Click to read the original article for details. Source: Lishi Finance (ID: lishicaijing) How did Liby, with no capital, start with zero assets in Guangzhou, the headquarters of P&G China and the home base of domestic giant Lonkey? How did it survive the 1997 crisis and rise against the trend? How did Liby, targeting lower-tier markets, build a marketing network it is proud of? And what problems have these past achievements brought to Liby today? Head & Shoulders, Rejoice, Crest, Tide... After entering China, Procter & Gamble, a company over a hundred years old, has occupied most of the market, and Unilever has also been aggressive, putting enormous pressure on domestic brands. However, in such a market, a number of new domestic daily chemical brands have risen, such as Liby, Yunnan Baiyao, Darlie, Diao Pai, and Liushen. In terms of revenue, Liby is currently the leading domestic daily chemical company. In performance, Liby's annual sales revenue exceeded 20 billion yuan, with annual tax payments exceeding 1.5 billion yuan. The market share of its laundry liquid, laundry powder, and other products ranks first in the industry. As a domestic brand, Liby started from scratch and won the title of "2019 China Brand Influence Top 100." Its products include eight major categories such as soap, toothpaste, laundry powder, dishwashing liquid, and disinfection products, with over 500 product varieties. Today, Liby has more than 30 famous brand products and well-known trademarks, including the well-known Good Daddy, Chaowei, Weiwang, and Liubizhi. In the early days, without capital, how did Liby start with zero assets in Guangzhou, the headquarters of P&G China and the home base of domestic giant Lonkey? How did it survive the 1997 crisis and rise against the trend? How did Liby, targeting lower-tier markets, build a marketing network it is proud of? And what problems have these past achievements brought to Liby today? OEM: Zero-Asset Start and the "Briefcase Company" Question In 1994, reform and opening up entered a new stage, and the wave of individual business began. Foreign laundry powder brands such as P&G and Unilever entered the Chinese market. At that time, P&G was already a 150-year-old company, and Unilever had nearly 70 years of history. The nascent Chinese fabric washing brands seemed vulnerable in front of the two foreign companies. Liby Group was founded in 1994, when the individual economy wave began, and it was born in Guangzhou, where the most powerful foreign giant P&G had its China headquarters. In addition to foreign giants, local brand Guangzhou Lonkey was also at the forefront of the daily chemical tide. Laundry powder brands such as Lonkey, Gaofuli, and Tide strongly occupied the Guangzhou market. At this time, wanting to rise from the ground, without funds and factories, was extremely difficult. Chen Kaixuan It was in this year that Chen Kaixuan, his elder brother, and five others came to Guangzhou and rented three rooms to start operating their brand "Liby." Although the company was only established in 1994, Chen Kaixuan had registered the Liby brand in 1992. In the 1990s, when brand awareness was not strong, Chen Kaixuan's move was very forward-thinking, but this foresight came from a major setback he had suffered. In the late 1970s, Chen Kaixuan worked as a laborer in Guangzhou for three years but saved only 10 yuan. On his way back home, he accidentally saw a long queue at a shop entrance. It turned out people were rushing to buy laundry powder that was cheaper and more effective than soap. Chen Kaixuan felt he had found a treasure. After research, he discovered that the shop owner sourced the goods from other places. If he could find a local brand, he could win with a price advantage. So, he found a local company and started a price war with them across the street. In just one year, Chen Kaixuan used 3,000 yuan borrowed to create 8,000 yuan in profit. Chen Kaixuan quickly signed an exclusive agency contract with the company and expanded his business from the town to the entire Puning City. Just as business was booming, a crisis came. The manufacturer saw the rich profits and unilaterally tore up the contract, also entering the retail end. Chen Kaixuan's price advantage vanished, and he had a large backlog of inventory in the warehouse. This heavy blow made Chen Kaixuan realize that only by having his own brand could he escape the control of upstream suppliers. Thus, the crisis pushed Chen Kaixuan from being an agent to becoming a brand owner. Starting from zero was not easy. Not to mention the suppression by the industry giants mentioned earlier, although Chen Kaixuan held the Liby brand, he had no money and no factory, so the brand was just a rubber check. How to start from zero became a major problem for Liby. Coincidentally, during the transition from a planned economy to a market economy, many