Executive Summary

This report is intended to provide a critical analysis of ’s brand equity with the focus on its product category and provide recommendations on how the equity can be improved.

This report begins with an introduction on Huawei’s company introduction, market performance and positioning. Huawei is a market dominator in China and it positions itself as a creative brand for everyone. It competes in the market by adopting a dual brand strategy.

Next, the report analyses Huawei’s brand equity by using CBBE model. Three strategies: Dual brand strategy, innovation strategy, and brand secondary association strategy has been identified and they influence the four layers of Huawei’s CBBE model. Overall, innovation strategy and brand secondary association strategy help Huawei build higher brand equity successfully. Dual brand strategy works well but causes conflicts.

Based on the previous analysis, the report finds two issues and one opportunity for Huawei: Issue 1: Conflicts between and Issue 2: Inappropriate Pricing affected Huawei’s Brand Image (excluding Honor) Opportunity: The Coming of 5G

Finally, three recommendations for the issues and opportunity are provided accordingly.

Table of Contents

1 Introduction ...... 1

1.1 Market performance - Market Dominator in China ...... 1

1.2 Positioning – An Innovative Brand for Everyone ...... 2

2 Brand Analysis Using the CBBE Model ...... 4

2.1 Dual Brand Strategy ...... 4

2.1.1 Interaction between Huawei and Honor ...... 4

2.1.2 Influence on Brand Equity ...... 5

2.2 Innovation Strategy ...... 5

2.2.1 Innovation Persistence and Government Support ...... 5

2.2.2 Customer-oriented Innovation ...... 6

2.2.3 Influence on Brand Equity ...... 6

2.3 Brand Secondary Association Strategy ...... 7

2.3.1 Linking brand with Patriotism ...... 7

2.3.2 Celebrity Endorsements ...... 8

2.3.3 Co-branding ...... 10

2.3.4 Influence on Brand Equity ...... 11

3 Two Issues and One Opportunity ...... 13

3.1 Issue 1: Conflicts between Huawei Nova and Honor ...... 13

3.2 Issue 2: Inappropriate pricing affected Huawei (excluding Honor) ...... 13

3.3 Opportunity 1: The Coming of 5G ...... 14

4 Recommendations ...... 15

4.1 Recommendation 1: Remove Nova from Huawei or shift it to Honor ...... 15

4.2 Recommendation 2: Increase the Retail Price of new Flagship Phones ...... 15

4.3 Recommendation 3: Develop 5G network ...... 16

5 References ...... 18

6 Appendices ...... 23

1 Introduction Huawei Investment & Holding Co., Ltd. (‘Huawei’), founded in 1987 in China, is an information and communications technology (ICT) solutions provider (Annual Report 2017). Huawei’s Consumer Business Group (‘Consumer BG’) is one of Huawei’s three business groups. Consumer BG provides products including mobile phones, mobile broadband devices and home devices (Huawei 2018). This report will evaluate Huawei’s brand equity with the focus on its business in the Chinese market.

Figure 1: Brand Shares in Chinese Mobile Phone Market 2013-2017

1.1 Market performance - Market Dominator in China Huawei is currently the largest market dominator in the Chinese mobile phone market and it witnessed a significant growth over the recent five years. As figure 1 illustrated, Huawei’s brand share (including Honor) increased from 10.1% in 2013 to 18.2% in 2017 and ranked as the first. Its local competitor followed it closely and Apple ranked as the fourth (Euromonitor 2018).

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1.2 Positioning – An Innovative Brand for Everyone

Figure 2: Huawei’s Positioning Statement Huawei positions itself as a brand that brings the latest technology and premium user experiences to everyone (Huawei 2018). Its electronic products have been award-winning for their innovation and user experiences (Annual Report 2017). The brand is associated with ‘innovation’, ‘technology’ and ‘dream’ because Huawei claims that it ‘shares its vision with people who pursue their dreams, people who are visionary challengers, people who are proactive with a strong belief in striving to achieve their goals’.

