What a way to celebrate a 20th anniversary. In June, Beijing-based, Hong Kong-listed Li-Ning unveiled its boldest brand makeover since a former gymnastics star launched the sporting goods company in 1990. For most companies of a certain size, a brand makeover doesn’t — and shouldn’t — happen overnight. There’s a lot at stake. In today’s hyper brand-conscious markets, traditional customers might be turned off by a new image, while untapped consumers might not even register yet another company vying for their attention. It’s a big gamble.

But gambling isn’t the young company’s style. At Li-Ning — China’s number two sporting goods company with RMB 8.4 billion (US$1.2 billion) in annual revenue — the new brand campaign has been three years in the making. Unveiled on June 30, there’s now a new logo — which adds a symbol to its old “squirrel tail” logo resembling the Chinese character meaning “people,” as company press releases explain — and a new slogan, “Make the Change,” which replaces its old “Anything is Possible.” None of this is news to most urban Chinese — almost overnight in cities and towns, Li-Ning’s new brand campaign has saturated the media: TV stations, the Internet and retail displays.

However, there’s more to this branding campaign than that. The company is changing its target consumer base, from cost-conscious thirty- and forty somethings to what’s known in China as the “after-90s” —  the country’s youth born after 1990 to parents who have more and more spending power as standards of living continue to rise. “Li-Ning is becoming a smart, humorous, forthright, sincere, curious and creative young man!” declared Zhang Zhi Yong, Li-Ning’s 41-year-old CEO, at a recent public gathering.

It’s a “young man” who has come a long way, along with other home-grown consumer brands. Not so long ago, executives at major Western advertising agency often scoffed that China had no brands in a global sense. But that’s no longer true. “Li-Ning is one of the few successful indigenous Chinese brands and the re-branding is just part of its natural progression,” says Stephen J. Hoch, a Wharton marketing professor. “It’s an example that we’ll be seeing more and more of as China’s consumer economy grows.”

In July, Li-Ning was ranked number 19 overall and number one in the sports sector by Interbrand in its annual Best Chinese Brands ranking. As Shaun Rein, managing director of Shanghai-based China Market Research Company, notes, “in the past, some Westerners have said that Chinese companies don’t do branding well, but this is not true any more. Chinese companies are now competing not just on price, but also on branding.”

In the case of Li-Ning, revenue has grown at a 35% compound annual rate between 2004 and 2009 and it is neck-and-neck with Western sporting goods giants Nike and Adidas in terms of market share in China. “Before we did not consider Li-Ning to be our direct competitor, but now Li-Ning tends to ignore us when mentioning competitors,” says a director at German-owned Adidas. “Now we pay more attention to Li-Ning. It makes critical decisions more quickly and is more responsive to the market. We have to be faster.”

Innovation, Innovation, Innovation

So why the need to re-branding? “Before 2008, we had seen booming growth for sporting goods in China, but now the industry is moving into its second stage, which is characterized by more mature and stable growth,” said CEO Zhang at a press conference in June. “While the key driver for growth before 2008 was expanding distribution, now [it] is innovation of both product and brand.”

It’s not that Li-Ning’s old branding hadn’t served it well. Little known outside China, it now has 8,000 stores nationwide, with plans to increase that number to 10,000 by 2013. Thanks to a number of acquisitions and strategic alliances, its portfolio now includes a range of brands, from Z-DO for mid-to-low-priced goods to Aigle for outdoor sporting goods and Lotto Sport for fashionable sporting goods, to Double Happiness and Kason Sports for ping pong and badminton, respectively.

Operationally, Li-Ning is also in an enviable position. In China, the company’s 30-day lead time from design to delivery is as much as half the lead time of its international competitors. Li-Ning has also forged ahead with e-commerce, launching an online mall order site with the popular auction sites Taobao in 2008. Meanwhile, more than 4,000 of its stores have a web-based point-of-sales system connected to a centralized real-time data center in Beijing, ensuring speedy replenishment of stock, and better forecasting and planning. Neither Nike nor Adidas has such extensive data connectivity in China.

But Li-Ning can’t rest on its laurels. Transforming its marketing strategy is a critical, as well as urgent, step for its growth ambition, asserts Li Fei, professor of marketing at Tsinghua University in Beijing. “In the sporting goods market, the homogenization of product offerings has become common; competition in terms of price and distribution have become more heated; investment in advertising and sponsorships have soared; and the cost pressures associated with running retail stores is increasing,” he says. “In such an environment, it is increasingly important to differentiate a brand.”

That’s easier said than done. “The brand needs to emerge from the shadow of international brands and exert its own independent identity,” says Ashok Sethi, head of consumer insights at TNS Research International in Shanghai, a U.K.-based market research company. Its first logo, an “L” which stood for Li Ning’s initial, was deemed by the public to be a mere copy of Nike’s swoosh logo. When “Anything is Possible” was launched in 2002 — two years before Adidas’s “Impossible is Nothing” — it also didn’t get consumers’ pulses raising. Even today, many consumers still believe it was an imitation of the Adidas slogan.

