The Origin of Brands Blog

Lenovo's Chance

The big Chinese brand hope is on Lenovo, the largest personal-computer maker in China. Formerly known as Legend Group Limited, the company bought IBM’s PC operations for $1.75 billion in 2005.

In addition to desktop and notebook PCs, Lenovo makes displays and storage drives. The company also has an IT services business.

Currently Lenovo is tied with Acer, the Taiwan company, as the third largest PC manufacturer with a market share of 6.7 percent. (Hewlett-Packard leads with 19.1 percent. Dell is second with 15.2 percent.)

How can Lenovo move up the PC ladder? We made three suggestions to the Chinese marketing community.

1. Focus the product line.

Leaders can sometimes get away with marketing a broad line of products and services, especially if they have a powerful brand name like General Electric. But is Lenovo a powerful brand name? I think not.

What should Lenovo focus on? Again, that’s a decision that should be easy to make. Recently laptop and notebook computers have been outselling desktop computers. Furthermore, there’s reason to believe desktop computers might someday become obsolete.

Lenovo should drop its desktop machines and focus on notebook computers.

2. Focus the company name.

Legend was a bad name; Lenovo is an even worse name. It sounds like an Italian dessert.

Fortunately, Lenovo was given a priceless present in its IBM purchase. That present was the “ThinkPad” name which IBM used on its notebook computers.

Change the name of the company to ThinkPad Corporation.

ThinkPad is a unique and different name. Furthermore it communicates the “notebook” idea, the new focus of the company.

3. Focus the attribute of the ThinkPad brand.

To build a powerful brand, you need to stand for something in the prospect’s mind. BMW means “driving.” Volvo means “safety.” Mercedes-Benz means “prestige.” What should ThinkPad mean?

What’s the weakness of a notebook computer as compared with a desktop machine? It’s battery life.

We would redesign the entire ThinkPad line in order to double the battery life, even if it meant selling a heavier machine. (Every benefit comes with baggage.) Furthermore, as batteries get better, that disadvantage would disappear.

Hopefully, the new ThinkPad Corporation could produce notebook computers that would run all day on one charge. That would mean a company employee could use his or her notebook computer all day long without plugging the machine into an outline. At the end of the day, the employee would re-charge the notebook so it would be ready to go again the next morning.

Slogan: ThinkPad: The all-day notebook.

Sure, Lenovo is currently successful because it can build computers in China very cheap. But as I said last week, as the Chinese economy improves, as the wages go up, that advantage is going to go away. While it lasts, Lenovo has an opportunity to build a powerful worldwide brand that stands for something in the mind.

China chance will depend on the strength of its brands. And ThinkPad, if focused and branded correctly, has a great chance at being the world's best computer brand.

China's Chance

I just got back from a six day trip to Beijing, where Al and I did an all-day seminar, media interviews and met with local business leaders. It was our very first trip to China, a country we have been anxious to visit for some time.

China has a lot of potential, but it also has several obstacles that could prevent it from becoming the next branding superpower.

A battle of business philosophies is taking place in the world today. You might call it Theory A versus Theory J.

Right now, China has a major decision to make. Will it follow Theory A or will it follow Theory J?

Theory A is the American style of business philosophy which is basically narrow and deep.

Individual American companies tend to focus on a single product line which they attempt to dominate on a worldwide basis. Dell in personal computers. Intel in microprocessors. Microsoft in computer software.

Theory J is the Japanese style of business philosophy which is basically broad and shallow.

Fujitsu, a typical Japanese company, makes microprocessors, personal computers and computer software as well as many other products including mainframe computers, air conditioners and television sets.

What’s the difference between Theory A and Theory J? American companies are focused, Japanese companies are unfocused, or line extended.

There is nothing inherently wrong about line extension. Managers often make the point that line extension allows a company to take advantage of the equity it already owns in manufacturing skills, existing distribution channels and brand awareness.

Nor is there anything inherently right about being focused. What about opportunities that might be missed or efficiencies that could be gained?

Today is China’s golden opportunity, today everyone is talking about China, today is the day China needs to decide if it will follow Theory A or Theory J.

So which theory will help China realize its enormous economic potential? Well, the numbers are in and Theory A wins by a wide margin.

Actually by six to one. Over the years, the net profit margins of the 100 largest American companies have averaged in the neighborhood of 6 percent while a comparable group of Japanese companies has averaged around 1 percent.

Take the focused companies (Dell, Intel and Microsoft) versus an unfocused company like Fujitsu which makes a comparable range of products (and then some).

In the last 10 years, Dell had revenues of $308.6 billion and a net profit margin after taxes of 6.3 percent. Intel had $306.3 billion in revenues and a net profit margin of 20.3 percent. Microsoft had $275.3 billion in revenues and an astounding 30.0 percent net profit margin.

Fujitsu is a larger company that either Dell, Intel or Microsoft. In the last 10 years, however, Fujitsu had revenues of $417.5 billion, yet managed to lose $1.8 billion.

Why is it so difficult for large, unfocused Japanese companies to make money? It can’t be product quality. Most Japanese companies have a well-deserved worldwide reputation for high quality.

Conclusion: Line extension inhibits the branding process.

You can’t build a brand if you put your name on everything. When a company makes and markets a broad range of products under one name, it is extremely difficult to build that name into a powerful brand.

If you don’t build brands, then you have to sell your products on price. And if you do, it’s very difficult to make money in the long run, especially if you produce products in a country with a rising standard of living.

Today, Korea, India and China are booming, much like Japan was in the 1980s and early 1990s. But this initial success foreshadows troubles to come.

Early in a country’s economic development, low production costs make a country’s products very attractive on the world market. Sales and profits zoom.

But this success comes at a price, as a country’s standard of living rises, production costs go up, too. At some point, the only way to be competitive is to sell products and services at break-even prices. Otherwise the business will go to lower production cost countries.

Solution: Build brands.

Brands are the only way for a high-cost country to sell products on the world market and still make money. Germany, for example, has perhaps the highest production costs of any country in the world. Yet German products like Mercedes-Benz, BMW and Porsche automobiles are profitable and in demand worldwide because they are powerful brands.

Today is China’s chance, today is the day for China to not just make products but to also build powerful brands.

Next up: How to position Beijing and what Lenovo is doing wrong with its brand.