Huawei competes in the mobile phone market by adopting a dual brand strategy: ‘Huawei’ and ‘Honor’ (Annual report 2017). Huawei brand focuses on ‘innovative features and superior experience’ and delivers value for a wide market; Honor combines fashion and technology and targets younger consumers. Currently, under Huawei there are five series for the Chinese market:

1) Huawei Mate and 2) P Series are for the high-end market; 3) G series and 4) Y series aim to provide phones with good price-quality performance; 5) Nova Series work similarly as Honor focusing on young and fashion-savvy consumers. With all these brands and series working together, Huawei provides a wide range of products for its target segments (Appendix 1). Huawei’s brand hierarchy is illustrated as figure 3.

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Figure 3: Huawei’s Brand Hierarchy

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2 Brand Analysis Using the CBBE Model Customer-Based Brand Equity (CBBE) model could evaluate the brand knowledge in customers’ mind. It includes four steps to build a strong brand, brand Identity, brand meaning, brand responses and brand relationships (Keller 2001). This part will use three main strategies to examine Huawei’s brand equity in different level of CBBE model.

2.1 Dual Brand Strategy According to the introduction, Huawei applies a dual brand strategy of ‘Huawei’ and ‘Honor’. Huawei’s Consumer BG aims to use product premium tier to perpetuate Huawei’s brand image as a symbol of business, innovation and competence. The Honor brand will focus on online business model to offer cost-effective products and build a younger and popular brand image (Robert 2015).

Different from brand extensions, the key of this strategy is coordinating Huawei and Honor through production and technology and targeting separate customer segments. These two brands promote each’s strengths and uniqueness to insure their positions and increase market shares.

2.1.1 Interaction between Huawei and Honor Firstly, dual brand strategy influence brand awareness and brand identity. On the one hand, in terms of Honor, it thrived by taking advantage of Huawei’s established brand name and became a key player in the most competitive mid-to-low-end market, which Huawei has never touched (Interbrand 2017). However, on the other side, as Honor wants to shake off its inherent image as a Huawei-branded phone, Honor has a totally different set of brand elements, which are unrelated to Huawei. From this point, the dual brand strategy elevates Honor because it takes advantage of the market strength of Huawei, but conversely, the strategy has less positive effects on Huawei.

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Honor has a diluted effect on Huawei’s brand image. Huawei delivers business style, quality, reliable and well-performing in the mid-to-high price tier. This is different from Honor, which is perceived as cost-effective and young. Although Honor uses different set of brand elements, consumers still have confusions between them (Yi 2014), and their perceptions of Huawei’s brand performance and brand meaning is affected by Honor.

2.1.2 Influence on Brand Equity The dual brand strategy helps Honor’s have higher brand awareness better associations and therefore have higher brand share. But the strategy has less positive effect on Huawei. Honor is overall inferior when compared to Huawei. The strategy weakens Huawei’s brand meaning because consumers’ impressions of Honor may affect their impressions of another brand – Huawei (Levin 2002), A positive brand image should have strong, favorable and unique brand associations (Keller 2001). However, Honor has become an influential market player and therefore it could blur Huawei’s differentiations and brand image.

2.2 Innovation Strategy 2.2.1 Innovation Persistence and Government Support Huawei’s success is fundamentally the success of innovation (Jiang et al. 2017). When Huawei founded initially, China’s telecommunications industry mainly relied on technologies and equipment imports. Huawei decided to develop its own technology in-house. It used its sizable profit to fund its innovation and achieved technological advantage and popularity. Huawei’s innovation aims to drive technological advances and explore new directions for industry. Then Huawei became the market leader with its cutting-age technology. Huawei’s achievement also helped it win the support from the government, and because of that, Huawei gained plenty of publicity through the cooperation with the government (Chong 2016).

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2.2.2 Customer-oriented Innovation Moreover, with the government's support, Huawei has an aggressive period of technology-driven and user-oriented innovation and sharing its technology to both Huawei and Honor. Huawei released the – the first smartphone with an embedded (AI) chipset. The product focuses on the practical needs of consumers and common usage scenarios, using AI to improve product performance and design intelligent phones that truly understand consumers (Annual Report 2017). Moreover, in order to improve the user experience and satisfy their needs with exceptional premium image quality, Huawei and Honor both apply the highest precision and craftsmanship for cameras (Leica 2016).

2.2.3 Influence on Brand Equity Huawei’s innovation strategy strengthens its brand equity from brand identity to brand meaning and performance. As mentioned before, under Chinese government’s support, more customers started to know the name of Huawei. Chinese consumers understand that Huawei involves many categories of telecommunications and designs to manufacture Chinese own technology. Therefore, both depth and breadth of brand awareness was increased.