washing factories still followed the old idea of exclusive sales, only responsible for production and not sales, struggling to survive. So, they quickly found factories that had not yet been sold to foreign brands and had them OEM for Liby. At that time, a washing products factory happened to have a batch of laundry powder that they were worried about selling. "Pay 10% deposit first, and pay the full amount after 3 months." Although the factory director was reluctant about Chen Kaixuan's proposal, rather than letting the laundry powder expire, it was better to try a last resort and take a gamble. In this way, Liby's first batch of products came out. The biggest problem with OEM is that the production process is not under your own supervision, and the quality of the OEM factory's products directly affects the brand image of Liby. Chen Kaixuan was shocked after personally visiting the OEM factory. The factory had a pungent smell, the production process was not strict, and there was a lot of dust and noise. Chen Kaixuan recalled that as soon as he entered, his whole body turned white, and his black leather shoes turned white. After the products were packed, the cardboard boxes were also covered with white dust. What was the product quality like? Chen Kaixuan took a basin in the factory, grabbed a handful of laundry powder, and stirred it under the tap. At the bottom of the basin, there were many sand-like particles, clearly indicating that the laundry powder did not dissolve well. In this way, Chen Kaixuan forced his OEM factory to innovate to ensure product quality. OEM's asset-light approach did bring benefits to Liby, but it also earned it the label of a "briefcase company." But Liby's greatest wisdom was not in OEM, but in breaking away from it. Liby used this model for only three years, then began building its own factories, taking control of the production lifeline. This is where Liby deserves recognition. Cash on Delivery: Forced Channel and Product Innovation With products in hand, the next problem was how to sell them. In the Guangzhou market at the time, Liby had no competitiveness. Like domestic brands such as Wahaha and Dali, which faced foreign brands in the early days, Liby avoided the main urban battlefield and adopted a strategy of surrounding the cities from the countryside to lay out its marketing network. The industry practice at the time was that distributors took goods first and paid after selling. Chen Kaixuan, eager to open the market, quickly discovered that although this shipped goods quickly, payment collection was slow and easily led to triangular debt problems, dragging down merchants, manufacturers, and suppliers. Moreover, this model required high capital, and the young Liby could barely handle it. After comprehensive consideration, Liby adopted the principle of cash on delivery and exclusive distribution. This principle even became a foreshadowing of Liby's future rise. Although the idea was good, Liby's harsh conditions made many distributors reject Liby. To open the market, Liby cooperated with distributors at all costs, delegating more power and profits to them. It also encouraged relatives and friends to join, thereby expanding its sales network. At the same time, Liby also changed the industry's past practice of "sitting merchants," requiring distributors to move out of wholesale markets, rent warehouses, buy vehicles, hire people, and actively deliver goods to customers. Since it was cash on delivery, it was necessary to ensure that channel merchants did not worry about the sales of the products they held, making the products sought after in the market. Chen Kaixuan tested the best laundry powders in the country, saying, "My stain-removal ingredients must be higher than competitors, it's that simple." After washing, the results were different from other products, and it also had to be gentle on hands when hand-washing. In this way, Liby's cost-effective products gradually gained recognition. In 1995, Liby laundry powder moved out of Puning County and occupied the entire Chaoshan region. In 1996, with the maturity of marketing channels and the warming of consumer word-of-mouth, Liby's image of being gentle on hands gradually took root in people's minds. By the end of 1997, Liby's sales reached 60,000 tons, with sales revenue exceeding 1 billion yuan, becoming the number one in sales in Guangzhou. It was also in this year that the triangular debt crisis in the daily chemical industry broke out overall, and nearly a quarter of daily chemical companies closed down overnight. Liby, with its cash-on-delivery model, not only remained safe but also gained broad development opportunities. With money in hand, Liby began to invest in advertising to further expand sales and increase market influence. Chen Kaixuan invited Chen Peisi, a popular Spring Festival Gala sketch actor at the time, to film