Marketing Strategy Analysis Case Study of Lenovo Course Strategic Marketing Process Instructor Martin Williams College Post Graduate Diploma in Management Studies May 28, 2010 MinZe Li ID:L049Z11276 Table of Content Charpter1: Introduction3 1. 1Background3 Chapter2: Methodology5 Chapter3: Research Findings6 3. 1 Strategy Process6 3. 1. 1 Lenovo’s current situation6 3. 1. 2 Analysis based on Kano Model7 3. 1. 3 Porter’s Five Forces Analysis9 3. 2 Development of Strategies Alternatives12 3. 2. Strategy I: Lenovo as a new brand focusing on the brand strategy12 3. 2. 2 Strategy II: Lenovo focusing on the particular market13 3. 2. 3 Strategy III: Lenovo focusing on differentiation strategy14 3. 3 Strategy Choice15 Chapter4: Conclusion17 Reference19 Charpter1: Introduction 1. 1 Background In 2006, driven by the notebook PC market and growth of the European and Asia-Pacific markets, the global computer market continued to grow. In terms of trading pattern, the EU, U. S. A, China and Japan are in a dominant position.
In the overall market, as dual-core processor gets into the field of personal computers, LCD display becomes the mainstream, more and more people use notebook PCs, and all accessories are upgraded, new momentum has emerged in the computer industry. With enhanced functions and lower price, notebook PC becomes the hardware product with the greatest growth potential in the field of IT. For Lenovo in recent years, the personal computer (PC) industry has been developing by leaps and bounds. Global sales of PCs totalled 230 million units in 2006, representing a 9 percent increase over the previous year.
Lenovo has a product line that includes everything from servers and storage devices to printers, printer supplies, projectors, digital products, computing accessories, computing services and mobile handsets, all in addition to its primary PC business, which made up 96 percent of the company’s turnover as of the second quarter of 2007. Since its acquisition of IBM’s Personal Computing Division in December 2004, Lenovo has been accelerating its business expansion into overseas markets. The company transferred its corporate headquarters from Beijing, China to Raleigh, North Carolina, USA.
Today, the group has branch offices in 66 countries around the globe. It conducts business in 166 countries and employs over 25,000 people worldwide. Lenovo is organized into four geographical units: Greater China, America, Asia-Pacific, Europe, and the Middle East and Africa (EMEA). Within each unit there are functional departments that include production, transportation, supply chain management, marketing and sales. Sales outside of Greater China compromised 59 percent of the company’s total turnover in the second quarter of 2007.
At the same time, the previous CEO of Lenovo took the position of Chairman of board, and the new CEO of Lenovo is the previous manager of IBM personal system division department — Stephen M. Ward. Jr. and Liu Chuanzhi, the Chairman of Lenovo Group, chose to retire backstage However, Lenovo Group had turnover of 14. 9 billion dollars in whole 2008, which decreased by 8. 9% compared with the turnover in 2007. This made a deficit of 226 million dollars, which compared with the profit of 470 million dollars in 2007. Lenovo Financial Report) Due to my personal interest is related to IT. So I am interested in the reason companies like Asus and Acer, the best two Taiwan companies who lead over the electronic, computer hardware and laptop computer industry, are so successful in occupying the big market share in Europe. Nevertheless, the local Chinese name brand like Lenovo fails to get a good market when they enter the Europe in 2005. After the 4th quarter of 2008, Lenovo faced the first deficit from last 11 quarters.
Now Lenovo begins to restructure in their top management level. The previous Chairman of Lenovo, Liu Chuanzhi, came back from the retirement, and the Chairman of board, Yang Yuanqing, came back to the position CEO of Lenovo. They hope their returning could help Lenovo out of predicament. Chapter2: Methodology The conceptual model below shows the links of environmental analysis. Figure 1. Conceptual Model Source: By Author The choice of Porter’s Five Forces model is based on external environmental theories, showed in the literature review.
