-born Lenovo filled its brand image with new values. Moreover, it influenced the market environment and actually defined product categories. In doing so, Lenovo positioned itself as a differentiated brand leader, building a bridge from East to West. They have in fact created the first global brand, “Made in China”. PCs? and laptops are just the beginning. Lenovo also manufactures and distributes mobile phones in China. We can be sure to see more brand developments and marketing success through brand building in these other product areas in the near future.

Further readings in: Philip Kotler, Waldemar Pförtsch Business-to-Business Brand Management, Springer Heidelberg, New York 2006

USA http://www.amazon.com/exec/obidos/ASIN/3540253602/wwwpfoertscco-21/

Germany http://www.amazon.de/exec/obidos/ASIN/3540253602/wwwpfoertscco-21/ .