Moreover, Huawei’s cutting-age and customer-oriented attribute became the different performance dimensions and can serve as the means by which the brand is differentiated (Keller 2001). In specific, as the first company to use AI chipset in smartphone, Huawei’s products still maintains in a advanced level, ahead of many competitors. Moreover, the usage of high-quality camera in Honor breaks customers’ stereotyped image of low- and moderately priced smartphones.

Furthermore, with thirty years of development and innovation, Huawei’s brand personality and competitiveness has been increasingly strengthened. Its history of innovating its own technology in-house has been well-known. Therefore, Huawei has

6 a strong, favourable and unique brand meaning.

2.3 Brand Secondary Association Strategy Huawei uses secondary association strategy to build its brand equity. According to Keller (2001), secondary association strategy means linking brand with other entities that consumers have already had the knowledge structures in their mind, so that consumers may assume the recognition of other entities could be a part of the brand image. It mainly conducts the secondary association strategies though linking the brand image with patriotism, celebrity endorsements and co-branding.

2.3.1 Linking brand with Patriotism Huawei is associated with patriotism. As the international economy grows, consumer may see a certain brand as an important symbol of their own cultural heritage and identity (Keller 2013). China as a collectivistic country (Hofstede Insight 2018), its consumers are likely to choose Chinese products instead of foreign products for patriotic reasons and to support their economy (Chu 2017), as Figure 4 shows below. Under this circumstance, Huawei wisely integrated patriotism into its marketing communication strategies. For example, when Huawei has important news release (such as successes in global market or technology innovation), there will be a lot of blogs or news use words such as ‘proud’, ‘China’, and ‘great’ in titles (Xinhua 2016). These messages could make people feel proud of China’s technology and even go viral online (China Daily 2016). Some content created by online users even said, ‘no patriotic Chinese would buy an iPhone; they would buy Huawei instead" (China Daily 2016).

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Figure 4: Reasons to buy Chinese products and brands

2.3.2 Celebrity Endorsements The other secondary association strategy of Huawei is celebrity endorsements. Celebrity could draw attention to a brand and shape the perceptions of the brand by using the signs from the celebrity. Fan economy is one of the most massive trends in China (Euromonitor 2018b). Marketers even use ‘no fans no market’ to describe the influence of celebrities (Yang 2018). Indeed, Chinese fans will have more trust on the information shared by their favourite influencers and purchase the endorsed products to feel connected to the celebrity and the fan community (Chozan 2017). Therefore, Chinese smartphone brands extensively use the influence of celebrities to build their brand equity. Some of them even invites a series of celebrity endorsements to target different group of fans. Furthermore, a logical fit between the celebrity and the brand will better contribution to brand equity (Keller 2013).

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Figure 5: Celebrity endorsements of different Chinese brands

Honor successfully used Ge Hu, Liying Zhao, Yang Sun as its brand ambassadors. They are successful actor, actress, and athlete who are associated with ‘dedicated’, ‘positive’ and ‘never give up’. Their public images match Honor’s associations about ‘dream’, ‘young’ and ‘fashion’. Since 88% of fans are under 40, celebrities can influence the target audience directly (199IT 2017). Liying Zhao has over 60 million followers on Weibo and ranked as the second powerful influencer (36KR 2017). Yang Sun as Olympic Swimming Champion could be associated with patriotism. In addition, Honor tries to engage celebrities more to enhance the associations. For example, Ge Hu even participated the launch of and explained the features of the product.

Similarly, Huawei used Xiaotong Guan and Yixing Zhang as brand ambassadors of its Nova series, which targets younger customers. As Huawei’s brand extension, Nova’s positioning should be aligned with Huawei. However, these two young celebrities present the similar character (‘young’ and ‘fashion’) to Honor rather the Huawei’s image ‘latest technology’.

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Besides, figure 6 shows that neither Yixing Zhang nor Xiaotong Guan contributes to the brand awareness successfully (QQ.COM 2018). From this perspective, Huawei Nova and Honor shows similar brand images which may cause confusion to consumers.

