BEIJING (AdAgeChina.com) -- An ambitious Chinese computer company that once looked to the U.S. and Europe as a source of expansion has reversed course after the global recession decimated overseas sales.
Lenovo Group, which made headlines worldwide by acquiring IBM's personal-computing division in 2005, has not only refocused on the domestic market and a handful of other emerging markets such as Russia but is also looking for growth in an unlikely place -- the poorest parts of China -- and through some surprising methods.
Lenovo has partnered with third-party film-exhibition crews to select and present feature films in more than 3,000 villages and small towns in 31 provinces and regions across China starting this month, usually at no charge to consumers.
The film program, which will run until December 2009, is part of a government-aided initiative "to amplify the entertainment and leisure life of [the] rural population," said Anthony Feng, a Lenovo spokesman in Beijing.
Getting closer to consumers
But its involvement in the film road-show is less about altruism than it is about a desire "to get closer to rural customers, passing messages about the Lenovo brand and its products," he said.
At each screening, Chinese consumers can visit an interactive Lenovo PC Bazaar to learn more about PCs, experiment with product demonstrations and pick up fliers about the company's products and services. Lenovo ads air before each film screening.
Lenovo is also visiting elementary and high schools at the town and county level in China, where it trains students to use PCs, alongside ads and on-campus product demonstrations.
Both programs are part of Lenovo's PCs for Rural China program, run by Wang Zhong, general manager of Lenovo's consumer-desktops division in China. It's aimed at consumers in China's third-, fourth- and fifth-tier cities and towns -- a potential market of about 700 million people.
Marketers traditionally segment China into five tiers, from sophisticated and wealthy first-tier cities to small towns and villages that are home to farmers and very few brands.
Combined, they account for an enormous number of consumers with fast-rising income levels that "have reached the point where rural customers can afford our PCs. Rural markets are very important," said Beijing-based Mr. Wang.
The rural program he oversees was announced in early April 2009, as part of Lenovo's recovery strategy.
The effect of recession
The company has been badly hit by the recession. It lost $97 million during the fourth quarter of 2008. Sales during that quarter dropped 20%, to $3.6 billion from $4.5 billion a year earlier. It responded by laying off 2,500 staff worldwide during the first quarter of this year, about 11% of its total workforce, including CEO Bill Amelio.
The "PCs for Rural China" initiative is also related to the Chinese government's home-appliance subsidy program, part of a $586 billion stimulus package. The program has been extended to include personal computers, along with TVs, motorcycles, refrigerators and other products.
Rural customers are offered a subsidy from the government for each item purchased. Rural computer buyers are also offered one-hour training for free at retail outlets to ensure they have a good grasp of basic usage skills.
Mr. Wang, who joined Lenovo in 1997, said it's too soon to say whether the rural marketing program has paid off, but the company is benefiting from the years it has already spent developing a distribution system, a network of service centers and marketing programs outside the largest cities.
As the largest domestic PC player, Lenovo moved into the countryside ahead of global rivals such as Dell, Hewlett Packard Co. and Acer, giving it a head start. In January 2007, for example, it carried out an ambitious road-show program to leverage its sponsorship of the Olympic Games inside China.
Time to transform
The company's market share in rural markets in China has increased from 30% to 42% since the beginning of 2004, based on third-party market research provided by Lenovo.
"Now is time for us to transform that competitive advantage into business results," Mr. Wang said.
As part of the initiative, Lenovo will establish 700 branded stores in less-developed areas and open 3,000 affiliate sales outlets or windows in retail shops by mid-2010.
It is also creating tailor-made products for rural consumers that are affordable, reliable and easy-to-use and that offer specialized functions such as tools related to agriculture and introductory business education.
"The most important marketing channel is word-of-mouth or traditional advertising like outdoor ads," Mr. Wang said. This rural market is so new, however, Lenovo is still figuring out "what they need and how they buy computers. We have an insufficient understanding of customers, a problem for all computer marketers in China."
Another challenge is learning to navigate hundreds of thousands of towns and cities, "which vary greatly by culture, income, GDP and consumer behavior. They are very diverse."
The potential for Lenovo is "unbelievably large ... but the difficulty of working there and developing business there is also unbelievably large."
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A version of this story first appeared in Ad Age China.