“The time is ripe for the brand to be bold and independent, dissociating itself from look-alike logos and slogans,” says Sethi.

Moving Upmarket

The new branding is also part of a longer-term aim to move away from its traditional image as a cheaper substitute for global brands to more of a premium brand, with the prices to match. “Li-Ning’s face-lift helps it close the pricing gap with top-tier international brands, like Nike and Adidas,” says Wei Xiaopo, an analyst from CLSA Asia-Pacific Markets, a Hong Kong-based investment bank. According to him, the company plans to increase the proportion of footwear products whose average retail price is more than RMB 400. He expects the retail price gap between Li-Ning’s footwear and that of Nike and Adidas to decline from between 30% and 35% currently to between 15% and 20% in the next three years.

“Other Chinese brands [have a foothold in the market] only because they are cheaper,” adds Rein of China Market Research Company. “But Li-Ning is moving its brand in the right direction. In some ways, Li-Ning was copying Nike, but it is now developing its own styles.”

That means raising its prices as it upgrades old products and innovates with new ones. Li-Ning’s designers have already demonstrated their skill in reaching trendy Chinese consumers. In 2008, the company surprised millions of young consumers with its Jiong shoe, an inspiration whose name is a play on the Chinese word for “netizen.” An unprecedented success for Li-Ning, the product was a sellout. Another product was the Lei Feng shoe, named after the soldier whose selfless behavior turned him into a party-sponsored hero in Mao-era China.

“Compared with other Chinese brands, Li-Ning has better designs and makes more types of products,” says Rein. What’s more, “if I were Adidas, I would be scared because Li-Ning has outperformed Adidas in second- and third-tier cities, and it’s very good at changing its product lines quickly.” It has also been raising its profile through various sponsorship deals, including with the Chinese National Badminton Team and Lin Dan, a world-class badminton champion, thanks to its 2009 acquisition of Kason, one of China’s top makers of badminton gear.

So Hip It Hurts?

Will these changes help Li-Ning clinch the top slot in China’s market? That remains to be seen. While Li-Ning wants to represent the younger generation, Li of Tsinghua University says consumers between the ages 25 and 45 account for more than half of its sales currently, and the new initiatives might alienate that group. On local social network websites, such as MOP, stalwart Li-Ning customers have already started to complain. “The new slogan might resonate well with the target group,” says Sethi of TNS. “However, I hope they have tested it [with their old customers.]”

Although consumers between the ages of 15 and 25 years are a sizeable and attractive group, they are also frivolous and fickle. “The 1990s generation is too narrow,” says Rein. “Young people … might like a brand for only one or two years, so the company needs to be cautious.”

At the same time, rising competition and increasing costs in China’s top-tier cities also present huge challenges. More hip and expensive Li-Ning products will need better exposure in top-tier cities where the trendy ’90s are more active consumers, but where the competition from Western brands is much stiffer. That could be tough for a company like Li-Ning, which keeps a tight grip on marketing and advertising as a percentage of revenue — in 2009, its marketing and advertising spending was RMB 1.2 billion on revenue of RMB 8.4 billion, compared with RMB 1.1 billion on revenue of RMB 6.7 billion in 2008.

Li-Ning currently has only about 160 stores in tier-one cities, while Nike and Adidas have almost quadruple that number. In Shanghai, where Li-Ning is unveiling its new campaign, it is almost invisible at prime locations, such as Huaihai Road where most young shoppers can be found. “It is not just a question of changing the logo or the slogan,” says Ashok of TNS Research. “The question is whether it has a product and a marketing strategy that matches the new look. This should include elements of the retail strategy, and the whole environment and service should clearly cue a world-class brand and experience.”

Distribution is another hurdle. By the end of 2009, Li-Ning had more than 128 distributors of various sizes, with none contributing more than 10% to Li-Ning’s total turnover. Consequently, it is difficult for the company to achieve economies of scale and develop a consistent supply chain, comments the Adidas director. Nike and Adidas, on the other hand, each have two accounts contributing around 50% of total business. Local brand Anta has controlling shares in its franchise distributors, most of which work exclusively with Anta.

Wharton’s Hoch, for one, downplays such shortcomings and the new risks Li-Ning might face. “Often times, people say a repositioning is more difficult than a positioning, but that means there has to be a position to lose,” he says. “In this particular case, Li-Ning doesn’t have a lot of excess baggage; it doesn’t have years and years of an image in people’s minds. And while it might have something to lose [with its new branding manifesto], it has a lot more to gain.” As for the risks of focusing on the “90s”, he says, “Let’s face it, sportswear is a young person’s game anyway.”

Now that the new re-branding is launched, Li-Ning is in the hands of China’s consumers. But as Li Ning, the company’s founder and chairman, recently said: “An athlete always needs to be proactive and aggressive on the sports field. It is this far-sightedness that opens up an opportunity to be the ultimate winner.” He’d agree that the same could also be said for a particular sporting goods company.