Case study: Li-Ning lost out to foreign rivals in China

June 17, 2013 4:56 pm

Case study: Li-Ning lost out to foreign rivals in China

By Hellmut Schütte, Sumelika Bhattacharyya and Jocelyn Probert

The story

Gymnast Li Ning became a Chinese hero in 1984 when he won six medals at the Los Angeles Olympics, the country’s first appearance at a summer games in 32 years. By 1990 he had set up his own sportswear company, Li-Ning. It was an immediate hit, and in 1999 the company’s revenues in China reached Rmb700m, more than twice Nike’s Rmb300m and Adidas’s Rmb100m.

The challenge

The growing spending power of China’s middle-class consumers and their appetite for foreign brands, combined with the surging popularity of basketball and football – with which Nike and Adidas were associated – helped the two overseas companies win more sales in China than Li-Ning.The strategy

Initially, there was little overlap in the market segments targeted by Li-Ning and its foreign rivals. The Chinese company offered mass-market leisurewear and Nike and Adidas sold professional-standard athletic wear; Li-Ning was market leader in China’s second and third-tier cities, while Nike and Adidas were in Beijing and Shanghai.

But after 2001, when China won the bid to host the 2008 Olympics, interest in sports reached new heights. Li-Ning tried to emulate its foreign rivals’ marketing tactics.

● Brand ambassadors: The overseas companies used celebrity athletes such as American basketball players Michael Jordan (Nike) and Kobe Bryant (Adidas). Nike also signed three of China’s globally successful sports stars: hurdler Liu Xiang, tennis champion Li Na and NBA star Yao Ming.

Because Mr Li was his brand’s biggest ambassador, consumers began associating Li-Ning only with gymnastics goods.

● Sponsorship: Nike-sponsored activities focused on basketball, while Adidas did the same with football. Li-Ning sponsored sports where China traditionally dominated, such as diving and gymnastics, but these did not have the same youth appeal.

After its 2004 initial public offering, Li-Ning bought the rights to use the NBA logo and players in its marketing and advertising in China. But it could only afford to sponsor lower profile teams and events.

Mr Li lit the cauldron that signalled the opening of the 2008 Beijing Olympics, but Adidas won sponsorship of those games, which gave it the right to clothe the Chinese teams.

● Logos and slogans: The “L” logo of Li-Ning bore a marked resemblance to Nike’s swoosh, while its “Anything is Possible” slogan was not so different from Nike’s “Just do it”.

In 2010, hoping to appeal to the “post-1990s-born” generation, Li-Ning launched a fresh campaign. But the new logo and slogan, “Make the Change”, did not excite the target audience and alienated its original, now older, customer base.

● Pricing: Li-Ning raised its prices in 2010 but premium-segment consumers found the quality of Nike and Adidas was still better, while lower and mid-price-segment consumers chose cheaper, local brands.

What happened

Li-Ning grew from 3,373 outlets at the end of 2005 to 6,245 outlets three years later, including new stores in cities with Olympic venues. Although revenues jumped 54 per cent in 2008, moving Li-Ning ahead of Adidas, the latter had overtaken again by 2010.

Inflation and slower economic growth began to affect consumer sentiment and in 2011 growth in sportswear overall fell to 13 per cent from 20 per cent in 2010. Sales revenues in 2011 for Nike, Adidas and Li-Ning respectively were about $2bn, $1.7bn and $1.4bn. In the first half of 2012, Nike and Adidas had rising sales, whereas Li-Ning experienced declines .

The lessons

Li NIng failed to adapt as the market developed, and the positioning confused consumers. Its logo and slogans were too similar to competitors’, which led consumers to think it was an imitator.

Brands must know their audience and innovate constantly to match consumers’ changing tastes. A brand that raises prices must make a corresponding increase in quality.

The writers are, respectively, dean and vice-president, a former research assistant, and a visiting researcher at Ceibs