Back in the heyday of personal computers Compaq was a big, big deal. In 1981 they invented the category of “IBM clones”— computers that were reverse-engineered to perform just like IBM PCs. They did $111 million in sales their first year. In year 5 Compaq hit $1 billion in sales, which was enormous money back then.
The company was built on a clearly defined core brand concept: “Simply works better.” And their first product delivered on that promise. Industry reviewers consistently said that the Compaq PC outperformed IBM PCs.
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The brand name reflected that simple premise quite accurately: “Compaq” was a portmanteau (two words put together) attributed to the famous ad agency, Ogilvy & Mather: Compatible and Quality. Two very literal brand attributes were combined into a winning brand name. Not only that, the name conveyed the size advantage… The Compaq PC was literally more compact than the bulky IBM PC. You might even say it was a little bit portable, like a 28 lb precursor to laptops.
In the late 90’s Compaq was the #1 seller of personal computers. But by 2001 the company was losing ground to a host of other companies that were making clones of the IBM clones. Dell, in particular, was stealing market share from Compaq with a lower a price point and direct-to-consumer distribution.
So the leadership team at Compaq had to get creative and fine new ways to build sales. They were riding high at the time and believed they could do just about anything, so they decided to “pivot” into an entirely new space: enterprise computing.
They spent more than $10 billion to acquire several different companies that had all the technology they needed to make an impressive offering to large corporate customers. But Compaq’s position in the market wouldn’t allow it! Compaq was universally known as the IBM clone maker and a few acquisitions would not change that.
Perception is reality. You can change your product offering, but you can’t change the perception of the brand in the minds of consumers. That’s the classic premise of positioning.
Instead of attempting a line extension strategy Compaq should have launched a new brand to serve the corporate computing market. When they tried to shove a consumer brand into the corporate market it was a complete, mental disconnect. Corporate buyers didn’t buy it.
The new business strategy butted heads with Compaq’s well-established brand position, and it was doomed to fail.
I suspect the leadership team at Compaq was overconfident. Most entrepreneurs are. They believe — despite all the odds against them — that they can pivot successfully and still make billions of dollars. But Compaq failed in the enterprise computing market. (The company ended up getting acquired by HP, who then killed the brand.)
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So here’s the lesson for every business owner: You can’t change directions that dramatically and expect the brand name to work.
Like when Colgate, the toothpaste brand, thought it’d be a good idea to extend their brand into frozen foods. Oopsy.
If you’re going to pivot 180 degrees you should probably rebrand your company. And that doesn’t mean just changing the logo.
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