Figure 6: Contribution rate of celebrity endorsements

2.3.3 Co-branding Huawei co-branded with Leika and Porsche to promote its brand image, ‘latest technology’ to reach high-end market. Cooperation with Leika improved Huawei’s performance in photography since the launch of . They co-designed dual lenses to improve the photography experience to professional level. Before that, Chinese consumer always recognized Huawei as low-to-moderate end smartphones (CNN 2017) and none of Chinese brands could target high-end market. After P9 launched, Huawei has managed to buck the trend and outstrip rivals — with an increase of 53% in Q4 in 2016（Lomas 2016）.

Furthermore, Huawei cooperated with Porsche and launched the Porsche Design Huawei Mate. The philosophy of Porsche Design is ‘For it to be anything less than 100 percent involved in a project would be unthinkable’ (Boxall 2018). It guarantees 10 the product quality, ‘no notch’ design, new technology, new system EMUI etc. The luxury image of Porsche successfully assists Huawei break into the high-end market (Tech 2018).

The co-branding with Porsche gains the most attentions compared to other smartphone co-branding cases in 2017 (QQ.COM). This means higher brand awareness has been created.

Figure 7: Attention gather from co-branding in 2017 compared to competitors

2.3.4 Influence on Brand Equity These three secondary association strategies have positive impact on building Huawei’s brand equity. First, they increased the brand awareness effectively. Since the influence of patriotism goes viral and there are 470 million fans in China by 2016, the brand awareness to customers even achieves 100% in Chinese market (199IT 2017).

To the brand meaning level, brand performance has been improved by co-branding with luxury brands. On the other hand, brand image has been associated with patriotism. Honor’s celebrities strengthen the brand existing image to consumers since their identities match with brand. While Huawei’s celebrities not presenting Huawei’s

11 image but presenting similar image as Honor, it may cause brand confusions to consumers.

Brand responses refers to consumer response to the brand including brand judgement, which refers to brand quality and brand superiority, and brand feelings, which relates to consumer emotional response and currency social evoked by the brand (Keller 2001). Co-branding strategy reverse the brand judgment from low-to-high brand quality and enrich the brand feeling by providing social approval experiences. In addition, patriotism creates strongly consumer feelings and even effects consumers rational judgments. Some consumers claimed that compared to other global brands, Huawei may not be the best, but they are still willing to support the local brand to present their patriotism (Stout 2013).

Huawei could achieve high level of brand resonance. Good product experience and quality made the customer loyalty of Huawei reach 60% by 2017 (Sina 2018). With the attractiveness of patriotism to patriots, celebrities to fans, co-branding to high-end consumers, the purchase decision is influenced by attitudinal attachment rather other reasons. Since they all attract different target groups, owning Huawei could bring them a sense of community. The secondary association strategy could even drive active engagement since people hope to show that they are relevant to the association. For example, people create content about Huawei to show his/her patriotism.

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Appendix 2: Summary of brand equity analysis using CBBE

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3 Two Issues and One Opportunity Huawei faces two issues and one potential opportunity that can affect its future development.

3.1 Issue 1: Conflicts between Huawei Nova and Honor As we mentioned, Huawei Consumer BG are using dual brands strategy in the smartphone market. Honor is focusing on the low-end and mid-end market, and Huawei is positioned as a high-end technology and innovation brand. However, Huawei’s Nova series is targeting the same customer segment and using the same marketing strategy with Honor’s products. The existing of Huawei Nova series will divert the some of the Honor’s potential customers to Huawei. On the other hand, the Nova series is also damaging the Huawei’s brand image of high-end, technology and innovation.

3.2 Issue 2: Inappropriate pricing affected Huawei (excluding Honor) Based on the analysis on CBBE mode, Huawei have high quality brand performance through innovation strategy and co-branding association. Huawei has the ambition to compete with Apple and in the high-end market (Annual Report 2017), but its pricing strategy affected its development. When comparing Huawei Mate 10 pro and Apple iPhone X, the overall hardware and performance of two products are about the same (Adams 2018). However, based on the sale prices of two products, Huawei Mate 10 Pro costs 4499 CNY, which is much lower than iPhone X (8316 CNY). As Huawei smartphone are priced lower than its competitors, its brand identification and damage brand image could be damaged.

All these evidences indicate that Huawei has strong capability to expand in high-end handsets markets, but its pricing strategy with low price of Huawei is not suitable to maintain its brand image. Balle (2017) stated that although products have high performance and quality, a lower price would generate low price effects that make

13 consumers become suspicious of low prices with lower quality thereby underestimating brand image. It means the low price of Huawei high-end smartphone is not reasonable in the market of competing with Apple and Samsung.

