5 Force Analysis On The Pc Industry Marketing Essay

In this chapter, firstly, there is a 5 force analysis on the PC industry and SWOT analysis on Lenovo will be conducted; secondly, the reasons to develop to global brand will be addressed. And this chapter will focus on five aspects to analyze Lenovo’s brand strategy: brand strategy planning, brand individuality positioning, brand propagation and popularization, brand management and brand protection.

4.2 PC INDUSTRY ANALYSIS

By using Porter’s 5 Forces model, the global PC industry can analyzed to get better understanding for the attractiveness of industries, success determinates and the driving forces. As figure 4.1 shows, five forces are able to influence the decision making on whether to enter or invest further into PC market. Meanwhile, the intensity of influence is changing associated with the rapidly growth of PC market.

Figure 4. 1: The Five Forces Driving Competition

Competition among existing industry firms

Strong

Threat of Substitute products

Weak

Bargaining power of buyers

Weak

Bargaining power of suppliers

Medium

Threat of new entrants

Weak

Threat of New Entry

With the growth of the PC corporate market, there are foreseeable potential entrances in this market. However, the entry barrier is relatively high – enterprises generally seem to be satisfied with their current notebook providers, with little incentive to look beyond their current suppliers.

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Buyer’s Bargaining Power

The buyers’ bargaining power in this market is relatively low in this market, since the customers are enterprises, which purchase bulk volume of PCs to their employees. The cost to switching to another PC suppliers is high to our customers。

Supplier’s Bargaining Power

This does not apply to Lenovo, who manufactures its own materials to a great degree – mainly, raw materials like boards and chips have reasonably standard prices.

Substitute products

The most probable substitute products are ultralight laptops and ultramobile PCs. Despite the heavy advertisement of these products in the media, enterprises don’t see them as useful to their organization. These products tend to be produced as a fashion statement, which get more attention from younger customers. The consumer market is more promising for these products.

Rivalry

Currently, there are three major players in the PC corporate market, Dell, HP and Lenovo, which take up around 90% of the market share. According to the customer satisfaction survey, there are relatively few differentiations among these top three players in terms of product features and product quality. While Lenovo has the best product support and strongest business relationship with customers among the three, for Lenovo to catch up with the other two competitors, keeping the brand name is the key, especially when the IBM trademark rights are lost.

DELL

Dell is currently the top enterprise desktop and laptop supplier in the world. Dell supplies both desktops and laptops to more than half of North American and European enterprises, doubling its closest competitor in both notebook and desktop PC sales. In North America, Dell is winning 60% of the desktop and 58% of the laptop market. Dell’s strengths lie in its low prices and product support. However, low R&D budget prevents Dell from producing new innovative products.

HP

HP maintained its solid No. 2 desktop supplier status and recently overtook Lenovo for laptops, supplying desktops to 27% and laptops to 21% of North American and European enterprises. HP has also improved significantly year-over-year, especially across laptops. It gained 6% in the North American enterprise laptop market and 5% in the European enterprise laptop market in the last year. These gains will continue, since HP recently refreshed its entire lineup of Intel-based laptops in 2007 with Intel’s Santa Rosa release. However, HP is behind in product quality and product support, according to surveys of customer satisfaction.

SWOT ANALYSIS

In order to get a better sense for Lenovo’s outlook in terms of the corporate market and the impending loss of the IBM branding, it is helpful to analyze the company’s strengths, weaknesses, opportunities and threats in terms of the problem. These key parameters are summarized here.

Strengths

Lenovo’s major strengths lie in its current brand image and market share. On the international scale, Lenovo ranks third in corporate sales behind Hewlett-Packard and Dell. It shows tremendous capability for improvement, however, due to its clearly superior reputation for high quality, high end products inherited from IBM. In addition, executives maintained from IBM’s notebook division provide the valuable experience that a relatively new foreign player normally would not have in the corporate (especially US) market. However, Lenovo already has a strong base in China, with a 29% share of China’s PC market.

There is limited competition for existing IBM/Lenovo corporate customers, because of existing reputation and connections formed by transferred IBM staff. The historic brand image and continuing innovation in the high-end market makes products like the ThinkPad X300 a “must-have” for a CEO to show off and use. The strength here lies in the capability for creativity in producing a high-end product with all the bells and whistles necessary for a corporate executive.

Lenovo provides a highly versatile notebook product line, in addition to its high-end ThinkPad. As a “one-stop shop” company, Lenovo shows promise – its product lines covers mid to high end products, now supporting Linux products. In addition, in-house manufacturing specialization allows for lower marginal costs – this leads to a more competitive position for a price war.

