Achieving Global Brand Status by Lenovo - Essay Example

? Report: Achieving global brand status – Lenovo BY YOU YOUR SCHOOL INFO HERE HERE Board of Directors, Lenovo HERE 14th May 2013 Re: International Marketing Report 1.0 Introduction Please find herewith our report that addresses your concerns regarding global branding and the internationalisation process. There are seven distinct features that indicate a brand has achieved global status which are supported by both quantitative statistics and also qualitative analyses of brand positioning and consumer responses associated with the marketing mix. Herewith this report provides a comprehensive investigation into Lenovo’s current global brand status with a supplemental series of marketing metrics to determine whether Lenovo has achieved success in global branding. 2.0 The features indicating achievement of global brand status Quelch (1999) provides a benchmark for the seven characteristics of a brand that are prevalent when a business has achieved global brand status. This is inclusive of strength in the home market, having a geographical balance in sales, the ability to address homogenous consumer needs worldwide, maintaining consistent brand positioning, reducing the country-of-origin effect, the specific product category focus of the firm and corporate name. This section of the report examines the extent to which Lenovo maintains appropriate emphasis on the aforesaid benchmark criteria for advancement to a legitimate global brand. Lenovo must maintain all identified characteristics in order to be considered a victor in becoming a genuine global brand. 2.1 Strength in the home market In 2011, China contributed 46 percent of total business revenues with all supplemental sales stemming from combined international markets and emerging markets (Lenovo 2012). China is considered the largest personal computer market in the world and Lenovo has managed to increase its market share in this highly competitive technology market. Much of this success is due to a contracted 2011 strategic alliance with Compal Electronics that significantly increased Lenovo’s production capabilities. Through dual investments by Lenovo and Compal, totalling $300 million each, a new production facility was built from the ground up in Hefei, China that exploits the talents and resources of both partners to deliver faster output and more frequency of innovative products (Lenovo 2011). The Chinese personal computer market is projected to achieve a growth rate of three to four percent in 2013, which is largely driven by rural consumer demand for desktop computers (China.org.cn 2013). Whilst the rest of the developed world, such as the United States, has seen declines in demand on personal computers as consumers defect to more agile mobile computing opportunities, Lenovo operates in a market where rural consumers are witnessing more government investment into infrastructure improvements in rural regions that are increasing personal incomes of rural consumers (China.org.cn 2013). The rural consumer sector is a major market segment within a national population volume of over 1.34 billion consumers (News Limited 2013). Lenovo was very adept in establishing a joint venture with Compal in order to expand the ability to deliver faster production output to the rural regions within China whilst demand for desktop and laptop computers are experiencing growth with a variety of target segments. Lenovo also participated in a government subsidy program designed to give rural consumers less-expensive personal computers which assisted Lenovo in achieving a $1.7 billion USD sales increase in the country (Hille 2009). Lenovo recognises appropriate opportunities to expand its brand presence and hence improve its brand recognition in China. The Chinese government is imposing a variety of new programs to facilitate more economic growth and improve the labour environment within the nation. By engaging appropriate political forces to allow the Lenovo brand to be associated with a nationwide initiative to modernise rural China, the business builds considerable brand strength in the home market. Lenovo has also improved its organisational structure, segregating the business into four specific geographies: North America, China, Asia-Pacific and Europe-Middle East-Africa (Lenovo 2012, p.7). Each geography maintains its own cultural characteristics and demand fulfilment needs on a variety of personal computers and smartphone technologies, thus the organisational restructuring contributes to strong home market growth for Lenovo as the business can now specifically tailor strategy development to better serve the aforesaid, disparate characteristics of the global marketplace. This is what makes Lenovo akin to such genuine successful global brands as Disney and Microsoft that are able to maintain market share dominance in the home market as well as international markets. 