an advertisement about "smuggling" laundry powder. To save money, Chen Kaixuan came up with the creative idea himself. "This is Liby laundry powder, my wife insisted I bring it to the United States," Chen Peisi said, pointing to the collar of the foreign policeman: "It washes clothes clean and doesn't hurt hands." This advertisement not only popularized Liby's gentle-on-hands feature but also humorously expressed Chen Kaixuan's ambition to challenge P&G and Unilever. With money, the first major thing Chen Kaixuan did was buy land in Panyu to build a factory. Only by fully controlling the production process could he hold the product lifeline in his own hands. Since it was a self-built factory, it had to be different from OEM factories. Chen Kaixuan invited the Beijing Light Industry Design Institute to design the factory, because they had built all the laundry powder factories in the country. Unlike the careful budgeting for advertising, before proposing a budget, Chen Kaixuan put forward design requirements: the factory must have no black smoke, no dust, no pollution; only after achieving these could they talk about the budget. As a result, this factory became an industry benchmark as soon as it came out. Good products, as hard currency for opening markets and channels, not only require factories but also real investment. Liby, which opened the market with the technology selling point of being gentle on hands, has maintained R&D costs at about 3% of revenue to achieve industry leadership. Liby also has regional R&D centers in South China, North China, and other regions, conducting product development based on differences in washing needs, water quality, soil stains, clothing materials, and temperature across regions. This differentiates it from arrogant foreign brands that are out of touch with local conditions. In 2008, Liby established a post-doctoral workstation, and in 2010, an academician expert enterprise workstation was established. In 2014, Liby Group ranked first in the domestic daily chemical industry in terms of total invention patents, three times the sum of the 2nd to 5th place combined. To date, Liby has published 197 washing and care patents, with a total of 98 authorized invention patents, exceeding the industry average. For Liby, the exclusive distribution approach necessitated product diversification to provide distributors with more profit opportunities. In 1996, Liby tried to promote a product other than laundry powder—Liby dishwashing liquid—and received a good market response. In 1998, Liby further launched soap and toothpaste, both of which were successful under the strong drive of the brand. Liby, which was doing well in the washing market, naturally would not give up the shampoo field. But the Liby brand was not suitable for directly making shampoo, toothpaste, etc. So in 2001, Liby launched Biying shampoo as a self-created brand. Liby followed the common promotion model of the Guangdong group, investing heavily in advertising, holding lucky draws, and giving away gifts, but eventually fell into homogeneous competition and soon disappeared. Liby began to rethink its diversification strategy and finally determined two important strategies: first, to maintain the existing Liby main brand; second, to integrate existing social resources and enter the market lightly as a brand operator. Under the asset-light operation model of core self-creation plus brand operation, Liby restructured Tianjin Blue Sky Group in 2005, applied for the Oni trademark in 2006, and in the same year turned to Shanghai to acquire Gaozhi. The model of walking on two legs—core self-creation and brand operation—brought unexpected results to Liby, which had once fallen into growth difficulties. In January 2008, Liby's products included eight major categories such as soap, toothpaste, laundry powder, dishwashing liquid, and disinfection products, with over 500 product varieties. Today, Liby has more than 30 famous brand products and well-known trademarks, including the well-known Good Daddy, Chaowei, Weiwang, and Liubizhi. In May 2007, Liby became an Olympic sponsor, the only domestic daily chemical company selected. A series of Olympic activities, combined with advertising marketing and offline promotion, led to sales of 3 billion yuan in 2008 for Liby's single product, Qujiba. With the help of Olympic marketing, Liby's brand image was enhanced, and brand sales exceeded 10 billion yuan that year. Due to name issues, Qujiba did not get its trademark approved and was later renamed "Good Daddy." Although many people did not buy into the name, relying on popular variety shows like "Where Are We Going, Dad?", the name still gained a lot of buzz and attention. Liby has always been a master of topics. In terms of spokesperson selection, Chen Peisi, Xiao Shenyang, Meng Fei, Huang Lei... traffic and topicality have always been his primary