Take a brand with virtually zero consumer recognition in the United States and increase that to 95 percent in six years, while growing revenues at a nearly 20 percent rate year over year with newly created products. Sound impossible?
Not for Michael Ahn, former CEO of LG Electronics North America, who currently serves as senior adviser for the United States branch of the firm.
Ahn, who took over the position shortly after the company decided to scratch its Gold Star brand entirely and start fresh with LG in the United States, spoke about his branding and positioning strategies at a University of San Diego Ahlers Center International Speaker Series event on Thursday.
Ahn said the most important key to creating a premium brand is product innovation.
“Without any innovation, making a new brand a premium brand is almost impossible because customers pay no attention to the same product, they pay a little attention on differentiated products, but they pay a lot of attention to innovations,” Ahn said.
For LG Electronics, which stands for "Life’s Good," that innovation centered around washing machines and refrigerators. These were the appliances that Ahn thought had the most potential for improvement, but incidentally were two areas where LG had no experience. The company had never sold washers in the United States, and had only marketed a small fridge, never a full-sized French-door version of the product.
After extensive surveying to understand what consumers wanted, Ahn decided that front-load washers, which at the time accounted for a mere 5 percent of the top-load-dominated market share, were the way of the future. He said that this was a risky decision, but engaging the engineers in the process and having them understand their connection to the branding goal made the move a success. Ahn said LG has been No. 1 in market share in front-loading washing machines in the United States since 2007.
After deciding on a specific product to innovate, next came Ahn’s biggest challenge — finding market channels. He knew that using mass merchant channels like Wal-Mart (NYSE: WMT) would never establish the premium brand image that would allow the company to charge high prices for its product, so, again, he made the difficult and risky decision of only targeting premium channels.
After being turned down from Sears (Nasdaq: SHLD), Home Depot (NYSE: HD) and Best Buy (NYSE: BBY), who all said they liked the product but couldn’t carry it because of the lack of name recognition, Ahn took a step down to the regional level and marketed the machines to P.C. Richard & Son and hhgregg (NYSE: HGG) types of stores. Finally, success.
In order to support the stores and ensure the appliances did well, LG paid a higher-than-usual 27 percent margin, held product training for the retail stores at all levels down to floor salespeople, and also offered incentives to employees, like $50 per LG washing machine sold.
It worked. So much so that the high-end stores that had previously turned down LG products soon came and asked to carry the sought-after product.
The success was due in part to LG’s three-fold brand awareness efforts: continuing to sell between 30 million and 40 million LG phones a year, supplying televisions to high-end hotels as well as airports, and sponsoring groups like the NCAA and events such as Oprah Winfrey’s donation of hundreds of refrigerators on her television show.
Ahn’s positioning and branding efforts took the company from $5.3 billion in revenues in 2004 when he became CEO, to $13 billion in 2010 when he stepped down to become senior adviser at LG Electronics USA. So what does this brand-builder advise companies do to weather increasing competition from China?
“China is growing rapidly and they are becoming our big competitors, I agree on that,” Ahn said. “So the only way is to bring new innovations to consumers earlier than Chinese companies.”
Ahn said LG is always doing that, as its logo with one open eye looking at the present and one closed eye looking at the future implies.