2.2 Geographical balance in sales A global brand must maintain, at minimum, the same level of brand recognition in all of its multi-national markets. Lenovo’s acquisition of IBM’s personal computing business in 2005 allowed Lenovo to utilise the brand power of IBM to facilitate more global interest in Lenovo products. This accounts for the company’s significant strength in not only the home market of China, but abroad as well in North America and Europe where IBM maintains strong brand recognition and loyalty with certain target segments. The synergies achieved by allowing Lenovo to be associated with such a powerful brand led to the current development of partnership logos that are utilised by many channel partners, suppliers and joint venture partners to illustrate their involvement with Lenovo (Lenovo 2013). Figure 1: Lenovo Business Partner Logo for Co-Branding Synergies Source: Lenovo. (2013). Business Partner Website Assets – brand and marketing resource. [online] Available at: http://www.partnerinfo.lenovo.com/partners/au/resources/brand_assets.shtml (accessed 27 April 2013). Though Lenovo is not isolated from gaining brand recognition and awareness through its own internal brand-building strategies, the ability of the business to recognise vital acquisition opportunities of well-respected brands that maintain brand loyalty significantly improves the consumer perceptions of quality associated with the Lenovo brand. IBM is a brand that was able to build on its brand equity by diversifying into a variety of product lines, supported by the established brand recognition and positioning of IBM prior to its acquisition by Lenovo. Now, Lenovo is in a position to ensure that its own brand reputation is used as a quality and innovation benchmark by a variety of important partnered contributors to the Lenovo business model with the utilisation of the partnered logo illustrated in Figure 1. In North America, Lenovo invested significant financial resources into a brand-building campaign that would assist in expanding brand awareness in this geography. In 2012, Lenovo unveiled new television commercials that were targeted at consumer and business-to-business markets under a psychographics approach, illustrating a variety of daredevil and other dangerous lifestyle activities (e.g. cycling and parachuting) whilst utilising the Lenovo brand to access important data during these activities (Kovar 2011). Coupled with this brand-building approach, Lenovo publicised its intention to extend financing opportunities to the North American health care buyers, educational buyers, and even federal government buyers in order to improve its brand reputation (Kovar 2011). Thus, in this market, there is substantial growth in brand awareness with a variety of important consumer and business markets that contribute to achieving a truly global brand by having consistency in brand recognition and brand recall in many different sales geographies. This geographical balance associated with the Lenovo brand is also supported by the symmetry between tangible sales volumes in China as compared to mature markets such as the United States and some European geographies. In 2012, both China and the mature markets contributed to 42 percent of sales (Lenovo 2012). This would not be accomplishable without having consistency in brand identity throughout many of its operating geographies whether developing or mature market environments. Being able to secure more revenue growth in North America by attempting to capture the business-to-business market through aggressive and well-financed marketing strategies illustrates that consumer segments throughout the world are beginning to trust in the reputation and/or reliability of the Lenovo brand. This is especially difficult to accomplish in markets that maintain significant competition, such as the aforesaid United States market, where major brands such as HP, Dell, Samsung and Apple are dominant in the mobile and personal computing technology industry. Lenovo maintains 20.6 percent of market share in Japan (a competitively-saturated and mature market) and 7.1 percent in North America (which is an increase of 1.8 percent in 2012) as well as 7.8 percent market share in Western Europe (Lenovo 2012). Ninety percent of these revenues that improve market share are attributed to notebook and desktop computer sales globally. Though Lenovo has not been able to sustain the higher market share of major competitors in mature markets, such as Dell, HP and Acer, Lenovo is making significant increases in unit share in these geographies. Without the comprehensive and buyer-focused promotional strategies utilised in the company’s four geographies, Lenovo would be showing disparities in market share growth that is attributable to maintaining limited brand awareness in certain sales regions. 2.3 Addressing similar consumer needs worldwide Though it has been recognised that Lenovo adapts its promotional strategies in the marketing mix to fit the unique cultural and lifestyle needs of disparate geographies, there is evidence that standardisation associated with product provides strengths toward Lenovo becoming a fully global brand. It is through Lenovo’s aggressive acquisition growth strategy that this standardisation is supported. In 2011, Lenovo purchased the European electronics business Medion which doubled its market share in one of its most profitable markets: Germany (The Economist 2013). Medion specialises in desktop and laptop computers, supplemented with additional product lines, but majority of revenue growth sustained with standardised computing products. In 2012, Lenovo purchased the Brazilian computer company CCE for $148 million USD which is assisting in improving market share in this developing geography (The Economist 2013). CCE was, prior to acquisition, Brazil’s largest computer company. These and other acquisitions improve the business’ production capacity and allow for more effective distribution of products into relevant retail channel partners. Having an