criteria. "Liby singer, I am laundry liquid," while the show "Singer" was popular, people even got used to this sponsor that had no connection to the show, and Liby's popularity rose accordingly. Topicality is clearly the first priority in Liby's mind. This approach was very useful during the market expansion period, because leveraging the traffic of spokespersons can bring greater market recognition to the brand. With high-quality and cost-effective products supporting it, it was easier to open the market. In 2012, Liby's sales exceeded 15 billion yuan, achieving first in the country and fourth in the world in washing products. Today, Liby's annual sales exceed 20 billion yuan, with tax payments exceeding 1.5 billion yuan. But as consumer spending upgrades, the importance of product personality and favorability gradually rises. Relying on functional selling points like "Liby"—immediately whitening—and topical heat, rather than precise product positioning and improved product favorability, how long Liby can last is unknown. But there is no doubt that the brand spokespersons have limited emotional connection with users, and the platforms for advertising provide limited product favorability. Distribution Network: Originality and Hidden Worries Terminals are an important channel for daily chemical products, and control over terminals and channels is a matter of life and death for daily chemical products. Blue Moon was once an industry leader, crushing other washing brands and leading the market for five consecutive years. As the contribution of terminals to sales gradually decreased, Blue Moon boldly withdrew from offline channels and focused on online. This move not only lost the offline display platform for products, but rumors that Blue Moon was removed from shelves due to quality issues also spread, and Blue Moon had to hand over its leading position. It can be seen that in today's Internet era, the role of channels cannot be ignored. With cost-effective products and an efficient distribution network, Liby achieved unexpected success. After gaining brand awareness and distributor praise, Liby's distribution and agency rights became hot commodities upon entering the market. From being ignored in the early days to being sought after by distributors today, how to expand and manage channels has become a major issue for Liby. At that time, in setting distribution areas, many peers adopted a large-region sales approach, letting large regions develop small regions, developing from top to bottom level by level. Liby, adopting the strategy of surrounding cities from the countryside, broke the convention of setting up institutions according to administrative levels from top to bottom, and made its home turf of third- and fourth-tier cities the first stop, ensuring their vitality and smooth communication with headquarters. Liby had sales personnel go directly to the county and city level to select several distributors. The headquarters provided these distributors with strong advertising and personnel support, and the distributors used their local influence and reach to expand the network horizontally and vertically as much as possible. Once a region had several mature distributors, to improve communication and management efficiency, Liby established branch companies in that area to serve the distributors. This mechanism allowed Liby to quickly receive market feedback and make timely adjustments, greatly improving supply chain efficiency. In 2002, Liby had over 1,600 distributors, with sales exceeding 3 billion yuan. Moreover, they almost exclusively distributed Liby products and were distributed in the most difficult-to-break, most complex, and often daunting third- and fourth-tier channels in China, with a grassroots posture. In 2003, Liby's sales entered the top three nationally, and the market began to penetrate nationwide, with increased influence. But after forming a huge channel, how to manage the channel became Liby's next challenge. Cross-regional distributors commonly engaged in channel stuffing, seriously affecting the brand's price system. Liby borrowed from Japanese experience and established a chamber of commerce system for distributors. Each distributor is a member, and if there is a violator, the president has the right to punish them, or even expel them from the team democratically. These distributors who grew with Liby are not only Liby's partners; many are also relatives and friends of Chen Kaixuan. This kinship-based management played a significant role in Liby's early development, but as Liby grew, it also became a constraint on the company's development. Under the kinship management model, the problem of institutional bloat could not be solved, and salespeople and distributors all had deep emotional ties with the company, so no one could be touched. As the company grew, the gray areas in the channel