The Kano model analyzes the Netherlands laptop computer market based on the customer satisfaction aspect. This model is selected because it is developed based on how the product attributes are perceived by customers and their effect on customer satisfaction (Kano, Serakuet al. 1996). I think this framework as a creative point. After giving the external influences, Porter’ Competitive Analysis could be used for developing the strategy for Lenovo. Chapter3: Research Findings 3. 1 Strategy Process Figure 2. Model about Strategy process
Source: By the Author 3. 1. 1 Lenovo’s current situation The current strategy of Lenovo in the Dutch market is to import its products with the Lenovo Dutch office, and all the retailers buy Lenovo products from Lenovo’s Dutch office. So it is an advantage that the branch offices control the flow of the products based on the strategy from headquarter. The brand position of its market entry is so-called “new IBM” in high-end segment, which is proved by the laptop ThinkPad SL500 competing with the products Toshiba Portege M800-11E and Asus K7010.
Afterwards, Lenovo planned to gain their market share with low end and cheap models, such as the Lenovo products IdeaPad S10e. Lenovo expects to be a recognized notebook brand in Netherlands within five years. Until the end of 2008 Lenovo only had 5% of the whole market share in Netherlands (By Mr. Slot, Misco), the other big players are HP, Acer, Asus, Toshiba and so on. Since its market entrance and start of sale in Germany, Lenovo makes ThinkPad T-series as its targets. In the research, Mr. Slot, the director of Misco, thought that the market entrance for Lenovo was not considered such a success in first few years.
First of all, Lenovo entered the market as a new IBM, but there is little recognition of this news, so Lenovo has to show the strength to prove its position; secondly, the customers in Dutch market pay lots of attention on the price issue. Mr. Slot said, “If one company wants to sell notebook computer successfully in Netherlands, it needs to have a lower price with high quality”. However, I think the price is not the only key factors to gain the market. I will analyze the other elements later in this chapter.
With a sales price of 284 (including VAT), IdeaPad S10e is not the cheapest netbook in the whole market. There are high levels of competition even Lenovo’s cheapest types are from 239 euro upwards. Hence, Lenovo is different from other Chinese brands, because these companies provide their models much cheaper. Chinese companies try to gain a competitive advantage in Netherlands in the following way: they have a higher price compared to their Asian competitors, but lower prices with the big player like HP. So it is difficult to meet customers’ requirement efficiently, such as quality, price, and function.
In summary, compared to that it is better that Lenovo make clear of his competitive position. It seems that Lenovo should redefine its position in the market. 3. 1. 2 Analysis based on Kano Model From the Model we know that customer satisfaction to three types, first is basic or expected attributes, second one is performance or spoken attributes, third one is surprise and delight attributes. So a good product will not only focus on fulfilling the basic requirements. There is a strong competition in the current laptop computer market. Each brand has their strength products, which can meet the entire basic requirements from customers. ” (By Mr. Ren, Asus) Thus, the most important is not the basic attributes any more, more and more companies begin to pay attention to the research and design for the performance attributes and surprise attributes. From the table below, we can see that from the basic requirement, the customers must be satisfied with them, because they all use the newest processor and have familiar weight, with all the basic functions the laptop computer should have, such as large disk, WXGA, camera and so on.
Table 1. Lenovo Models in Misco Business modelLenovo ThinkPad T61| • Intel Core 2 Duo T7500 / 2. 2 GHz • 1 GB DDR2 SDRAM • 120 GB – Serial ATA • DVD±RW • 14. 1″ TFT 1440×900 (WXGA+) • Microsoft Windows XP Professional| High-end modelLenovo ThinkPad SL500| • Core 2 Duo P7370 / 2 GHz • 2GB DDR2 SDRAM• 320GB – Serial ATA• DVD+/-RW •15. 4-inch TFT • Vista Home Premium| Portable netook modelLenovo IdeaPad S10e| • Netbook Intel Atom N270/1. 6GHz •1GB•160GB•10. -inch TFT• Webcam• Bluetooth• WLAN • Windows XP Home| Source: Adapted from Misco Website But from the performance or spoken attributes level, the products should offer something besides the basic function, which is service. Most of the products have one year of guarantee, but some of them are limited by location, which means that customers will enjoy the best service where they buy the products, but if they travel to other places faraway, it might be a trouble for them to repair their broken laptop computer.