Weaknesses

Since Lenovo is a new player in the international stage it has plenty of weaknesses in its outlook. In general, its team has less market knowledge than local experienced players in the US market like HP and Dell. Lenovo has just begun to develop its service team in the US – it still manages to provide top of the line customer service, but the system is not optimized.

Lenovo’s major weakness, however, is in the stigma associated with Chinese products and companies with a reputation for skimping on quality to achieve low costs. A customer in the states is likely to mistrust the Lenovo brand in favor of the more well-known and trustworthy, American IBM logo. It is this weakness that Lenovo must overcome in the next year as the IBM branding disappears from its products.

Opportunities

With low marginal costs and a wide product spectrum, Lenovo has the opportunity to become a one-stop powerhouse in the corporate market, providing high-end executive computers with the IBM ThinkPad line, and high-quality, middle-spectrum computers for lower level employees on the corporate ladder. In addition, a developed electronics department allows Lenovo the opportunity for creating synergies between corporate addons like cell phones and Pocket PCs.

Threats

In general, the weakness of the US economy and the dropping value of the dollar might pose a threat to Lenovo’s growth. Rivalry between Lenovo and other companies in the corporate market like HP and Dell already pose a significant challenge, but Apple is showing a growing strength in the corporate market that must be addressed as Lenovo seeks to become the dominant international corporate player.

4.4 REASONS TO CHANGE BRAND

From 2003 to 2004, Lenovo owned 20 percent to 27 percent shares in domestic market. When a company occupies about one third in the market, the bottle-neck will occur in its development and then the continuous growth will need vast investment. Therefore Lenovo Group fixed its direction clearly, that is, to step towards the world and make Lenovo an international brand.

Lenovo’s development calls for internationalization. To be internationalized, first of all, Lenovo needs an English brand that is unblocked in the international market and loved by consumers. But the English logo ‘Legend’ had been registered in many countries and could not be used. This is the first reason. Secondly, Lenovo needs to plan its brand strategy again. In the past, Lenovo’s overseas operation was mainly production and processing, without a real brand operation. Thirdly, Lenovo needs to redefine ‘ what kind of company is’. Lenovo launched its new logo, and defined its brand meaning as the four characteristics of ‘ faithfulness and honesty, innovation and vitality, excellent special service and easiness (see APPENDIX A).’

In addition, the competition in the domestic market would be very high after China jointed WTO, and the growth of the PC market had shifted from US (11.7%) to Europe, Middle East and Africa (20%), a global brand will be needed if Lenovo wanted to compete with other brands like HP, Dell. To maintain the premium price of PC, brand recognition would be needed, since many local brands can provide needs of the inexpensive computer of no differential features. Without a global brand that can be perceived as an innovative with differential features, Lenovo would be perceived as a Chinese computer brand that is inexpensive in nature. This will also diminish the sub-brand power of what Thinkpad had established.

4.5 BRAND STRATEGY PLANNING

Zeng (2005) points out that brand strategy planning is the beginning of the brand strategy. The starting point of a brand strategy is full, sufficient, objective, correct and timely market research and study. The phase requirements of a brand strategy are outside information smoothness and inside talents solidarity.

As a matter of fact, changing the logo was not a single strategy of Lenovo facing internationalization. It took two years to prepare the program. In the planning stage of the new brand strategy, Lenovo visited thousands of employees from the vice president to ordinary staff in order to consult Lenovo people of their feelings about the spirit of Lenovo brand. Through a deep communication and a strict bidding process, it sought its cooperation partner of brand management items from many professional service companies. This program covered visiting 2,800 consumers, 70 enterprise clients and golding six global meeting in five foreign countries (see Appendix C)

And Lenovo asked a world famous grand designing and consultancy company to carry out the new brand strategy program, including researching and studying market, brand strategy planning, brand symbol designing, and the popularization of the new logo, and commanded all information including all sorts of information on economics, policy, social environment, rivals, consumers’ tendency, on the public’s evaluation of enterprises’ images and so on (see Appendix A).

Meanwhile, by studying repeatedly the case of brand logo replacing of rival enterprises like Sony and BenQ to get useful information as reference. Moreover, by visiting staff and asking for their feeling of Lenovo brand spirit and its internationalization development strategy, Lenovo stipulated and encouraged its staff’s will, inspired their ardor and creativity, strengthened their feelings of belong, and thus created a harmonious inner environment for the implementation of Lenovo’s new logo replacing strategy ( see Appendix B).

4.6 BRAND POSITIONING

Zeng (2005) suggest that a brand strategy of protracted nature, continuity, system, overall situation, oneness, stability, and wholeness must be based on clear and uniform brand positioning of difference and individuality. Brand positioning is the product and the way of service that enterprise wishes consumers to taste, to think, and to feel. Brand individuality positioning includes marketing positioning and brand image positioning.