international production and supply chain founded on acquired facilities allows the business to establish a standardisation model to ensure that Lenovo products can fulfil the custom and homogenous needs of consumers in a variety of geographies. Lenovo is also adept in understanding the external competitive market to produce products with replicable features to competitors or develop innovative feature or application enhancements in the mobile technology sector. Western competitive rivals in this category such as Nokia, Ericcson, Motorola, Samsung and Apple have been competing aggressively with each new version of their smartphone technologies with subtle enhancements ranging from screen size to general functionality of the devices. In this market environment with highly saturated competitive forces, which is fast approaching the model of a perfect competition industry, product upgrade cycles are an absolute necessity to gain brand loyalty or ensure more effective revenue growth through small-scale innovation to the mobile computing and global smartphone markets. Prior to 2011, Lenovo had developed its first smartphone technology, the LePhone, which was intended to be a one-size-fits-all phone with a set of standardised features and benefits (Einhorn 2013). However, the pace by which major smartphone competitors were able to launch innovative upgrades to their products (such as the Apple iPhone 4 and the Samsung Galaxy II) forced Lenovo to abandon the LePhone for a diversified line of 19 different smartphones each maintaining unique features and benefits (Einhorn 2013). In the smartphone market, both in China and mature markets, Lenovo is unable to standardise its products if the business hopes to make competitive gains against major manufacturers, many of which maintain strong brand identity and loyalty in their sales geographies. This is not a problem with Lenovo, but a market-driven competitive environment that forbids product standardisation in this particular technology product category. In the PC and laptop markets, there is an increased consumer and business buyer need for mobility in computing and demands for improvements in overall performance (e.g. memory capacity, size and weight). For example, in the highly profitable business-to-business market in the United States for laptops and personal computers, the provision of extra features associated with the product and building strong customer relationships are considered effective predictors of success in sales (Lin et al. 2008). This means that Lenovo (and competition) must develop innovations for each subsequent product model improvement launched in order to avoid brand defection to a rival brand by this important and profitable business market. Through acquisition strategy, Lenovo was able to revamp its capabilities for providing innovative products which continues to gain more business-to-business interest in the Lenovo brand. However, market characteristics with the B2B buyer segments prohibit standardisation in a competitive industry where providing standardised products not aligned with individual market needs will ensure that buyers seek more innovative brands that offer better features and more intimate customer relationship ideologies. 2.4 Consistent positioning To be a genuinely global brand, the brand should illustrate the same set of core values and beliefs across all of its operating geographies. For instance, the multi-national retailer Tesco consistently illustrates its focus on innovation as its core ideology to better serve disparate customer sectors, which gives the business a homogenous reputation across the globe. Whilst Tesco customises its products for unique cultures and social capital-driven product and service expectations, the holistic brand of Tesco is synonymous with pioneering strategies in procurement, service delivery and the in-store servicescape. This makes Tesco a legitimately global brand in which the company’s main focus is represented in standardised fashion in all operating geographies. Lenovo, through its acquisition strategies that have improved the firm’s innovative capacity and competence, attempts to position the business according to quality in China, Japan, Germany and other Western European mature markets. The CEO Yang Yuanqing desires for Lenovo to be seen as a pioneering technology company, especially in the mobile Internet sector (Foo 2010). This set of brand values associated with being a quality-focused and innovative company are expressed in promotional strategy in the aforementioned geographies and the methodology of channel partners involved in distribution and in-store sales strategies by utilising retailers with strong brand presence and trust in certain consumer segments. For instance, Best Buy in North America and Redington in India have considerable brand loyalty that has been built on years of retailing promotional prowess and brand-building. By selecting partners in the retail channel strategy that can contribute to co-branding synergies allow the business to maintain this consistent positioning worldwide. The United States market, however, forbids establishing this innovation and quality positioning in the same degree as other maturing and developing markets. This market is more effectively reached utilising lifestyle-centric marketing strategies and psychographic segmentation to achieve market responses from desired target buyers. This is evident with the aggressive television commercial promotions