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There is a major battle being fought in the U.S. by sellers of personal computers to consumers over share of mind and share of profit dollars.

The battle for share of dollars spent by U.S. consumers for personal computers is over a prize that is well worth winning. The personal computer is a necessity. Eight in ten consumers use a computer at home or at work. The rapid advance of technology constantly obsoletes existing computers inducing the purchase of new computers.

Since November 2005, the percent of consumers planning a computer purchase ranged month to month between 15% and 25%, reaching its two-year high of 25% in November 2007 in the face of consumers’ financial difficulties. (Source: Leo J. Shapiro & Associates monthly tracking surveys finding)

Competition between brands for share takes place constantly and simultaneously on two parallel but related arenas:

1. The world of the mind, where twelve brands exist as virtual
   objects competing for share of mind as measured by spontaneous
   awareness and preference, and
2. The world of the marketplace, where the eight companies that
   own the twelve brands compete for dollars not only on the basis of
   the appeal of their brand, but also on the basis of
   price, performance and availability for consumers, service,
   and panache.

Given the rapid advance of information technology, victory in capturing share of personal computer profit dollars needs to be regarded as a prelude to contending for share of dollars spent by consumers for computing devices and services, other than personal computers, that enable consumers to receive, process, transmit and display information.

Competition for Share of Mind

Brands exist in the minds of consumers as memories of both real and imagined experiences that flood the mind when evoked by the brand name or other brand symbol. Once evoked, these memories exert a substantial, but not an absolute influence on purchase decisions. Achieving share of mind is a critical step toward a brand achieving share of dollars.

“Brand is the identity of what some entity (such as a product, business, person, or country) is and does and was and what it is perceived to be and do. But since we only perceive a brand’s outward expression, it is only this outward expression and its associations which exist in the public mind as a brand image.” (Source: “What We Learned on Earth,” by Leo and Erik Shapiro)

Competition between brands for share of mind is constant in the theater of the mind. Twelve brands were named spontaneously by one or more percent of the 363 national sampling of computer users interviewed in the November 2007 Leo J. Shapiro & Associates telephone survey. On average, when thinking of buying a computer, 1.81 brands come to a consumer’s mind spontaneously.

The Dell brand holds the dominant share of the consumer mind as measured by spontaneous mentions (68%). The two brands owned by Hewlett Packard rank second (Hewlett Packard—35%) and sixth (Compaq—11%).

Apple ranks in third place with a 17% share of consumer mind, while Macintosh, a brand owned by the Apple Company, ranks fourth (11%). It is noteworthy that Apple markets its computers under the brand name of Macintosh, not Apple. It is the decision of consumers—not the Apple Company—to use the Apple rather than the Macintosh brand for computers sold by the Apple Company.

Gateway owns two brands of computers, which rank fifth for Gateway (11%) and eleventh for E-machine (2%). Sony has a 6% share of mind. Lenovo owns two brands: IBM, ranking ninth with a 5% share, and Lenovo with a 1% share. Acer has a 2% share of mind.

Growth Potential

Not only share of mind but also a brand’s growth potential determines the brand ability to survive and grow.

Growth potential is gauged by computing the difference between the brand’s share of mind among consumers planning to buy a computer (which is indicative of future purchases) and its share among those not planning a computer purchase (which is indicative of past purchases). For convenience, we call that difference the brand’s “growth advantage.”

Apple has the largest growth potential with a 28% share among consumers planning to buy versus a 12% share among those not planning to buy, which gives it a 16-point growth potential.

Dell, which holds a dominant share of mind among all computer users (68%) has an eight-point growth potential which is larger than the five-point growth potential of Hewlett Packard or the negative growth potential for Compaq of negative 2 points, which indicates potential loss in share of mind for Compaq.

Sony, with only a 6% share of mind, has a four-point growth potential, which essentially matches the growth potential of the Hewlett Packard brand with its 35% share and five-point growth potential.

IBM, a brand owned by Lenovo, has a 5% share of mind and a four-point growth potential.

All other brands, including Lenovo, have only a one-point or a negative growth potential.

Competition for Share of Dollars

Purchase decisions are determined in the market place as consumers shop actively to make a purchase by reading ads, visiting stores, searching the web, and handling computers displayed at retail.

Five of the eight companies owning brands with at least a one percent share of mind are positioned to grow their dollar share, by virtue of the growth potential of the brands they own and by virtue of having a large enough base of business, overall, to support and exploit the value of those brands. These contenders for dollar share include: Dell, Hewlett Packard, Lenovo, Apple, and Sony.