In the brand positioning stage of Lenovo’s new brand strategy, it collect and deal with the information, and confirm whole image style of enterprises’ brand. By collecting information necessary through new products exhibition to learn about consumers’ needs, consigning special investigation companies to spot check, follow and visit consumers to gather more information about the new brand logo strategy, Lenovo finally decided its new logo and defined its brand meaning as the four characteristics of ‘faithfulness and honesty, innovation and vitality, excellent special service and easiness’.

Lenovo attached importance not only to enterprise’s manufacture scale, products’ covering area and market occupation rate, but also to brand’s well-knownness and influence; meanwhile, Lenovo held as a principle creating unique style and image individuality of brand in consumers’ hearts.

Lenovo had chosen to position itself as a premium PC company that would provide differential features for its target customers like Sony and Apple. In general, two different models could be used to establish a PC company 1) Cost-oriented, like Dell that emphasized the needs of supply chain efficiency and maintaining the competitive advantage with not differential features in PC 2) Innovation-oriented, like Sony and Apple that emphasized the needs of the target customers, provided them with needed functionalities for high premium, the market share is not a major concern. To achieve its goal to be an innovative company with higher efficiency, Lenovo went through a three-steps-process to leverage the acquired Thinkpad brand by committing to its success by rolling out a better and improved Thinkpad. This bold move was praised by major press like Wall Street Journal, and Fortune Magazine. By securing and enforcing the Thinkpad brand position and advertizing this sub-brand as a Lenovo’s brand, the Thinkpad sub-brand was used to generate a positive master brand for Lenovo. To differentiate itself with Sony and Apple as the other innovative computer company, Lenovo also positioning itself to be the one that can combine the efficiency (with the knowhow on the value and supply chain operation in China) and the innovation (with the embedded innovation DNA from East (China) and West (IBM)). With this strategy of Branding, Lenovo created two production lines, one for the Thinkpad/ThinkCentre that charged a little more premium than the competitors and one for Lenovo 3000 brand for the Laptop/Desktop that charged comparably with its competitors.

In China market, it is important that they would consider the oriental tradition of the market environment. In this regard, Lenovo must be known in China as a new company which is attached with another well known brand in the company gain more clients (Holl ensen , 1998) . The company may also consider a unique combination of East and West tradition to ensure that they would adhere to the needs of the Chinese market easily and to ensure that their Western values will not be diminished but grow more as part of the Chinese market.

4.7 BRAND PROPAGATION AND POPULARIZATION

Fang (1998) thinks that after the work of brand positioning is done, enterprises have to propagate and spread the brand as planned, Stirring effect can only be made after omni-aspected and fruitful propagation and popularization. Successful propagation and popularization can make enterprises set up as a goal the good image of the whole organization and constantly and seek the public’s support and cooperation, and thus obtain success of the whole business. This requires enterprises to carry out deep propagation and popularization. And because public relations have the characteristics of comprehensiveness in contents, lastingness in time, potentialness and indirectness in effect, it becomes the most effective means of brand propagation and popularization.

Lenovo carried out a series of highly effective activities of propagation and popularization, such as holding Lenovo technology show to make the public understand the enterprise better. With the successful launch of ‘Divine Boat Airship No.5’, Lenovo started a national series of spreading activities with the topic of ‘ only you can imagine’. Meanwhile it donated a large number of funds to Beijing municipal government for fighting against and preventing SARS. In the international level, it carried out brand propagation and popularization by sponsoring the Olympic games. Through these activities, Lenovo not only succeeded in propagating and popularizing its new logo, but also successfully set up a good enterprise image, formed the lasting influence of replacing logo, and created its unique brand style and image individuality in consumers’ hearts ( see Appendix B).

Customer Awareness

‘ Lenovo’ is quite strange to overseas consumers. It needs a carrier or a platform through which it can extend their brand to achieve the goal of improving the recognition degree at abroad and the fondness at home. Lenovo makes an effort to make sure that the Lenovo brand is well known and trusted as it continues to grow and produce computers in the international market on their own name. Co-branding that two companies work together to create marketing synergy can be used to achieve great effect. During year 2005 to 2008, Lenovo provided computing technology equipment including desktop computers, notebooks, servers, and desktop printers, and provide funding as well as technological support to Olympic Games and over 200 national and regional Olympic committees around the world, so as to improve our recognition degree overseas.

