Lenovo Acquisition Analysis Product/Brand decisions: Some of the issues Lenovo had to deal with in the acquisition of IBM was how to capitalize on the marriage of brands and how to win corporate respect with the Lenovo brand. The acquisition allowed Lenovo to move quickly into the international marketplace. Given that IBM had one of the most trusted brands around the world, this allowed Lenovo to build on past IBM’s reputation.
But Lenovo only had the right to use the IBM logo for five years so they wanted to leverage that asset.
The media perception of Lenovo’s association with the Chinese government was also concerning to Lenovo’s executives since firms with this type association tend to get low marks for trustworthiness. In response they did face to face surveys to determine customer concerns. After choosing to focus on innovation and quality the company eventually settled on a strategy with two elements: build up the Lenovo brand as master brand and continue to strengthen the ThinkPad brand which rated high among corporate buyers. Pricing decisions: Lenovo’s pricing decisions was a case of how to position itself in the minds of consumers.
They had already become very efficient with the cost of manufacturing since most of the components were already being made inside of China. But they had to choose what its brand essence would be and over how many categories its brand would be stretched. As they saw it there were two groups with which to compete. One group included the discounted pricing model like Dell, HP, Acer and such. Another group included Apple and IBM which distinguished their products on innovation and quality. So to remain competitive, Lenovo planned to launch their new PC Series 3000.
This was an attempt to keep the master brand and the ThinkPad as luxury products at a premium price and to create another product that was priced lower and could compete in the market on another level. They chose not to compete directly on price with the 3000 family by applying what they learned business consumers wanted which was ‘worry free computing’. They were going to stress in their marketing strategy that the Lenovo brand stood for innovation. Competing on price would have given the perception of a cheap product from China. But they learned that consumers put a premium value on quality, reliability and durability.
Distribution decisions: The acquisition allowed Lenovo to acquire distribution channels that IBM had already built up. It now had a marketplace to 138 countries where both businesses had been selling previously. Prior to the acquisition sales in China for Lenovo’s were 70% transactional through business partners and 30% by relationships or consulting. Globally for Lenovo it was the opposite with only 30% of sales through partners. IBM’s customer base had been predominantly corporate customers. On the supply chain side IBM pc’s were already sourced in China so there were operational efficiencies to be gained.
According to one executive there appeared to be no channel conflict since they had complementary products and client bases. They could assembly a broad product portfolio and use global distribution to take products around the world. Combining the two cultures still posed a challenge to making the company function in the manner it was the merger was conceived. Even though Lenovo had modeled itself after HP and IBM by focusing on meritocracy, the potential for corporate and operational clashes had not been clearly removed. However, the young CEO Yang exhorted them to work together as they integrate the two companies. The key message was to trust the other person’. This helped foster an atmosphere that would help the transition. Promotion decisions: Lenovo had many challenges facing them with regard to promotion of the brand and product portfolio. One was how to position the ThinkPad brand with the market and whether to put this brand on existing Lenovo products. The marketing manager thought this would dilute the ThinkPad brand and decided to keep the ThinkPad as a separate product class that would build on its reputation of a premium business notebook.
This became part of their strategy of a ‘one-two punch’: building up the Lenovo master brand and continue to strengthen the ThinkPad product brand. Just before the acquisition Lenovo had negotiated an Olympic sponsorship in order to introduce the world to the brand. They would be able to use the Olympic logo for marketing and promotion but this arrangement would come at a hefty price of $80 million to start and another $160 for the additional advertising requirement; a large sum for a company with $3. 2 billion in sales.
Lenovo would also be able to continue to use the IBM logo for five years as part of the acquisition which they intended to leverage. The promotion strategy led to a three phase advertising plan. First, they ran a worldwide campaign where each ad ended with a mention of the ThinkPad instead of Lenovo to reassure customer and maintain the ThinkPad momentum. The second campaign was labeled ‘ThinkPad Unleashed’ which ran during the Olympics to emphasis that the ThinkPad was being made even better. The third phase stressed that Lenovo stood for innovation which is how they intended to differentiate themselves from their competitors.
In order to continue to raise awareness, the marketing manager studied brand-tracking research from 10 countries every quarter. They would chose product placements on TV shows in countries like India as a result of the studies. They also explored unconventional ways to position the company as Dell and HP continued to outspend them in ad dollars by as much as 20 times in the US and 10 times in Japan. Upon introducing a ‘3000’ family of pc’s for the small business market, the challenge was how to position it as price-competitive without the perception that they were cheap products from China.
This might dilute the master brand. They would investigate more in depth about what business customers ultimately wanted in their pc’s. To help with what their research revealed, each PC came with a set of tools labeled ‘LenovoCare’ for ‘worry-free computing’. Marketing strategy: The marketing strategy would eventually stress a family of innovative products that resulted from the marriage of the two brands. This would help support their mission statement: We put more innovation in the hands of more people so they can do more amazing things.
Delivering on this mission would prove to be harder than just saying it. From the outset, Lenovo strived to create a management team that was representative of the new global market. They achieved this by hiring employees in the countries where they sold the PC’s. Developing a marketing strategy that spanned the globe was a daunting task that would only be successful if their diverse team of executives worked together. Having multiple cultures working together toward the same goal would be difficult. Within the first several months after the acquisition the Lenovo did lose market share.
Now the company would have to stand on the Lenovo brand to get them through the next several difficult months of regaining that share and getting more entrenched in the US market. They would find that even in their own home country of China where they once had the advantage that competition had become more intense due to additional ad dollars they were spending. As long as they continued to support the innovative culture which won IBM so much recognition and to work to make the cultures manage together this would lead to a successful future.