For the surprise or delight attributes level, the company should classify the target customer because the each group of customers has it potential requirements, for example, a business man, may already has one computer and he travels a lot, when he was in his business trip, he might only need to log on the internet for some information and check his email box everyday in different locations such as the airport, cafe, and the hotel. Hence, he needs a portable computer with higher network functions but lower others function, which is called netbook.
A European guest planned to see Beijing Olympic Games, he wanted to buy a notebook computer in China, and then the world-wide guarantee should be the surprise attribute to fulfill his potential requirement. To summarize, it is a trend to offer a low price laptop computer with a high quality and a high surprise attributes in this economical crisis climate. Lenovo can benefit from its high-end business laptop, but it still needs to promote each special type with special function into the market. These types must cover the different customers such as businessmen, game fans, students and elderly people. . 1. 3 Porter’s Five Forces Analysis Threat of New Entrants If one company goes to the new market, it must be highly compared with other companies who have already been exiting and mature. Dutch market is near saturation, so there are only a few computer companies which entered in the past years. Lenovo is the first Chinese mainland computer company which entered into Dutch market. At the same time, the other brands like Acer and Asus has already entered in the market with a cheaper computer model and main board business.
Besides those Chinese brands, there were HP and DELL; they are all big players for a long time in the market. To conclude, Lenovo is going to face the cost-driven computer companies from Taiwan, and the big companies which have large market share in the Netherlands. It will be a high level of competition. Threat of Rivalry The intensity among the computer companies in Dutch is increasing because the market is saturated and will hardly to make big movement. All the companies try to expand their sales volume with new models of computers.
There are several hundreds of new types are going to be launched for different customer segments in 2009. In the past, very few entrants came to the Netherlands. The popular brands are always HP, DELL, etc. In the Chinese market some PC companies were playing the price in several years ago, since the market was saturated and the companies had increasing stocks. The price battle broke the potential rules, intensified the competition and lowered the margins. In most of cases, they sold the notebook computer with little profit. The situation in Dutch is not in such a situation yet.
But the rivalry seems as there is high number of competing firms. Threat of Substitutes The profit of IT products is shrinking in the Netherlands market, even all over the world. With the lower cost of silicon, the price of processor goes down, and the same as the other parts of notebook computer. Hence, the total cost of one notebook computer is very low currently. Lenovo, as a new player in the market, is crucial because of this external development. Therefore, the R&D department tries their best to develop the new functional products with technical elements.
A number of innovation products such as netbook, green notebook etc. The substitutes are playing an increasing role on high integration and better performance. For instance, I-Phone from Apple. Bargaining power of Suppliers The suppliers of Lenovo in notebook industry are steady, because most of them are Chinese local factory with Lenovo group brand. Lenovo profits from low labor source and material prices in China. The possible threat is that Lenovo cut the promotion expenses in European field, and shrink the types of the notebooks in Dutch market because of the financial losses.
Then, maybe we can not see the Chinese company’s competitive advantage, for instance, the low-cost leadership strategy and lower sales price strategy. Besides this, there are the big manufacturing suppliers such as Microsoft in software field and Intel in hardware field. They have a good corporation with Lenovo in Chinese. So for Lenovo, the bargaining power of suppliers will not be high. Bargaining power of Buyers In the Dutch market Lenovo bargaining power of buyers is high. This company only occupies 5% market until now.
The distribution network is not deeply developed and the recognition of the brand is not high. Most of the people consider it as a new IBM, but the quality still needs to be proved. Lenovo does have any single buying group, such as departments of Chinese government. Without this advantage, Lenovo needs to put money to set up a network and technical support to offer a good service. Threatening for Lenovo is that the inflexibility of the Dutch customers. They accept the brands like HP, Dell and Acer, it is hard to change their mind and let them buy Lenovo products, and even the quality of Lenovo is similar or better.