Lenovo’s sponsorship of many cases, such as Olympics Game and F1, are the good opportunities to continue to establish the Lenovo name as one that is trusted in general, just as the IBM name was. However, forward-looking and most influential is the Lenovo Olympic marketing. For Chinese enterprises, this is the first Chinese company to improve the image and reputation to help Chinese enterprises enter the world market a rare opportunity. Lenovo Olympic internationalization strategy is the most important step and the best chance, which make its brand recognition reach 26% (see Appendix A).

Advertising

Lenovo understood that branding is very important in every market because it helps attract customers to start buying their products and retain them for a long time. Brand awareness can be promoted through advertising. Since their products are related to high technologies and breakthrough concepts, a young celebrity, who conveys an energetic, creative and aggressive image, would be their best choice for promoting their brand image and products.

Sport is a global language. In order to let Lenovo become better known in the global market, they took the opportunity to get more exposure in many international sports games, such as becoming official partner with NBA and Olympic Games, signing the World Footballer Ronaldinho, sponsoring Williams F1 etc. Lenovo’s banners all over the sports stadiums and their logos on live TV transmissions will greatly increase their global exposure (see Appendix A).

In addition, Chinese athletes became stars in many different sports such as basketball (Yao Ming) and track and field (Liu Xiang). In order to meet the trend and the chance,

Lenovo needed to secure the position of the first brand related to sport. Therefore, Lenovo spent RMB 6 million to employ the famous track and field athlete Liu Xiang as one of their official spokesmen (see Appendix C).

4.8 BRAND MANAGEMENT

Li (2002) argues that brand management is the whole process of establishing, maintaining, and consolidating a brand. Its main purpose is to create a harmonious environment that is beneficial to achieving brand strategy goals and to increasing brand assets.

Lenovo has always regarded faithfulness as the most important thing of Lenovo brand. For Lenovo, faithfulness is not only a promise to the customers but also more of passing down of enterprise’s brand, culture and strategy. On this foundation, the Lenovo has always attached importance to provide high quality products and excellent professional service to consumers and this is very point that consumers recognize and accept Lenovo. Lenovo thus did well consumer relationship management and because of this it maintained a long and good relationship with consumers and achieved their brand loyalty. In order to strengthen the relationship between and customers and the enterprise, Lenovo has used customer relation management for its brand strategy management. This good omni-directional management absorbed all media’s attention and gained their positive reports, and thus further created a harmonious environment for Lenovo and increased Lenovo’s brand value.

While choosing the new brand logo, Lenovo construct brand management system. It keeps on using the brand logo of ‘Lenovo’, attaching importance to Lenovo at home and to Lenovo abroad. In management Lenovo emphasize its four characteristics, especially emphasize the management of faithfulness, all new employee of Lenovo will be trained on this on the first day.

Brand Strategies:

Before the Acquisition of IBM PC division, Lenovo was a highly successful local PC brand of China. It was perceived as an innovative PC company through its customization and understanding of its main base of Chinese market by introducing Chinese specific needs for PC like legend cards for Chinese characters processing, sales channels for PC instead of direct sales, etc. To expand this innovation-oriented strategy, not just a computer company from China that would be perceived by many as a company to simply provide inexpensive and less innovative, less reliable PC, Lenovo needs to combine its innovative DNA to its PC brand.

To define the brand, several factors needed to be considered:

(1) Brand Attributes

(2) Consumer Expectations

(3) Competitor attributes

(4) Price

(5) Consumer perceptions

In China, the customers accepted Legend computers (Lenovo’s Chinese brand name) as a premium computer, Lenovo had to reinforce this perception to its global brand. The corporate branding and positioning strategy was defined by its global marketing team to use “synergy approach” to create its global brand. The Thinkpad, a well known reliable innovative premium notebook PC, would be used as a sub-brand to give Lenovo the master brand, its personality. Three steps were taken to carry this strategy, 1) from March 2005 to September 2005 to provide the advertisement of Thinkpad to inform customers, Lenovo’s commitment to Thinkpad brand 2) Showcase the new and improved Thinkpad to ensure the perception of Lenovo’s understanding of Thinkpad and ability to enhance its innovative values 3) Stress the Lenovo master brand’s DNA of innovation. The strategy is to establish Lenovo as a innovative brand that owns Thinkpad as a global premium PC brand like IBM and HP.

Since the acquisition the IBM PC division, Lenovo had tried very hard to create a master brand for its business. The 3 steps process and the synergy approach for its branding efforts would clearly create the impression that the Lenovo PC would be the best for small business owners (its target customers). The use of the number for a product is to reinforce its brand power and its association of the master brand. The use of the number can also simplify the advertisement and easier for the launching of new products. Since Lenovo already had a line of PC that focuses on medium/big business, the use of Lenovo as the brand to target smaller business did provide complementary effect for the company.

