IBM: Brand Equity Restoration and Advertising Evolution

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IBM
Brand Equity Restoration and Advertising Evolution

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______________________________________________________________________________ This case was written by Professor Michele Greenwald, Visiting Professor of Marketing at HEC Paris, for use with Advertising and Promotion: An Integrated Marketing Communications Perspective – 7th edition by George E. Belch and Michael A. Belch. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

The case was compiled from published sources and interviews with executives at IBM and Ogilvy & Mather.

Introduction

During the 1970s and ‘80s, IBM was one of the most successful companies in the world. The company had experienced strong growth in both revenue and profits and had a virtual stranglehold on the market for mainframe computers. In fact the company was often referred to as “Big Blue,” a nickname derived from its massive blue mainframe computers. For four consecutive years in the 1980s, IBM held the top spot in Fortune magazine’s annual list of the most admired companies in the United States. However, by 1993 the quintessential “Blue Chip” company had reached its nadir. Over the three previous years, IBM had lost a total of $15 billion and its stock price was at an 18-year low. The brand had fallen below number 250 in Interbrand’s annual survey of the most valued brands with a brand value, estimated at a negative $50 million dollars. The explosive growth of personal computer networks threatened IBM’s lucrative mainframe and minicomputer business and the company was struggling to turn the situation around. In the late 1980’s and early 90’s, the drivers of innovation and change in information technology were smaller, nimble companies like Microsoft, Compaq, Dell, Oracle and others who offered less expensive systems than IBM that could basically accomplish the same tasks. IBM had fallen behind in technology as its top management stubbornly clung to the notion that traditional mainframes, which had been the company’s primary strength, would maintain their dominant position in the marketplace. Compounding the problem was the fact that IBM had become a bloated and inefficient bureaucracy that had lost touch with its customers and had a risk-averse culture relative to its competitors. An image on the cover of Fortune magazine in the early 1990’s depicted IBM as a dinosaur. The situation had become so serious that the board of directors considered breaking up IBM into several companies that would be better able to compete in emerging technology markets against the smaller, more nimble players that were gaining ground at IBM’s expense. In April 1993, Lou Gerstner became the new Chief Executive Officer (CEO) of IBM and was given the task of turning around the company. Gerstner was a former McKinsey consultant who had built his reputation through senior assignments at American Express and RJR Nabisco. Although not known as a technophile, he started by speaking with customers, large and small, around the world to gain an understanding of their needs and how they perceived IBM. Based on their feedback, Gerstner came to the conclusion that IBM was worth more in the long run as a whole, rather than as disparate pieces. He envisioned a three-legged company that, with offerings of software, hardware and consulting services, could synergistically leverage its strengths to solve specific problems that would improve their customers’ performance and business results. Gerstner brought on board Abby Kohnstamm who had worked well with him at American Express. Together, they made a radical move by consolidating all IBM advertising creative work worldwide with one agency – Oglivy & Mather. Prior to the consolidation, IBM’s advertising was handled by a network of...
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