The arrival of Bon Moo Koo as chairman of the South Korean multinational Lucky GoldStar two years ago heralded the most fundamental change in the 35bn company’s history.
Not only was he replacing JK Koo, he was also about to put in place a plan to shift the image of the electronics to construction and financial services company.
The older man, who subsequently died, was seen internally as a barrier to what most within the company believed needed to happen – the unification of all its separate business units under one, rather than three, names. Two years on, Lucky GoldStar is finally ready to unveil a 200m, nine-month, facelift which has resulted in a new global name – LG – and is determined to double its share of the UK electrical goods market, where it has had a presence since 1986.
In the UK, it already dominates sales of microwave ovens but plans to attack mid-market rivals Sanyo, Philips, Hitachi and Sharp in an attempt to seize an eight per cent share of the total UK electrical goods sector – which has been static since the early Nineties – within two years.
The new name will begin to enter public consciousness next week with the launch of a 5m UK advertising campaign. The UK is the first market where consumers will be exposed to the new LG and some of its products.
The company’s European marketing chiefs met in London this week to view the campaign created by Kelly Weedon Shute – and revealed for the first time in Marketing Week – before deciding whether to use the same campaign or develop their own work to roll out across continental Europe this summer in a total 25m pan-European push.
The advertising is a grand statement of intent, working on the theme of how LG products change a nightmarish present into a better future. The futuristic execution ends with the new corporate logo, a face constructed out of the letters L and G and carry the endline: “The face of the future.” But it is seen as an opening shot. The last time it advertised the GoldStar brand in the UK was through TBWA in 1989.
LG Electronics marketing manager Bob Monk says: “I expect the amount of money we spend next year will be more than this year (25m). This is not a one-off spend.”
Like many Korean conglomerates, LG’s strength is its breadth. Its business stretches from manufacturing TVs to semi-conductors, and construction to finance, although in the UK and most parts of Europe it is known only for its electrical products. These diverse interests were divided into three divisions – the construction arm, LG; the manufacturing wing, Lucky GoldStar; and the GoldStar brand attached to its electrical goods. Bon Moo Koo felt that a more unified approach was needed.
UK managing director Barry Willmore says the name change has been discussed for as long as he has been with the company, over six years. “The company names were so diverse that they were all over the place,” says Willmore. “There was a clear need to reach a synergy with the brand across all strands of the business.”
The decision was finally made last year. And in the next nine months all of LG’s 38 wholly-owned subsidiaries and its 130 worldwide branch offices will be converted to carry the LG moniker.
The change will affect the company globally from top to bottom – everything from stationery to vehicle livery and staff uniforms. A significant portion of the estimated $330m (207m) will, according to LG, be spent on advertising. D’Arcy Masius Benton & Bowles won the 30m worldwide corporate task last year of establishing the name within the electronics industry, but the consumer campaign is where the advertising really has to work.
Willmore says: “LG wants some respect. The company realised that the words Lucky and GoldStar were hard to position as a credible brand. In terms of sales our product dramatically outperforms the brand.”
However, Willmore admits that there was some wrangling over which of the three names to use. In markets like Asia and the Pacific Rim the GoldStar brand is well known and according to Euromonitor accounts for almost 34 per cent of all LG sales.
But in Western Europe and other mature markets its brand was not being taken seriously – although Western European sales contribute 12 per cent of total LG income. The choice was between GoldStar, which was popular in one half of the world, and the more corporate sounding LG, which the company argues is more acceptable to Western consumers.
Willmore denies the new name is bland. “We see it as a blank sheet of paper and we intend to write a lot of exciting things on it about the quality of our products.” But not everybody is convinced. Interbrand director of brand identity Andy Milligan thinks that the company has made the wrong choice.
Rather than being a blank cheque, “LG is a linguistic handicap”, he believes. “LG seems to me the blandest thing you could possibly develop. Initial brands only work when companies have been around for years, fortunes have been spent investing in them, and when they began in near empty markets. Brands like IBM and GEC work. Names that are really blank cheques are ones like Apple, Virgin or Orange. These names do not mean anything but they are interesting enough to allow a company to write what they want into that name.”
He adds: “It is the easiest thing in the world to use initials, but it is usually not powerful enough. When initials are used as a company’s logo it indicates that the path of least resistance has been taken internally.”
But such a compromise is dangerous, especially in a crowded market. LG needs to distinguish itself from its rivals, not seek to mimic or position itself as yet another manufacturer. Most electrical goods are of a good standard and so the branding becomes one of the key points of distinction in a market valued at 5.8bn.
