Think brand first; and the rest will follow

"All the people fell into my advertising trap!" said Liu Ruiqi, CEO of Hengyuanxiang Group, China's leading woolen wear producer, which aired a one-minute TV ad during last year's Spring Festival that simply repeated the company's name and had 12 Chinese zodiac characters jump out as children intoned the animals' Chinese names.

The advertisement drew criticism, but "each cent should be spent well," Liu said. "Our aim is to have the brand remembered. And we made it."

Hengyuanxiang used to be a small knitting wool shop on Nanjing Road in Shanghai, covering only 100 square meters. But in 2005, Hengyuanxiang was an association with dozens of upstream franchised factories and over 6,000 downstream sales outlets with annual sales of approximately 5 billion yuan and 34 million pieces of products sold annually.

How did this textile company manage to flourish so much over several business cycles and become a sponsor of the Beijing 2008 Olympic Games?

Brand building is the key.

As a time-honored State-owned small shop established in 1927, Hengyuanxiang didn't have a solid foundation for development. At that time, it was the only time-honored shop on Nanjing Road on the "Chinese Commercial Street" in Shanghai. "The only way for survival was to build our brand," said Liu.

Liu is responsible for four major reforms during his efforts to build the brand over the past two decades.

The first reform, in 1991, involved corporate strategic transformation. Through this reform, the enterprise was transformed from a State-owned small shop to a brand-oriented company. Along with the birth of Hengyuanxiang brand, the company built a strategic alliance with upstream franchised factories to build its brand and establish an operational mode. The successful operation of Hengyuanxiang brand at this stage helped transform Hengyuanxiang into the largest hand-knitting wool manufacturer within five years.

The second reform, in 1998, focused on brand extension and transformation. The company was transformed from a single-wool enterprise to a multi-business enterprise, establishing the industrial framework of today's Hengyuanxiang. The margin created by hand-knitting wool couldn't support the market brand any longer. Hengyuanxiang's huge success in the field of hand-knitting wool made it possible to enter other industries. In 1998, Hengyuanxiang was formally engaged in the knitting, costume, household textile and relevant wool detergent industry.

The third reform, started in 2001, focused on corporate system transformation. Hengyuanxiang completed a management buyout (MBO) in February 2001 and Liu became the main person in charge of Hengyuanxiang brand and many other businesses.

The final reform, started in 2005, resulted in the transformation of corporate orientation from a product manufacturer to a brand operator. At the end of 2005, Hengyuanxiang officially became a sponsor of the Beijing 2008 Olympic Games, which enabled it to achieve a new transformation. Hengyuanxiang, initially positioned as a strategic, operational and consulting company boasting market brand, would now extend beyond the textile industry.

Brand oriented

The company's brand is well known by its advertisement. "Hengyuanxiang! Yang! Yang! Yang!" (Yang is the Chinese word for sheep.) This simple advertisement, on CCTV for 15 years, has remained unchanged and become a household word for millions of Chinese.

Three pieces of information, essential to almost any advertisement, never appear in the familiar Hengyuanxiang spot.

First is the region: Although the group is headquartered in Shanghai, no information such as "Shanghai Hengyuanxiang" appears in any of its advertisements.

Second is the industry: Although Hengyuanxiang specializes in sheep and wool in the textile industry, no relevant information is in its advertisements.

Third is product: Hengyuanxiang now has product lines of wool, knitwear, costume and household textile with hundreds of varieties of products sold in thousands of outlets covered 31 provinces, autonomous regions and municipalities; however, no specific product is shown in the advertisements.

Many people have asked if Hengyuanxiang is wasting money by advertising on CCTV during prime time without product information.

The company does not think so.

"First, I have to mention the relationship between the brand and product, for Hengyuanxiang implements a brand-oriented product strategy rather than a product-oriented brand strategy," said Liu.

According to Liu's analysis, for most enterprises, it seems conventional to implement a product-oriented brand strategy. However, consumers are all born to love the new and loathe the old. Whenever there is something new, consumers will involuntarily rush for it. With the lapse of the product, the corresponding trademark (brand) will also vanish.

But guided by a brand-oriented product strategy, an enterprise will first focus on enhancing brand value and increasing consumers' brand recollection through brand building before selecting products according to the brand and consumers' recollection. Finally, it will post its products to its trademark for sale, where the product is merely a carrier of its trademark.

Unlike the product, the brand is hard to wash out once engraved in consumers' minds. Therefore, instead of being overtaken by the times, the brand has the potential to be constantly updated without losing its relevance.

In retrospect, it seems easier to understand why Hengyuanxiang has made only brand advertisements and not product advertisements for the past decade. Following "brand principles" and given strategic considerations, Hengyuanxiang has built its brand and deepened consumers' recollection in a sustainable, repeated and simple manner. Although it may seem a waste of money in terms of short-term sales promotion, the company's approach is the correct one from the perspective of long-term and sustainable development.

(China Daily 05/11/2009 page11)