Figure 3 Lenovo Five Forces Source: By the Author From Figure 13, we have general five threats about Lenovo’s current market. Table 2 shows the overview about the five threats for Lenovo in Dutch market, and I also conclude the average level of the threats for Lenovo. If three elements in five is high then the final level of threat is high. Table 2. Level of threat for Lenovo 3. 2 Development of Strategies Alternatives Based on the research findings in last section, I can define the strategies alternatives for Lenovo in Dutch.
With those strategies, Lenovo can improve its core competitive advantages, and avoid the mistakes caused by the inertial thinking when they operated very well in Chinese market. Several strategies will be developed in such key aspects: Concerning marketing entrance, Price Quality and target group, and concerning future strategy. According to the content of the interviews, the strategies alternatives are as follows. 3. 2. 1 Strategy I: Lenovo as a new brand focusing on the brand strategy “If Lenovo wants to enter the Dutch market with a success and become a big player, it should increase the promotion expenses.
Lenovo must make strong relationship with the big retailers in Netherlands and keep the high SR (Shelves Ratio) of every store in each city, even in each small town. ” said by Mr. Li, the regional manager of Lenovo, China. In order to increase the brand awareness in Netherlands, Lenovo should firstly keep the image as a high-end business computer company—New IBM, and secondly create the new image to Dutch customers, with offering the products of high quality with low price and full-scale cover of each different model to different kind of consumers. To make this come true, there should be at least two or three models of Lenovo in each retail store in each big city, Lenovo should give the more favorable condition to Dutch retailers, such as decreasing the inventory pressure via exporting the products to retailers without the payment and receiving the profits after they sell the products, or updating the latest products regularly” said by Mr. Li, Lenovo, China. As we can see from the content of interview with Mr. Slot, the director of Misco, which is one of the biggest IT retailers in Netherlands. Lenovo and its background should be introduced from the marketing point of view.
It is necessary that this company also brings unique Chinese company culture to Dutch customers while it brings the products. The ways can be promoting via newspaper articles and popular magazines to reach the upper level target group. From my respondent’s point of view, it will cost a long time and a lot of energy to conquer the image driven customer group, because some of the big brands have been operating for a long time in Dutch market. Usually, Dutch people are attaching importance to the brand; it is difficult to change their mind once they had a high brand recognition of a brand. . 2. 2 Strategy II: Lenovo focusing on the particular market “If there are many big players in this mature market, it is hard for the new entry to make progress, then you should firstly find another way to gain the market share, which is focusing on the particular market. ” said by Jerry Ren, the manager of Asus China nationwide network big account. He told me a story, There is a local PC brand called Enboer in Tianjin, China. It is even unknown outside of Tianjin but it occupy more than 10% market share in those big players such as HP, Dell, Lenovo, Acer, Asus, Toshiba and so on.
What made this brand so successful is that the brand focuses on the elderly person market with high quality service. No matter what problems about the hardware or software, or difficulties to use the software, they offer free door-to-door service in 24 hours in Tianjin, and the service has no time limited in one year after sales. From the case, we can see that the Enboer targets on the elderly persons from 40-70 years old, maybe they do not need the high-end function, beautiful appearance and the cheapest price, but they need a good service indeed.
Therefore, there are many people with special requirement whether in big cities or small cities, what we should do are to have a nice insight and focus on the particular market at primary stage. The distribution network in Strategy I focus on whole country, it is a promotion plan in order to improve the recognition, and the distribution network in Strategy II can either focus on big cities or small cities, but it must guarantee a high service level to targeted group. 3. 2. 3 Strategy III: Lenovo focusing on differentiation strategy Now, Lenovo only has some models in the online shop of each retailer, and few models in retailers’ real store.
Firstly, I think this leads to a low awareness in the whole market; secondly, the strength of Lenovo can not be showed in this situation. “There are many kinds of products, Lenovo laptop computer can be divided into two series, one is ThinkPad as new IBM, and the other is Ideapad as original Lenovo. ThinkPad is focus on the business and high-end customers, and Ideapad is focus on the student, game fans, and some other young customers. In Chinese market, these two series of products have covered almost all the levels of the customer. There are the products details I can send you later.
