January 5, 2009

A Horizontal Acquisition in the PC Industry: How to Handle Branding for Long Term Value?

Intangitopia presents it's first Guest Blogger, Jonas Nilsson.

In December 2004, Lenovo finalized the block buster acquisition of the IBM Personal Systems division. Lenovo, barely existing outside China and more known for low cost products than having a premium focus, was to nourish the world’s most premium connoted PC brands – IBM and its Think series computers. An unholy alliance according to some, but Lenovo were determined to create a pioneering collaboration between the East and the West to ultimately form a global industry giant.

My focal point on this topic is how Lenovo chose to leverage the extremely valuable IBM brand on their acquired ThinkPad and ThinkCentre computers. Lenovo were given the right to physically put the IBM brand name on the computers for up to five years after the acquisition. But in the end of 2007, Lenovo decided to drop the IBM brand – ranked among the most valuable in the world - two years before schedule. My hypothesis is that dropping the IBM brand from the Think PCs was good for Lenovo in building long term value for Lenovo from a brand perspective. The analysis is conducted from three starting points that I have determined relevant in this case.


Customers’ Trust in the Ability for Lenovo to Sustain the IBM Think Brand Value Proposition
Customers initially worried that the values that IBM and the IBM Think series represented and delivered, such as quality, innovation and support, would be lost when Lenovo took over. Lenovo had aligned the corporate culture and vision to achieve the value propositions of the Think PCs, but did it correspond to the image of the brand?

First of all, the IBM PS operation basically still existed in the new organization, why little was to actually change for the customer, which was steadily communicated by Lenovo. Also, with the IBM brand physically on the PCs, the customers could be assured that IBM endorsed the new structure. I found three main aspects that diminish the risk of customers losing trust in the IBM Think brand’s value proposition.

  1. Lenovo’s steadily increased revenues and profits indicate that the customers have trusted the new structure and shows that customers’ believe in sustained value proposition from the Think PCs.
  2. IBM PC customers have traditionally been loyal to the brand. After almost three years of having Lenovo in the picture, many of these will have gone through a computer purchase cycle under Lenovo and have therefore already acknowledged the new structure.
  3. The brand is much more than the IBM name and Lenovo have been extremely careful with capitalizing on the perception of how a Think PC should operate, look and feel but also how it should be serviced and supported. This has ensured trust in the value proposition.
These arguments in sum, suggests that sustaining the brand of IBM on the Think PCs for two additional years would not significantly have helped in preserving the consumers trust in the value proposition, since the name still have needed to disappear in two more years. The arguments would likely not have been considerably affected during that time.

Long Term Brand Building

The early removal of the IBM brand from the Think PCs was a step in leveraging the Lenovo brand in the vision of being one of the largest actors in the PC market with aggressive growth ambitions. Despite the values the IBM brand brings, it diminishes the Lenovo brand. It could also confuse the less familiar customers; “what is actually what here?”.


I have used Google Trends as a tool to illustrate how frequently “IBM ThinkPad” vs. “Lenovo ThinkPad” have been searched for on Google historically and how commonly referred the terms are in Google News (which basically summarizes news from a large pool of media channels).



First of all, it is obvious that Lenovo is in a positive and IBM in a negative spiral in terms of people’s awareness and the media attention of the brands (similar trends in search volume index is seen when comparing “IBM” and “Lenovo”). This suggests that leveraging from the IBM brand is of decreasing importance and the possibility to keep growing with the Lenovo brand is likely good. Also, after the brand change in 2007/2008, the number of news references did increase vastly compared to the previous years (even if we add the IBM ThinkPad references) creating a lot of attention of the ThinkPad, which is good for the brand building and suggests that the brand change decision was good.


Strengthening the Lenovo brand two years earlier than initially planned was likely positive, since it speeds up the process of creating a long term brand value for Lenovo.


Aligning Corporate Vision and Culture

Though the top managers all the way might have been consistent in their thinking of Lenovo as the company, it is not unlikely that the employees with such different backgrounds rather indentified themselves with their previous brands. Exclusive Lenovo branding should in the long perspective help unifying the company. Lenovo’s vision has been to communicate the beginning of something new, a pioneering collaboration between the West and the East to create “a unified global PC leader with growing market positions in developed and emerging markets”. A distinct action in order to bridge the gap between the vision and the culture is definitely to make sure that the new company operates under one name. The symbolism is great, in my view.

Conclusion

From the three starting points that I have analyzed, Lenovo’s decision of dropping the IBM brand earlier than initially decided, likely was the better move looking at the long term value creation from a brand perspective.

Managing the brand is of utmost importance to the technology intensive firm. In dynamic markets with rapidly changing technologies and conditions, the customers want to know that their supplier has a vision of their desires beyond the traditional price/performance aspects. The customer wants a company they can trust and the company wants recurring customers.

Jonas Nilsson

2 comments:

  1. Thanks Jonas, for a great post! A very interesting case indeed.

    ReplyDelete
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