Three—Dell, Hewlett Packard and Lenovo—are counted as having substantial enough resources to exploit the growth potential of the brands they own by virtue of ranking as the top three leaders in dollar share of worldwide factory shipments. During the 2nd quarter of 2007, worldwide dollar factory shipments for the three market leaders were: Hewlett Packard (19.3%), Dell (16.1%), and Lenovo (8.3%).

Two companies that rank fourth and fifth in dollar share of worldwide factory shipments of computers—Acer (7.2%) and Toshiba (4.1%)—have worldwide business bases large enough to support and exploit the growth of a brand but do not own brands with growth potential.

Apple and Sony are counted as contenders, even though they do not rank among the top five computer sellers in terms of dollar share of computer factory shipments worldwide.

Apple ranks third as a brand with its 17% share of mind and has the largest growth potential in the U.S. of any brand of personal computer. And it has a substantial base of business selling not only computers but also the iPod, iPhone and other devices with computing capabilities, as well as music and video programs for use with the devices it sells.

Sony, with only a 6% share of mind, is counted as a contender by virtue of its long history and currently strong position as a company, selling not only personal computers but also selling computing devices—like the PlayStation—and games used on its PlayStation. Sony has a history of success in producing innovated devices. Before there was an Apple iPod there was a Sony Walkman.

Vision of the Future Market

While the future is subject to change, developing a factual basis for envisioning the future is useful for identifying what needs to be watched in order to be the first to know what future has arrived for the five brands currently positioned to gain market share.

Information used to envision the future comes from Leo J. Shapiro & Associates, L.L.C.’s continuous monitoring of ongoing events to anticipate their outcome.

Dell and Hewlett Packard—Near Term: Commoditization

It is highly unlikely that the U.S. market for personal computers will increase quickly enough to accommodate the growth aspirations and potentials of the five brands positioned to gain market share.

As each company seeks to grow, the struggle for market share will become a zero sum game with the low- and middle-priced sectors of the market commoditizing, giving an advantage to brands with massive market shares that signal low prices, reliability, and value. While total dollars spent for computers will increase, profits from the sale of personal computers will peak and then diminish.

In the immediate future, Dell and Hewlett Packard are best positioned to compete for share of the commoditized portion of the market by virtue of their leading shares of mind and positive growth potentials. Either brand can emerge triumphant. To be the first to know which will dominate the commoditized market for personal computers, here is what to watch for in Dell and in Hewlett Packard.

Dell... is a troubled giant. It was in solid first place in U.S. factory shipments during the third quarter of 2007, with a 28.0% share of the dollar value of U.S. factory shipments. But, year to year, Dell lost 2.9 share points in the U.S.

The main source of Dell’s troubles is, paradoxically, what was once Dell’s greatest asset for achieving growth: namely selling computers produced to customer specifications directly rather than through retail stores.

Mistakes made by prior management are a gift that successor management can use to grow by “getting back to basics.” Dell’s new management has received such a gift and is taking steps to profit from it.

Michael Dell, its founder, has returned to office as CEO and has vowed to do what needs to be done to survive and grow without regard to past policies.

Stopping doing things wrong, the first step of the classic three-step turnaround process, is just now getting underway. Michael Dell has abandoned the policy of selling only made-to-order or customized computers direct and made deals with Staples and Best Buy to sell pre-assembled computers off-the-shelf at retail.

Selling computers off-the-shelf at retail is likely to create new problems for Dell. For one, consumers who purchase a pre-assembled computer off the shelf, rather than a one-of-kind computer built to their specification, expect the computer they purchase to be exactly like all other computers that bear the same model number and brand. A defective computer purchased off-the-shelf damages the reputation of the brand.

Dell has begun making its products ready for off-the-shelf sales. The Wall Street Journal’s December 27 review of the new Dell’s XP One desktop describes it as an “elegant, handsome, cleverly designed one piece desktop.” It then goes on to describe its deficiencies relative to the basic iMac. Taking the reviewers remarks at face value, Dell’s new desktop looks good enough to display in stores but costs a bit more and does not perform as well as the comparable iMac.

Dell needs to find a way to handle the transition from selling custom computers direct to selling pre-assembled computers off the shelf. More broadly, looking ahead, Dell will have to take the next or second step in the three steps of its turnaround process and make sure that all aspects of its product and its operations are of acceptable quality—are at least mediocre.

Hewlett Packard... has just about recovered from recent difficulties and is reaping the benefits of increased sales and profits that come from stopping doing things wrong and achieving acceptable quality for all aspects of its products, prices and services.

To sustain growth sparked by correcting prior management’s mistakes, Hewlett Packard must now innovate in order to complete the third step of its turnaround. It now needs to achieve some point of superiority that makes its products and services unique—truly special in some important and visible way.

