The performance of a brand is very critical in the short term and long term growth of an organization. There are many factors that affect the success of a particular brand in the market. Among these factors include the quality of goods and services offered by the organization, it marketing and advertising activities, innovation through research and development. This report seeks to establish reasons why the Lenovo brand is under-performing and make recommendations on how the situation can be reversed.
Background of the company
Lenovo Group Ltd is a Chinese multinational company that designs and manufactures technological products. The company is headquartered in Beijing and Morrisville in the United States. The company was formed in the year 1984 by a man named Liu Chuanzhi. The products that the company produces include: Smartphone, desktops, servers, notebooks, tablets, printers, TV sets, peripherals, storage devices, scanners among many others. By the end o f the year 2016, the company had approximately 59,700 workers (Weinberg, 2016). The company has been performing well financially and its market share has been increasing rapidly throughout the years. The company’s performance in China is also very admirable with the company having a diverse distribution network that helps the company to distribute and market its products effectively. The company has however struggled to establish its brand internationally with low sales volumes reported in countries such as the United States. The level of competition in this industry has also been a major contributor to under-performance of Lenovo as brand
Industry and competitor analysis
The global technology industry especially the personal computer manufacturing is very competitive. The intense competition in this market is due to the large number of competitors among many other factors. The global PC industry has five main industry players; Apple, Hewlett Packard, Dell, Lenovo and Samsung (Ling, 2006). There are also many other companies in the industry who hold a smaller market share. The industry is innovation driven. Companies operating in this industry put a lot of emphasis on the value of innovation. The companies have heavily invested in research and development to help the companies keeps on introducing new products and improving the existing ones. There is increasing need for more efficient and more sophisticated electronic gadgets and thesis what has driven the industry towards competing more on the basis of innovation. The industry is very large in size. There are many opportunities for growth and expansion in this industry. The global personal computer market has been experiencing continuous growth for the last five years. This trend is expected to continue for the next couple of years. The market is expected to reach approximately US$252.6 billion in 2017 due to increasing innovations. For instance, introduction of new ultra-portable thin laptop is expected to increase growth in this market (Brinker, 2016). The market growth is driven by various environmental factors which are external to the organization. The largest growth is expected in the Asian market where the personal computer and the use of Smartphone is getting very popular.
Research and secondary data on the subject
The Lenovo brand has been able to live up to its billing after initially hitting the market with a storm. The company has experienced continuous growth in terms of revenues and it has been able to expand into many more markets across the world. Lenovo is the largest supplier of personal computers globally. Its market share for Smartphone business has been low compared to the market leader position held by Samsung and that of Apple. By the year 2014, Lenovo was the second most Smartphone brand, by the year 2017; the companies brand had gone down to No 11.
The Lenovo brand dropped when the company bought Motorola Smartphone Company. The Company was owned by Google and was worth $2.90 billion (Brinker, 2016). The intention of acquiring this company was to help expand the market share In the Smartphone market. This was encouraged by Motorola`s technologies which were leading as well as intellectual property rights which it sold to Lenovo. There were high expectations with the new acquisition considering the great success of IBM acquisition in the year 2005, Integration of Motorola into Lenovo although failed to happen as fast and effectively as expected.
One of the mistakes that Lenovo made in the regard to sales and distribution channels it used. The market experienced a shift from carrier-led Smartphone sales and to direct and open market sales. Lenovo competitors have taken advantage of other sales methods. The use of these sales methods has affected the sales of the company. For instance, Huawei uses online sales for its major brands in order to deliver a low cost distribution process which helps in reducing costs hence lower prices for their commodities. Another common example is the 200,000 retail stores in China owned by mobile phone manufacturer OPPO. The strategy might be a bit costly but it gives the company an opportunity to interact with its customers and therefore it can establish long term relationships with its clients. This results to customer loyalty. By reduction of Smartphone carriers subsidies in China affected the company so much since Lenovo entirely depended on this technique (Kachru, 2006).
Another mistake that resulted in the weakening of the Lenovo brand in China is lack of proper marketing. The company had always depended on the carriers to help in reducing their marketing costs. When the government ordered government run carriers to reduce their, marketing expenses by over 20% within 3 years, the company found itself in a complicated situation (Arun, 2011). The company resulted to other means of marketing which were much more expensive. The cost of marketing was shifted to the consumers and this resulted to increase in prices of the companies` products. Consumers therefore had no option but to substitute to other more affordable Smartphone brands. The brand of the company continues to become weaker because of the lack of product differentiation. The company has not been able to keep up with the pace of growth and innovation in the industry because it has not been able to put in place proper strategies that will encourage innovation and product development in the company. Most of its competitors in the Smartphone market have been keen in improving and adding key features in its products. An example is Samsung which has been very consistent in its product differentiation and improvement strategy. Samsung introduced the curved screen displays which was a market first while Apple introduced larger screened Smartphone. The lack of innovation in the company has therefore been its undoing for the company.
Another factor that has led to the decline of the Lenovo brand is due to the changing economic environment of the countries it is operating in. Many countries in the world in which Lenovo enjoys a substantial market share have been experiencing tough economic moments (Kachru, 2006.) This has been driven by factors such as increase in factors of production. Economic growth drives industrial growth and economic recession results to decline of factories in a country. Increase in labor cost in many countries in Asia has affected the performance of many countries and the companies in these countries have not been spared. The increases in costs have therefore resulted to increase in prices of products which lead to low sales volumes by the company.
Lenovo has to act very fast in order to save its declining brand from falling. The company has to implement the following strategies in order to improve its financial performance and improve its brand both in China and globally.
The first step that Lenovo should take to salvage its brand and improve its market share in the Smartphone business is that it should focus more on the research and development function of the business. This is due to the fact that the technology industry is driven by innovation and invention. Lenovo should encourage its engineers and other staff working in the product development section to help the company come up with more products on a regular business. Increased levels of innovation will mean that the company will generate more sales from its products. Consumers of technology products are driven by uniqueness of products of a company in order to buy the company’s products (Ferrell, 2011). This has been the secret of Apples and Samsung continued market growth and expansion. Therefore, through product differentiation and innovation, Lenovo will be able to make its brand more appealing to customers globally.
The company should also make adjustments it sales and distribution channels. This will help reduce the cost of distribution and improve sale of the company’s products. Lenovo should be employ distribution techniques that are cheap and easy to reach the customers. The distribution channels used by the company should be able to establish direct contact with customers in order to help create customer and brand loyalty.
- Improve and focus more on research and development to develop new products and improve existing ones
- Change the product distribution channels and adopt a cheaper method which is less costly
- More aggressive marketing and advertising to increase the customer base for the company
- Adoptions of product differentiation strategies that will help the company increase its product line.
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