However, in Dutch market, hardly can we see some models which can cover the target group, even in the big retailer like Misco. ” said by Mr. Li, the regional manager of Lenovo, China. Actually, what he said is related to Kano model, the products model should fulfill the different levels of needs from customers. Thus, the differentiation strategy can be successful. As appendix 1, I list the general products details of Lenovo of Chinese market compared to Dutch market. We can see Lenovo has much more types in Chinese than in Dutch market
In summary, Lenovo should find some steady sales channels included the big retailers and big online shop or some directly order shop, etc. It will be a success that Lenovo can copy the differentiation strategy from Chinese market to the Netherlands market. 3. 3 Strategy Choice Based on content my interview and the strategies alternatives, it is better to have an order of the implementation. Because it is not a possible time to implement all of these three strategies at the beginning stage of market entry. Due to my respondent Mr.
Slot from Misco, he told me that the local big brands, such as HP, Toshiba, and Dell, do not regard Lenovo as a competitor. These brands are compared with Acer and Asus at a higher competition level. Therefore, Lenovo should first build up its brand in a different perspective. By approaching strategy I, Lenovo can develop its awareness since it had a good foundation—impact of acquisition with IBM PC business. As Mr. Slot said, IBM always played a important role in business laptop computer, so Lenovo has a strong R&D and technical support to ensure the a qualitative brand.
Since there was a loss in Lenovo in 2009 (Appendix 9), it is not a good idea for it to approach strategy II in current situation. It will be a large investment to build every level of sales channel and make promotion plan in each big city. “We should know even Lenovo has cost advantages by producing the product line in China, but it must have a preparation that the financial report will be loss at the first stage. ” said by Mr. Li, the regional manager of Lenovo, China. Hence, it is not a wise plan to apply the strategy II in current circumstances. Applying a strategy focusing on the special market will give Lenovo a competitive advantage.
As Enboer I mentioned before, once Lenovo make sure the target group, it can offer the special service or package to particular customer. Although it is a long-term strategy but it will be a wise to focus on 10 percent customers who have special requests. Figure shows the key point that how Lenovo can enter a market and develop a competitive advantage. Chapter4: Conclusion From my qualitative analysis, I found some main barriers Lenovo faced, nearly all the respondent the entrance of Lenovo is not a success. We can also see from its 5% market share. There are some reasons supported. 1.
Lenovo can not get the enough brand awareness with the new IBM image, so it should set up a new image, which not only concern about the new IBM but also the new Lenovo. 2. The products overlaps strategy in Dutch market, compared with the one in Chinese market, seems not good enough. A good promotion plan should be figure out at the first stage. 3. Till now, Lenovo doesn’t have the really target group who can guarantee the sales volume, it should have a clear strategy on this in order to figure out the primary strategy for itself. Which type of customers should Lenovo focus on for the first step it made?
The analysis shows that Lenovo maybe can copy the operating mode of Enboer in Tianjin, China, and focus on the customers between 40 to 70 years old. With the analysis showed in the Porter’s Five Forces model, we see the threat of new entrants, rivalry among existing competition, bargaining power of buyers are high, so I conclude that the expected average threat of Lenovo will be high. The research findings show that three strategies alternatives for Lenovo and successfully implement those necessary strategies can improve the current performance of Lenovo. 1.
Lenovo as a new brand focusing on the brand strategy: The approach of strategy I is to increase the brand value and make the brand awareness in the Netherlands market, at least not only as new IBM but as new Lenovo. (Jerry Ren) 2. Lenovo focusing on the particular market: Strategy II is in order to gain a short-term success based on the strategy focusing on particular market. By approaching this, Lenovo can make a small progress and solid it position in the market with this achievement. 3. Lenovo focusing on differentiation strategy: To get a competitive advantage, strategy III is aim at overlap products on different types of customer.
Lenovo can satisfy the customers with all ranks of models. It has all types of laptop to cover different needs from different customers The research choice finally evaluated Strategy I and Strategy II as a suitable way to gain a competitive strategy for Lenovo in Netherlands. Strategy I needs promotion investment and good network in each level of retailers. Strategy II needs a nice insight based on the marketing situation, the company must figure out what is the particular market, which Lenovo can make a certain market share in a short time period.
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