Hewlett Packard has demonstrated its ability to exploit an innovation. TG Daily, in its report of January 2007, citing Bloomberg retail sales statistics, observes that Hewlett Packard has achieved high sales by being the “most aggressive OEM of the Windows Vista”. After its January success with exploiting Microsoft’s innovative Windows Vista, Hewlett Packard’s share of retail sales dropped precipitously (Desktops: from 43.2% in January to 35% in March).

While Hewlett Packard is expanding its product lines to include televisions sets and multi-media computers, there is no evidence as yet that Hewlett Packard has mastered the art of developing a stream of innovations significant enough to make its brand special enough to boost share of mind and share of dollars at an accelerated rate.

Apple, Sony, New Competitors, Lenovo—Mid-Term: Specialization

Apple and Sony are brands well positioned to compete in the non-commoditized market for specialized computing devices. These brands have demonstrated their ability to generate and exploit innovations that make their brand special in the mind of consumers.

Apple... even though it does not sell a computer branded Apple, has captured the third largest share of mind (17%) for computers and the largest growth potential (16 share points) of any computer. The computers it sells are branded Macintosh, yet Apple has achieved a larger share of mind as a brand of computer than Macintosh.

Products displayed in the online Apple store include an iPhone, four iPod models, five models of Macintosh computers. A small device branded Apple TV is displayed next to a television set. The Apple TV brand shown does not refer to the television set that is on display but to the box which, when attached to any television set, enables that set to display content received on a computer.

Marketing a box that can make a television set smart begins to position Apple to market a smart television set that can take over functions now performed by personal computers.

Apple’s success in capturing share of mind as a computer brand illustrates how marketing a stream of innovated devices that embody computing power but are not computers can enhance a brand’s share of mind for computers.

In integrating the sale of music and video with the sale of devices like the iPod, Apple founder and CEO Steve Jobs, travels the path to market domination that Sarnoff traveled. Sarnoff created demand for RCA color television sets by using NBC—the network owned by RCA—to promote viewing of color television broadcasting. Revenue from NBC was used by Sarnoff to fund further product development.

Sony... is just now coming out of a rough patch and is enjoying success and achieving growth by correcting recent management errors. Sony, like Apple, has a long history as an innovator of devices—game consoles and, earlier, the Walkman—that are not computers but incorporate computing capabilities.

Sony’s 6% share of mind as a brand of computer and its growth potential of 4% position it not only to compete for share of the market for computers but also for share of the developing market for specialized devices with computing capabilities that are not computers.

Sony’s position as a seller of television sets puts it in an advantageous position to market smart television sets, which seem destined to take over a number of functions now performed by computers.

New Competition... Competitors are attracted as demand expands for computing devices that are not computers. Companies like TiVo can enter the market with a device that make television sets smart enough to displace personal computers for a number of functions. Television set sellers also can enter the market by incorporating such devices into their sets to make them smart.

A company like Memorex can enter the market for computing with highly specialized devices like its “hub” which permits the interaction of data files stored on flash memory sticks without the use of a computer.

Lenovo, A Sleeper Company... Unlike Hewlett Packard, Apple or Sony, Lenovo is a giant with little any brand identity in the U.S. While Lenovo is almost unknown as a brand in the U.S., there is no doubt about its having the material and technological resources it needs as a company to compete in the commoditized as well as the specialty sectors of the market. It is the third largest seller of computers worldwide. It is the dominant seller of computers in the growing Chinese market and has access to its own as well as IBM’s personal computer technology.

Lacking a brand of its own, Lenovo must depend on using the IBM brand to sell computers in the U.S. The eventual success of Lenovo as a company is tied closely to its ability to brand itself.

We first became aware of Lenovo almost seven years ago while on a visit to China. Our conversations with Lenovo began after we learned they were going to increase their production capacity to where they would be able to manufacture more computers than we figured Chinese consumers were ready to buy.

At the time, Lenovo marketed its computers under two brand names: “lian xiang” when dealing with Chinese speakers and “Legend” when dealing with non-Chinese speakers. To sell their excess production capacity they would have to develop a global brand as they expanded into Europe and beyond, including the U.S. As a step toward global growth, they bought IBM’s personal computer business and with it, rights to use the IBM brand name for a limited period of time.

Against the day when they would no longer be able to use the IBM name, the company decided to adopt Lenovo as the brand they would use globally. Lenovo’s progress toward building itself as a brand in the U.S. is now threatened by the flood of bad news about the safety of Chinese-made products which depress U.S. consumer willingness in buying any product branded “Made in China.”

