LG’s Brilliant Marketing Strategy

If you walked into a Walgreen’s in the early 1970s or 1980s looking for a cheap black-and-white TV set or microwave oven, you might have purchased a Korean-made product sold under the Goldstar brand.

The transformation from ultra-cheap Lucky Goldstar to upscale LG Electronics has been nothing short of remarkable.  Credit goes to Michael Ahn, who guided the branding effort for LG Electronics North America before stepping down as the Group’s president and CEO in 2010.  The metamorphosis of both the company and the brand is chronicled in “Slogans and a ‘Cheery Face’: Michael Ahn on Rebranding LB,” in the January 5, 2011, issue of Knowledge @ Wharton.

The Goldstar brand dates back to 1958 and the LG initial stems from a merger of two long-time Korean brands, Lucky and Goldstar in 1990.  In 1995, Lucky Gooldstar purchased the last remaining American-based TV manufacturer, Zenith Electronics.  That acquisition provided the impetus for the plan to upgrade the brand, but it would take a number of years to accomplish this.

LG’s initial step was to try to get distribution in higher-end retailers but this effort was stymied by the low-quality “couldn’t be trusted” perception of the product line.  A critical decision in the early 2000s was to avoid the path of least resistance and seek distribution in stores like K-Mart, Wal-Mart and Sam’s Club.  While such distribution would have made the Korean factories hum with activity it was off strategy for Ahn who sought to make LG an upscale brand.

Instead Ahn and LG targeted upscale regional retailers like P.C. Richard.  The company also started paying 30 percent of its sales to distributors instead of the more typical 25 percent. Another smart move was providing sales staffers at retailers with expanded training and other incentives so that these sales people would be more likely to recommend LG to buyers and thus overcoming the previous low-image perception.

The next building block was consumer advertising and Ahn took a page from Panasonic’s “Ideas for Life” and Sony’s “Like No Other” themes and created  the “Life’s Good” motto with obvious connection to LG.   To personalize the brand, LG created a “Cheery Face” transformation of its LG logo.

Ahn’s team enhanced the advertising effort with sponsorships such as the highly rated NCAA college basketball tournament.  They also teamed with Oprah Winfrey to give away 350 “refrigerator of the future,” and high definition TVs.   In addition, LGs has aggressively placed its TVs in hotels and motels and teamed with CNN to provide TVs at a number of major airports.

When Ahn stepped down after 35 years with the company, LG had become No. 2 worldwide in television sales and has also become a major player in cell phones.  During the six years Ahn was in charge of North Americas operations, sales increased 20 percent a year from $5.6 billion to $13 billion.   In addition to electronics, LG’s appliance business, which featured front-loading washers and dryers, also increased dramatically thanks to the addition of bright color schemes, which contrasted with the competition’s drab white.

While distributing through Wal-Mart and Sam’s Club was off-strategy in the early 2000s, the company’s transformation put this channel on-strategy in  2010 when LG flat screen TVs began appearing on the shelves at Wal-Mart and Sam’s Club.   This was an acknowledgement of consumers recognizing that LGs image as a high-end product has followed the product life cycle dynamics as big screen TVs have become more of a commodity.

As Ahn told Knowledge @ Wharton, such a move would have been damaging to the company seven years ago, but today, he said, it is a step that LG can take m ore comfortably after establishing itself as an upscale brand name for Americans.  To Ahn, it is more proof of his mantra:  “There is no short-term gain in brand-building.”