Lenovo warning to strategy copycats

Global technology firm Lenovo has reversed a global norm with its latest strategic announcement that it is shifting its marketing focus from emerging markets to mature markets.

By contrast, companies have, for years, been turning towards emerging markets as the next puff of wind for their business sales, or as a rescue strategy for losses made in more mature markets.

For Lenovo, times are currently tough. The company has just reported an operational loss of $566 million in its mobile business, which accounts for 18 per cent of its revenue, in a further increase from the $469m loss it reported the year before.

“Our strategy is to prioritise mature markets … which need brands and innovative products, whereas emerging markets need efficiency. So we will have two teams catering to the two kinds of markets with different product lines,” said Yang Yuanqing Lenovo’s CEO at a recent press conference in Hong Kong, according to Reuters.

“In mature markets our main competitors are Samsung and LG Electronics Inc, which is less fierce than in emerging markets, where the low entry barrier allowed in too many Chinese vendors, some of which compete irrationally.”

Indeed, in emerging markets such as Africa, low-priced but high quality smartphones from Chinese vendors such as Transsion, widely known via its itel, Infinix, and Tecno brands, dominate the market.

In Kenya, these brands have provided consumers with an influx of choice by offering a wider range of price points in a market where half the consumers are willing to spend less than Sh20,000 on a smartphone.

According to a report released in 2016 on African Mobile Trends conducted by online market place Jumia, 44 per cent of the respondents in Kenya will spend an average of between Sh10,000 and Sh20,000 on their next mobile phone, while 27 per cent will spend Sh5,000 to Sh10,000.

Another 21 per cent will spend between Sh20,000 to Sh50,000, and only three per cent are willing to spend more than Sh50,000 on their next mobile device.

This is in contrast to mature markets, such as the US, where Apple smartphones dominate the market with a 44.6 per cent market share as of February this year, with the price range for its latest product iPhone 7 running from $600- $900 (Sh60,000 – Sh90,000).

“In order to compete effectively in a crowded market where a new smartphone brand is launched almost every month or so, most companies have turned to pricing their products accordingly such that they appeal to a larger market where consumers consider pricing first when making a purchase,” said Odanga Madung, the data science lead at Odipo Dev, an analytics firm.

“As such, it has intensified the competition in the market and global brands are then forced to either adjust their product offerings in order to appeal to consumers or look for a more lucrative market.”

This stiff competition from lower priced smartphone brands has thus forced Lenovo to reorganise it smartphone strategy from emerging markets to mature markets, where there is less competition according to its CEO, and it can bank on the loss of consumer confidence in one of its main competitors, Samsung, which faces a hard time regaining customer trust following the exploding Galaxy Note 7.

In the US, for instance, where Lenovo plans to increase its telecom partners in order to improve sales performance, over a third of Samsung consumers surveyed said that they would not purchase from the brand again and would opt for another android smartphone instead.

“We conducted a survey on October 11 and October 12 last year of 1,020 US-based consumers, who all owned Samsung phones, following the official discontinuation of the problematic Galaxy Note 7 to find out how the crisis impacted their future purchasing plans,” read the survey report by e-commerce platform, Branding Brand.

“Forty per cent of current Samsung phone owners said that they would not buy another Samsung phone in the future. Of those who said that they would not be purchasing another Samsung phone moving forward, 70 per cent said that whatever new phone they purchase will still be an Android phone.”

In these circumstances, mature markets do indeed provide a better market opportunity for Lenovo than the emerging, demonstrating that not all strategies are the right ones for all companies at all times and with all products, but must be driven by a products’ market positioning and prevailing markets.

- African Laughter