utilising North American actors in a variety of daredevil and dangerous lifestyle activities whilst utilising the Lenovo brand. In this highly saturated market geography, it is difficult to differentiate a product when there are a wide variety of like products available from rival companies. As such, Lenovo is unable to position the business using the same strategies that are viable in China, other Asian countries and Western Europe as consumers will not find appropriate brand attachments or build loyalty without exhibiting some sense of the brand providing self-expansion opportunities both professional and social. Muniz and O’Guinn (2001) support the importance of this positioning strategy with the North American market whereby lifestyle attributes and egocentric consumption behaviour are strong determinants of competitive success and revenue growth. Thus, as with other factors related to what constitutes a genuine global brand, certain market characteristics and cultural needs of buyer segments require a brand to develop unique and disparate positioning in order to build a differentiated competitive brand identity. Hedonistic markets, as one example, demand a more service-minded brand willing to provide excellence in supplemental service delivery. Benevolent cultures would be more demanding of philanthropy and social responsibility of companies before building loyalty to the brand. Disparate values and beliefs that are directly associated with market characteristics influence a need for Lenovo (and other competitors) to restrain a homogenous positioning strategy that is going to be effective globally. 2.5 Consumers valuing the country-of-origin Lenovo recognised the potential dangers of linking the Lenovo name with the Chinese technology industry. In 2004, the company changed its name from Legend to Lenovo as a means of differentiating itself from the reputation that Chinese manufacturers of technology often maintain associated with inferior quality and cheap product output. Its most profitable market, China, maintains strong brand following with such Western brands as Apple that continues to perform well in terms of revenue in this market. Thus, there are no country-of-origin concerns in this particular market. Today, not all Lenovo products are produced in China due to the vastness of the business’ value chain, especially logistics, manufacturing and channel strategy. This was accomplished through the aforesaid volume of international company acquisitions that improved capacity and strategy development to serve multiple geographies and through removing its brand-related association with China as the predominant country of origin for Lenovo products. Now, Lenovo products are produced in many trusted and more reputable regions, making this less of a concern for the brand. National pride and the buy local effect as described by Cateora, Gilly and Graham (2009) are not concerns for Lenovo 2.6 Product category focus This is one area impacting achievement of a global brand that is largely irrelevant for Lenovo. The business only focuses on computing technologies, internet and smartphone technologies to express its expertise in this particular product category. The business is not attempting an aggressive growth strategy by diversifying products or expanding its product portfolio to include multiple and often unrelated business units (e.g. real estate or fashion wear). Lenovo is able to provide consumers with perceptions of competence, technological expertise, and establish an effective positioning strategy (consistent in most markets) associated with computing technology quality. All products produced by Lenovo are brand Lenovo, with a limited yet focused product line, thus improving the business’ global brand status. 2.7 Corporate brand name After acquiring the IBM personal computing business, Lenovo continued to sell the ThinkPad product that had originally been designed by IBM, but under the Lenovo brand. This has led to significant Think Line product evolutions that include the ThinkStation, ThinkVision, and ThinkServer technologies. The new product changes founded on IBM competency have given Lenovo a positive brand name with products that were already trusted and accepted by multiple business and consumer buyer segments. The corporate brand name strength that is now present in developing and mature markets is founded primarily on the promotional competence of Lenovo international marketing teams. It is now wholly unrelated to negative country-of-origin effects, disparate as solely a Chinese brand. This gives the business more international clout as a quality company (aligned with positioning) and as a company able to innovate in technology product launches. 