3.3 Opportunity 1: The Coming of 5G Huawei can capture is development of 5G network. Auchard and Jiang (2018) stated that Huawei tends to develop the technology of 5G networks and deploy equipment in the scale of worldwide, and they imply most consumers expect to use technology like phones under the standard of 5G. It no doubt Huawei has opportunity to be the first smartphone producer and carrier of using 5G networks. According to Liptak (2018), Huawei has already announced its 5G mobile chip. It means Huawei as biggest propeller of developing 5G network could capture more market shares in the smartphone market.

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4 Recommendations 4.1 Recommendation 1: Remove Nova from Huawei or shift it to Honor This decision should be made by Huawei Consumer BG. After this, P Series, Mate Series and Porsche Design series are the product lines for Huawei. Then, Huawei could truly become the high-tech smart devices brand in customers’ mind. Otherwise, if the Nova series is removed, the probability of Nova’s users shifting to Honor will be very high because of the similarities between their products. If the Nova series is transferred to Honor, there is no conflicts between the Nova’s image and Honor’s brand image. Therefore, this decision will benefit both Huawei and Honor.

4.2 Recommendation 2: Increase the Retail Price of new flagship phones

Figure 8: Huawei, Samsung & Apple flagship smartphone price

In the table above, we list the all the retail prices of Huawei, Samsung and Apple’s flagship smartphones. In general, excluding the Huawei Porsche Design Mate RS, Apple iPhone has the highest average price; is in the second place; and Huawei is the lowest one. In order to validate whether these phones’ prices are reasonable, we collected and analyzed some data from different authoritative smartphones’ performance evaluation institutes. DxOmark gives the Pro highest score on smartphone camera system in entire market (DxOmark.com, 2018). On Geekbench, the performance score of the latest Huawei’s flagship smartphone’s processor, Kirin 970, is a little bit lower than its competitors’ (Geekbench.com, 2018), but Kirin 970 is the first AI processor in the world which can bring customers a totally 15 different using experience. Besides, Huawei also installs the 4000mAh batteries on P20 Pro and Mate Series, which almost doubled the iPhone 8’s battery size. The screen and the operation system are also the top level in the market (cnet.com, 2018). However, the price differences between Huawei’s flagship smartphones and Samsung or Apple’s will mislead the customers, who are not familiar with smartphone’s specifications, that Huawei’s smartphones are not good enough. Even the Huawei Porsche Design Mate RS, which is positioned as a luxury phone, its price is just a little bit higher than Apple iPhone X. That is harmful for Huawei’s brand image as one of the best smartphone brands in the world. The increasing on price might decrease the demand of Huawei smartphones, but it will also bring more profit margin and more widely recognize from customers. It is undeniable that Huawei consumer BG’s brand awareness and brand value are lower than Apple and Samsung’s. So, Huawei should increase their next generation flagship smartphone price range (Mate & P series) to 5,000 to 7,000 Chinese Yuan, which is still lower than Galaxy S series, Note series and iPhone. In addition, for Porsche Design series, the price range should be raised to 12,000 to 15,000 Chinese Yuan in order to distinguish this luxury phone brand from other phones.

4.3 Recommendation 3: Develop 5G network In 2017, Huawei developed the 4.5G technology and launched the world first 4.5G smartphone P10. 4.5G technologies boost the effectiveness and efficiency of 4G networks. That will enable operators to both maximize ROI on existing infrastructure and prepare for 5G (huawei.com, 2017). Huawei has the lead on developing the 5G network and 5G smart devices. If Huawei could launch the first 5G smartphone, that will definitely help Huawei increase its revenue and brand value. Apart from the manufacturer of smart devices, Huawei is known as the leading global provider of information and communications technology (ICT) infrastructure (huawei.com, 2018). As we mentioned in the introduction, Huawei owns three BGs, and the Carrier BG is the largest telecommunication company in the world. Huawei

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Consumer BG should use more internal resource form Carrier BG to develop the new 5G technologies together and keep the leading position in the competition of developing 5G network and 5G smart devices.

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6 Appendices

Appendix 1: Huawei’s target consumers

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