There is no cachet to owning LG products in the UK or other European markets. The first LG-branded goods began appearing in stores last Monday. So as the name is rolled out it will sit alongside existing GoldStar stock in retailers from Dixons to independent stockists, adding to the confusion.
“I would have advised them to look again at what people were telling them about the better known GoldStar brand and see if that credibility gap could not be overcome,” argues Milligan. “Choosing a bland set of initials, that may be easily confused, could be a waste of money.”
The need for distinction and consumer awareness raises doubts over whether LG’s 5m advertising spend is large enough to launch what is effectively a new brand. In comparison Milligan points out that Hutchison Telecom spent 15m marketing the Orange mobile phone network when it was first launched in 1994.
Nigel Bell-Wilson, Kelly Weedon Shute’s account director for LG Electronics, denies the budget is insufficient to support a national launch. “LG is a world force in consumer electronics, and we start with that already. We believe our ads will be noticed and talked about. If they are, you can achieve high brand awareness. The products will do the rest.”
Willmore wants to double LG’s UK volume market share – across its range of consumer products from microwaves to TVs and fridges – from four to eight per cent in two years.
The strategy,which includes moving its goods from the lower end of the market to a middle-market positioning, will see the company challenge the likes of Sanyo, Hitachi, Philips, Sharp and Ferguson, which Willmore claims look a bit “tired”. “We think our products are as good as anybody else’s in the market.” But they need to be better than the rest to have more of an impact.
The new ad campaign, which runs to the end of the year, will be used to exploit and support new product ranges, including digital cameras and palmtop computers. Willmore is banking on the combination of the two to make the breakthrough LG is seeking.
He claims the new strategy will focus on quality rather than simply getting as large a share as it can. But with market share dominating its plans, some analysts are sceptical about LG’s commitment to raising its quality threshold.
They stress that whatever the company does globally will depend on continuing success in its domestic Korean market which, according to Euromonitor, accounts for 43 per cent of its worldwide sales.
LG, along with Samsung, Daewoo, and Hyundai make up the four major South Korean global conglomerates which account for up to 30 per cent of South Korea’s gross domestic product (GDP).
Since the end of the Korean war these companies have worked closely with the South Korean government to achieve strong growth and have forged informal agreements not to compete directly with each other.
Robert McKee, an analyst for global investment analysts Independent Strategy, says these conglomerates are facing increased pressure to open up the domestic market to non-Korean competition. At the same time countries like Malaysia, Singapore and the Philippines are using cheaper labour costs to gnaw away at the lower end of South Korea’s share of the consumer electronics market.
But many analysts see little change in the classic South Korean business strategy employed by LG Electronics, which have traditionally pursued aggressive high-risk policies of expansion with an acceptance of a high level of debt. McKee adds that this policy has continued into overseas expansion. “South Koreans have been the most ambitious overseas investors in the Nineties.”
The company has 19 plants across the world, from China to Mexico and the Philippines to the UK. Among projects already under way are a 330m TV and computer plant in Indonesia, a TV plant in Vietnam, and a 1.7bn electronics plant in Newport, Wales. The company is also exploring joint ventures with local manufacturers in Russia and India.
One analyst points out the shortcomings of this aggressive expansion. “The South Koreans have not had a fantastic reputation for inventiveness. Instead they have always gone for market share. But what we never know in such a secretive and centralised culture is how much these companies have borrowed,” he says.
Another adds: “The emphasis of LG is still on size rather than quality. Its policy is still one of bludgeoning its way into the market.
“But you can’t just make cheap goods. To become a world-class company you have to make quality products and be perceived as doing so. Its next step is to raise the brand image, and to get away from the stigma that it makes second-rate goods.”
This view is echoed by a third international analyst, who adds that like the Japanese, South Korean companies have to learn to develop high-class third and fourth generation products which add value, he says. He also argues that the level of sophistication in terms of marketing and advertising is fairly poor. On the other hand, both Daewoo and Hyundai could argue that their European campaigns demonstrate that the traditional view should be changing.
But it is not the analysts that LG now has to convince. From next week consumers are its priority target if it is to make the leap from large, but little known player, to a serious contender in the electronics market in the UK and Europe. And that takes more than market muscle: crucially it needs skilful marketing, advertising and design – not things LG has been noted for in the past.
The name will mean little to most consumers. Much is riding on the Kelly Weedon Shute campaign. The new ads announce that LG
Electronics wants a place at the high table of consumer electronics. But pickings are thin, margins are tighter, volumes smaller and customers more demanding.
Spending 25m across Europe to announce a 200m facelift of a 35bn company seems a little under power.