2.8 Summary Since there is some inconsistency in positioning in disparate geographies, it would seem fair to suggest that Lenovo had not achieved legitimate global brand status. Lack of standardisation in product development in mobile Internet, computing technologies and the smartphone industry would also support an assessment that it will be sometime in the future that Lenovo would actually achieve global brand status. However, in areas of positioning and standardisation, these are market-driven necessities that pressure Lenovo (and competition) to develop unique product evolutions (innovations) and attempt to create culture-centric brand identities. These market-based persuasions are necessary to achieve competitive advantages and gain consumer segment interest in Lenovo and are largely outside of the control of Lenovo in a market where consumers have considerable buying power (Porter 1998). In all other factors offered by Quelch (1998), Lenovo has achieved global brand status as the business understands how to reduce the COO effect by segregating its image from the perceived Chinese inferiority in technology production, maintaining a dedicated product focus in the technology category, maintenance of geographical balance in sales, and significant strength in the home market. If the business were able to control the market-centric factors that drive disparate positioning in different geographies and provide standardised products without a need for rapid innovation evolutions, then Lenovo would be considered something other than a global brand. Lenovo, however, should be considered a legitimate global brand as identified through industry and market research provided in the report. 3.0 Application of marketing metrics Givon, Mahajan and Muller (1997) offer an effective marketing metric referred to as market share analysis that assists in estimating the total value of a business’ market share. This model must take into consideration unit sales or tangible financial sales, the particular user base for products, total market size, and key rivals in the industry. Table 1: Market Share Analysis for Lenovo Market Share Analysis - Lenovo Revenues $2.96 Billion User Base Non-Concentrated Total Market Size 284.5 million buyers Key Rivals 7 Main Competitors Total Market Value $193.2 billion Market Share Value 1.5 Percent of global market Competitor Share $193.2 / 8 $24.15 billion Analysis: Insufficient Global Market Share Another practical and relevant marketing metric is the Return on Investment model, a metric that takes into consideration total marketing expenditures, marketing impact, recognition of target consumers reached through marketing objectives, and profit from incremental sales. Table 2: Return on Investment Metric for Lenovo Marketing Expenses Marketing Impact Campaign Development $500,000 Target Reached 250,000 Mass Media $50,000,000 % Converted to Sale 5.5 % Direct Marketing $300,000 Incremental Sales 45,000 Total Marketing Budget $50,800,000 NPV per New Sale $500 Marketing Staff Expense Incremental Revenue $130,000,000 Number of Staff Days 100 Average Daily Rate $1500 Average Gross Margin 32% Total Staff Expense $150,000 Profit from Incremental Sales $80,500,000 Total Marketing Investment $51,300,000 Return (net profit) $29,200,000 Return on Marketing Investment 43% Though Lenovo does not publish all of its internal marketing staff wages and the duration of each promotional campaign within all of the business’ operating geographies, expenditures for Lenovo in marketing increased between 2011 and 2012 to nearly 300 million. Table 1 breaks down a singular marketing campaign for a particular geography, taking into account the average cost of marketing sustaining a 100 day campaign duration at an average daily wage expenditure of $1500 for all involved in the customised campaign. A 43 percent return on marketing investment is significant and above industry norms. The data from Lenovo’s 2012 annual report was utilised to create a modified and projected metric of return on marketing investment with an assumption of 250,000 new target consumers reached through the campaign, based on calculation of the increase in sales and market share in China occurring between 2011 and 2012. 3.1 Summary As illustrated, Lenovo requires a better increase in global market share as the statistics from Table 1 represents a clear disparity between major competitors and the current sales volume in an industry valued at 193.2 billion USD. Return on marketing investment, however, is supported by significant revenue growth with Lenovo between 2010 and 2013 with the ability to capture more brand awareness in North America where the industry is highly saturated by major competitors with strong brand identities worldwide. Lenovo is successful in gaining adequate returns for its diverse promotional campaigns that convert into higher sales for desired target consumer markets. Large scale-expenditures in marketing leading to significant profitability as a result of the campaign places Lenovo in a superior ROI position to other manufacturers that do not achieve high sales conversion through the integrated campaigns. 4.0 Conclusion As illustrated, Lenovo can be considered a genuine global brand. Outside of the market-driven characteristics of disparate international markets that prevent Lenovo from maintaining a standardised product ideology and positioning with a streamlined, homogenous set of values and ideals, all other factors provided by Quelch (1999) indicate Lenovo is absolutely a global brand befitting all characteristics of a firm maintaining these factors. Recognising that Lenovo is a global brand, and with supporting metrics that illustrate, at minimum, an evolution toward achieving return on investment and adequate global market share, the report should indicate to Lenovo that its strategies are sound and should remain consistent with the business’ current approach to capturing the loyalty of certain international markets whilst investing significant financial capital into the promotional function. 5.0 References Cateora, P., Gilly, M.C. and Graham, J.L. (2009). International marketing, 14th edn. McGraw-Hill. China.org.cn. (2013). 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