Shapiro’s surveys find that the percent of Americans who absolutely rejected the idea of buying any Chinese-made products jumped 18 points, from 25% in May 2002 to 43% in September 2007. All of the eight product categories covered in the September 2007 and May 2002 surveys were affected adversely. Products taking the largest equity hit were those where safety is pertinent: food, arts and crafts, clothing, and carpeting.

Toys were not covered in the May 2002 study, so change from May 2002 to September 2007 for toys could not be gauged. However, data from the 2007 survey find that nearly two in three American consumers (64%) now reject absolutely the idea of buying a toy branded “Made in China.”

The fiasco also reached out and tarnished products branded “Made in China” where toxicity is not as great an issue as it is for food, such as cars, TVs, DVDs, and computers. The rejection rate for computers, the product category that was least affected by the bad news, jumped eleven points (from 38% to 49%) between 2002 and 2007.

In an article published in Brand Week reporting Shapiro’s survey results, Lenovo is quoted as saying their computer shipments increased after the bad news hit the press. They spoke truth.

Lenovo appears to have escaped damage because the broad majority of U.S. consumers who use computers are not aware of Lenovo. Only one percent of U.S. computer users name Lenovo spontaneously when they think of buying a personal computer. When computer users hear the name Lenovo spoken, close to nine in ten (88%) say they never heard of a Lenovo computer.

In follow-up qualitative research, the relatively few computer users who recognize the name Lenovo when they hear it become less inclined to buy when told Lenovo is Chinese. Willingness to buy IBM also diminishes when consumers hear IBM is a Chinese owned-brand. Reasons given spontaneously for feeling negative about Lenovo and IBM brand computers—bad product and preference to buy American—parallel reasons given for avoiding all Chinese imports.

Lenovo today faces the same problem that Japanese brands faced after World War II when they entered the U.S. market branded “Made in Japan.” Toyota not only overcame the bad reputation for quality that came with being branded “Made in Japan” but also contributed greatly to enhancing the quality image of all Japanese products.

To overcome the negative associations that go with the “Made in China” brand, Lenovo will need to put out products for which unbelievable claims of quality are made and fulfilled. Until we know about the nature of those claims, it is unwise to anticipate the sector of the market for personal computing where the Lenovo brand might develop a reputation advantage that could enhance its chances for success.

Long Term Telecommunication Services: Apple, Sony, Lenovo—A Host Of New Contenders.

With commoditization, total profit dollars from the sale of personal computers is on the verge of peaking and then crumbling. Metaphorically, like slim mold in a pool of evaporating water, the survival and growth of a personal computer brand depends its being able to transport itself to the other pool that develops for producers of devices used for personal computing.

In the long term but foreseeable—five to ten years future—consumer needs for personal computing will be met not only by personal computers of the sort produced today but by companies in a combination of industries including:

1. telecommunications;
2. manufacture of devices for receiving, processing, transmitting
   and displaying information;
3. the production and distribution of content.

Apple is a brand that is advantageously positioned to compete for revenue from the sale of specialized computing devices as well as the sale of content. Its iPhone already has an alliance with AT&T, a major telecommunications company.

Sony is also a brand that has edged into the developing market of the future for devices with personal computing capabilities. It markets game consoles, games as well as television sets that can be made smart enough to take on functions now performed by computers.

Lenovo, as a company but not as a brand in the U.S. where it has little brand identity—has the resources for entering any sector of the market for computing devices.

Its commanding share of the Chinese market for personal computers gives Lenovo a special advantage. It is ideally positioned to develop and perfect devices and services to serve the market for personal computing as that market develops in the U.S.

In using its home market, China, to perfect the design, performance, production and marketing of new products, Lenovo will be following a path that was taken successfully by Sony and by Toyota, who perfected products in their home market before distributing them globally.

As personal computers lose functions to other computing devices, not only personal computer brands but many other types of brands will be able to move into the new market for devices with computing capabilities.

For one, cell phone companies like Nokia and Motorola are well positioned to enter the market for mobile computing devices. Motorola, especially because it is now in trouble, is a brand to watch. It has deep experience in moving into and even creating new markets. The name “Motorola” refers to its early success as a manufacturer of car radios.

In Closing

History is finite and logically ends when the present arrives. By contrast, the future is essentially infinite. It has no logical end. All we can do is to look out until we spot an inflection point where the rules change.

For the personal computer industry, the rules change and disaster looms when the advance of information technology makes uneconomic the centering of personal computing in an expensive cumbersome, multi-functional device that stands ready to do much more than its owner requires or desires.

To be kept informed about further findings from ongoing research on this topic, contact 8SAGES.com.

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