 "Amar Babu")
Lenovo has started to integrate the back-end function and after-sales but marketing and sales will remain different, Amar Babu tells Ankita Rai
What do you think about the idea of content subsidised hardware? Experts say as the market for content grows, the subsidised hardware idea looks more attractive.
It is a classic razor-and-blade marketing strategy. Globally it is a standard practice. So whether its is service or content that is being used to subsidise a device, it depends on what value it offers the customer. Content is king. The biggest driving force behind digitisation is content. Consumers are using multiple devices. The internet of things, social media, mobile games, smart devices, fitness bands etc are generating huge amount of data, which is driving the devices industry. This user generated content can be leveraged and monetised depending on how companies amass an audience for their advertisers and upsell consumers to premium versions of its offerings.
India is the only other market after China to have both the Lenovo and Motorola brands of smartphones. Is there a possibility that Motorola smartphones will go one up on Lenovo mobiles? Don't you think having two brands is a challenge, marketing-wise?
India is a very successful market for both the brands. We have decided to keep the two brands separate. Lenovo and Motorola compete in India as two separate operations. We have overlapping product portfolios. So, of course, there is a possibility of cannibalisation. Customers expect different things from these two brands and the two brands have different customer profiles. For example, Lenovo phones have a very customised version of Android while Motorola phones have a very clean version.
In India, we have different sales and marketing teams for the two brands. The teams compete against one another. I don't know how much is the cannibalisation but the combined market share of both the companies together is 7 per cent. We are starting to integrate the back-end function and after-sales but marketing and sales will remain different. As we integrate, maybe we will look forward to an integrated product folio. If they happen, those things will happen only in the future.
PC sales continue to take a beating even as we see a rise in smartphone sales. How do you see the PC market evolving in India?
The form factor of PC may change but there is still a need for a larger screen size. I don't see smartphones/tablets replacing computers anytime soon. One might delay the purchase the other PC. So instead of buying a second PC, people will buy a tablet. A tablet is normally used as a secondary device. PC penetration in India is only 11 per cent, which means the first-time buyer market is going to be a big driver.
Of course, over the last few years, we have seen an impact on growth. This is due to several factors. One, the enterprise, or the commercial market, has been impacted due to the larger economy, which led to the increase in the refresh cycle. Two, a lot of e-government decisions were not taken for some time. Three, general consumer confidence was also weak for some time. So instead of buying the second computer/laptop, people bought the tablet. Now the tablet market has stabilised and consumers are replacing their PCs. A lot of demand is coming from tier-II and tier-III cities. PC is also becoming an essential learning device. Hence, we will continue to innovate and invest in the PC.
Lenovo had come out vigorously against online players over predatory pricing issues. What was the reason? How important is the online channel for Lenovo?
Online was a new route to market. They did not understand what our challenges were as a brand and we did not understand how they drove their businesses. What was missing was an understanding and agreement on how to work with each other. As our businesses have grown, we have developed good relationships with online players. They understand that we have a strong offline channel and if they take actions that hurt us as a brand it is not going to be win-win. Also, online gives us an opportunity to differentiate. We build exclusive products portfolios for the online customers.
We have been able to resolve the pricing issue also. But it is an open marketplace. Sometimes we find players, whom we don't control, selling online. The challenge in the online marketplace model is to control from where the supply is coming. Sometimes we find that the product has come from a parallel channel and not from the official Lenovo India import channel. For such products, we don't provide international warranty.
Are there any lessons that you learnt in China which can equally apply to India?
Consider this. Five years ago, Lenovo had 7.8 per cent share in the PC market globally. Our revenues were $17 billion and 100 per cent of our business came from PCs. Today we have 20 per cent share in the global market and we are number one in the segment. Last quarter, 65 per cent of the business came from PCs, 25 per cent from mobile phone and 10 per cent from enterprise services. It is a massive transformation.
Five years back, our market share in India was very similar to the global average - 7.5 per cent in the PC market. However, in China we had a market share of 26 per cent. (The China business has 35 per cent market share from PCs now). So we realised that we need to learn from our Chinese counterparts. A key learning from the route-to-market perspective was how we implemented core-channel concept in India. Earlier it was a game of how many partners we have in account. Of course, you need breadth to cover a large geography like India but depth is also extremely crucial. So we segregated a go-to market, created a regional distribution structure, exclusive stores and multi-brand stores. We created and invested in setting up exclusive franchisees. We now have 1,200 exclusive stores while five years back we had only 100.
Supply chain and efficiency was another big learning. For example, if you plan a little ahead you can bring products via the ocean at a much cheaper cost than bring it in by air. We worked on timing the campaign planning with supply chain planning and created a cross-functional organisation that was able to work across silos. We have also applied these learning in many emerging markets.