This approach is simpler but ran a risk to potentially damage the master brand. By using the number, Lenovo brand is used to target a specific customer sector. This product as Lenovo defined was the product that would for small business owners. With the computer technologies changing so fast, and missing step would create disaster for a PC product. This disaster would potentially damage the reputation of the master brand created. The use of different names, Lenovo would have the options to create differentiated product lines with their own characteristics. This approach would preserve the brand power of Lenovo and can meet diversified customers with a broad expectation if needed. In its first launching of new product besides ThinkPad, Lenovo should have use “names” instead of numbers ( see Appendix B).

Three Phases of Brand Building

IBM allowed Lenovo to use its logo for its PC products (Laptop and Desktop) for 5 years, but Lenovo only used IBM logo on its Thinkpad series. Lenovo didn’t use IBM’s logo on its other computer products ever since the acquisition went through. The only association between Lenovo and IBM was the IBM logo on its Thinkpad brand names. It is very clear that Lenovo was trying to build its own master brand using synergy approach. Its strategy was to secure the loyalty from Thinkpad current owners and potential buyers by contracting IBM for service and attached an IBM logo to ensure customers that Thinkpad would be in good care event with changing of the ownership. Besides this effort, Lenovo distanced itself from IBM for the purpose of establishing its own master brand with the help from Thinkpad sub-brand. This is a good decision for Lenovo to act and move quickly part with IBM.

There were several reasons for this separation, 1) Lenovo needed to develop itself as an innovative company without shadowing by IBM. One example cited by the paper was the announcement Thinkpad Z60, that was viewed as the innovation by IBM not Lenovo in April 2005. 2) US PC market/Global PC market were dominated by Dell, HP, IBM was not the key player in this PC market. 3) IBM was moving into service sectors, the PC sector was not as favorable as a profitable business. 4) The reason for Lenovo’s acquisition of IBM PC division was not only for the IBM brand but for the global PC channels as well as its flagship Thinkpad notebook computer. These reasons explained why the use of IBM logo was on the Thinkpad. This is the right move since IBM’s brand in PC was not the dominated factors besides Thinkpad.

Without using IBM’s logo or brand name more, Lenovo lost the opportunities to keep IBM’s current customers and potential buyers, but these short term trends could be reversed with a perceived better brand that is more efficiency and innovative in Lenovo if established. Lenovo was taking the risk of short term lose but positioning for the long term gain. Lenovo believed it could use the combination of marketing/branding efforts to create a position impression of a better new master brand of both efficiency and innovation with the help of Thinkpad sub-brand.

Branding approaches

This synergy approach for the branding of Thinkpad and Lenovo is the best among other options. To use “master brand” approach for Lenovo would be easier to promote and build the Lenovo brand. This would also involve changing the culture, tactics and infrastructures of the newly acquired IBM PC division for this new Lenovo PC company to work. And mostly, by simply promoting the Lenovo master brand, this approach would certainly diminish the brand power of the Thinkpad, this move would be counter-intuitive. The house of brands approach could also be used to promote Lenovo PC company, but with the advertising budget much less than Dell, HP and other name brands, Lenovo just didn’t have the deep-pocked to compete and utilize this strategy. With the same token, Lenovo could not afford to create two distinguished organizations as Toyota did on Lexus/Toyota. With the assessment of these other approaches, Lenovo didn’t have other good choices at given company’s financial situation. The synergy approach is the one and only strategy should be picked (see Appendix D).

4.9 BRAND PROTECTION

Li and Qiu (2002) suggest that the anfractuous inside and outside public people and the constantly changing environment faced by enterprises in their operating activities are filled with uncertainty. This uncertainty now and then tests the enterprise. Under this condition, the most crucial thing is that enterprises should make the best use of public relations, following the goal of enlarging enterprise’s degree of credit standing and establishing good enterprise’s image. The enterprise should exert completely public relation’s propagation function, honestly face the media and the public, tell the truth, cordially accept the comments, so as to gain the good feeling and trust of the truth, cordially accept the comments, so as to gain the good feeling and trust of the public, desalt the conflict and transform the crisis, and change uncertainty into certainty.

Lenovo told the truth to one of the clients about its carelessness in providing the wrong fittings, which are not vey serious, although the client had not figure out the problem. Furthermore, Lenovo replaced the high quality fittings with the wrong ones actively. This made the client very satisfied with Lenovo’s service and the client gave much more business to Lenovo to do for years. This action brought Lenovo a god reputation in the industry. Here Lenovo turned a harmful accident into a favorite chance of business through using public relations.