increased. Once the incremental market disappears, the gray areas become the most worth thinking about. Some people began to think about how to get more support from headquarters, rather than learning and improving and expanding the market. Their focus shifted from market elimination battles to internal corporate struggles. Liby's channel reform was imminent. In 2015, Nice proposed a contract system, and performance improved significantly. Although three years later the drawbacks of this model made Nice widely criticized, the initial prosperity did not allow people to foresee the crisis. In the second half of 2016, Liby also began to reform the "big pot rice" model into a contract system. That is, channel managers in each province and city contracted for the channels they were responsible for. After paying a certain deposit, the company gave the manager a base price, and the manager and distributors jointly operated the products. The advantage of this approach is that the first year's numbers are definitely good, but in the absence of explosive demand in the channel and market, explosive goods can only settle in the channel, and this growth is naturally unsustainable. In 2017, Liby's sales increased by more than 20% compared to 2016, and one employee even received a post-tax reward of 300,000 yuan. The seemingly prosperous Liby faced another crisis. In the face of unsustainable prosperity, these people naturally took the money and ran, leaving the mess for the next person. At the end of 2017, a group of Liby employees left, and there were even rumors of distributors fleeing. The remaining distributors did not have an easy time either, because the overdrawn performance would eventually have to be repaid. Later, Liby also imitated Nice and launched internal purchase meetings, but the results were not satisfactory. Facing the new market environment, Liby should combine user-side demand growth with channel reform, establish emotional connections with users, "privatize" users, use data and the Internet for user mining and service, continue product innovation, and cooperate with the establishment of a more efficient supply chain to achieve sales growth. Rather than using price wars and channel tricks to win temporary good-looking data, or riding on temporary topic heat. Conclusion Chen Kaixuan has the goal of making Liby a world-famous brand. Although his promotion of his laundry liquid as free of fluorescent agents has been criticized by some in the industry, there is no doubt that Liby has promoted industry change and increased environmental awareness in the industry. Liby insists on not going public, and there is much data we cannot see. But from the limited information available, Liby's pursuit of environmental protection, grasp of mass consumption trends, and enthusiasm for R&D are worthy of recognition. For corporate development, the second generation of Liby has different views from Chen Kaixuan. Chen Danxia believes that future family businesses will be divided into two major schools: one is not going public, adopting P&G's "focus and breakthrough" approach, expanding multiple categories, and achieving large-scale expansion through rapid globalization. The other learns from South Korea's LG "diversified and enterprising" model, using capital platforms to grow. In fact, Liby has indeed made many new explorations in digital and financial aspects. Recently, Liby Group and Shanghai Baozun E-commerce Co., Ltd. established a new company to explore omni-channel operation models in the daily chemical industry. Even with the determination to completely restructure the daily chemical and FMCG market chain, expecting to achieve omni-channel digital operation. The domestic daily chemical and FMCG industries have relatively traditional thinking and low digitalization. In China's Internet wave, even P&G is somewhat at a loss, and domestic brands have no good examples to follow. Whether Liby can achieve this goal can only be answered by time. But there is no doubt that to achieve this goal, Liby's R&D, products, channels, and marketing must form a combined punch to create synergy. Relying solely on reform in any one area is unlikely to achieve disruptive success. Uniqlo's flexible supply chain and digital management system have also been learned by Heilan Home, but learning only a little cannot form synergy and is difficult to sustain. Liby is now a household name, with laundry powder sales accounting for more than half of the national total. This is good news, but it is also a crisis. This inevitably makes it difficult for Liby to improve its brand image and, to a certain extent, affects Liby's profit margin improvement. Only by seeing the crisis in prosperity and carrying out multi-pronged self-reform can Liby break through its own ceiling, continue to lead the industry, and even write a miracle for China's daily chemical industry.