From Harbin Pharmaceutical to Jin Sheng Zang: Why is relentless, money-draining advertising no longer working?

Text by Liu Siyao

Source: Sina Pharma

The national brand "Jin Sangzi" is once again in trouble—its CEO, Jiang Peizhen, recently received an exit restriction order. Meanwhile, as early as 2019, Jiang Peizhen had already been subject to consumption restrictions and was listed by the Shanghai No. 1 Intermediate People's Court as a person subject to enforcement for dishonesty.

The reason it became a "deadbeat" stems from Jinsongyao's failure to pay Starry Sky Huawen the RMB 51.67 million advertising fee as stipulated in the contract. Despite repeated attempts by Starry Sky Media to recover the payment, they were unsuccessful, prompting the company to take legal action. Ultimately, Jinsongyao lost the lawsuit and was ordered to pay the plaintiff, Starry Sky Huawen, both the advertising fee and a contractual penalty totaling RMB 51.9498 million.

However, despite the court's ruling, Jinsangzi kept delaying—so much so that even after being barred from leaving the country, there was still no sign of payment.

Jin Singtao, once a household name thanks to its TV commercials, now finds itself in such a predicament—a risk that generic drug manufacturers are collectively facing.

Success lies in marketing; failure, too, stems from marketing.

“Protect your voice—choose Jin Sing Voice Tablets, from Guangxi Jin Sing!”

This advertisement has been airing on CCTV for over a decade, and its spokesperson has even changed from Ronaldo to Kaká. Thanks to endorsements by world-class football stars and consistent, year-after-year advertising efforts, Jin Sang Zao has become a household "national brand" sweeping across the country.

In 2014, Jin Sangzi achieved revenues of 609 million yuan, with over 90% of its revenue contributed by a single product—Jin Sangzi Lozenges. At the time, Jin Sangzi was riding high in popularity, and its highly focused product structure did not hinder its path to listing. In 2015, Jin Sangzi successfully listed on the Hong Kong Stock Exchange.

However, this was almost the last peak for Jin Sing. In 2016, after its market launch, Jin Sing reported a net profit attributable to shareholders of 103 million yuan, a significant year-on-year drop of 33.4%. Meanwhile, sales and distribution expenses surged by 24.9% compared to the previous year.

Golden Voice's stock price has also been on a relentless downward spiral, dropping from HK$4.71 per share at the time of its 2015 IPO to just HK$1.47 today. At its lowest point in 2018, the stock even plunged as low as HK$0.92 per share, sending the company’s market capitalization plummeting to a mere HK$680 million—nearly 90% of its original value wiped out.

Among these challenges, the core product of Jin Sangzi has consistently struggled to achieve breakthrough sales. Meanwhile, maintaining existing sales volumes requires enormous marketing expenses—further compounded by the failure of the new product launch to gain traction.

From 2012 to 2018, Golden Voice lozenges maintained steady annual sales of around 120 million boxes. However, to sustain this level of demand, Golden Voice incurred marketing and distribution expenses totaling 308 million yuan in 2019—accounting for 38.6% of its total revenue of 797 million yuan. In other words, for every 100 yuan earned in revenue, nearly 40 yuan was spent on promotional and marketing efforts.

However, such high sales rates are unavoidable—after all, the market is flooded with a wide variety of throat medications, including Yangtze River Pharmaceutical’s Lanqin Oral Liquid, Guilong Pharmaceutical’s Qinghou Liyan Granules, and Guilin Sanjin’s Xigua Frost. Though these products differ in brand and packaging, their efficacy is remarkably similar, posing a direct threat to Jinsangzi’s market share. On top of this, food-approved throat products continue to emerge, rapidly gaining traction through retail distribution channels. Faced with these formidable competitors, Jinsangzi simply cannot afford to cut back on its sales and distribution expenses.

This makes it difficult for Jin Sangzi to withstand any setbacks in corporate strategy, as well as to earn the trust and favor of investors.

In 2016, Jin Sangzi herbal beverage was launched, and the company spent 80 million yuan to hire Xingkong Huawen for its advertising campaign—yet the effort ultimately ended in complete failure. This fell far short of the previously planned "annual sales of 350 million yuan," becoming a significant factor behind the company's performance decline that year. To this day, the overdue advertising fees have still not been settled.

In fact, maintaining market presence through high sales costs and adopting a marketing-centric survival model is not unique to Jin Singge—Hagong Group was actually the first to master this approach. As a result, this business strategy has come to be known as the "Hagong Model." Hagong Group itself became the first company to thrive—and subsequently decline—because of this very strategy.

"The Rise and Fall of the Harbin Pharmaceutical Model"

In 1996, Sanjing Pharmaceutical, a subsidiary of Harbin Pharmaceutical Group, suffered massive losses. The then-plant director, Jiang Linqiu, subsequently increased advertising expenditures—resulting in unexpectedly impressive outcomes.

In 1997, Sanjing Pharmaceutical invested 10 million yuan in advertising, driving sales to 100 million yuan; in 1998, with an advertising budget of 20 million yuan, sales surged to 220 million yuan; and by 1999, when advertising spending dramatically increased to 200 million yuan, sales skyrocketed to 860 million yuan.

Even today, the advertisements for "Blue Bottle Calcium" and "Gai Zhong Gai" remain a collective memory for those born in the 1990s.

Having tasted success, Harbin Pharmaceutical Group couldn’t stop its momentum—by 2000, the company had splurged 1.1 billion yuan on advertising, an almost astronomical sum at the time. Their ads reached across major satellite channels, from national networks down to local stations, and they even secured the coveted zero-o'clock countdown spot during the 2000 CCTV Spring Festival Gala.

However, the seeds of crisis began to take root at that time, as soaring marketing expenses led to a decline in profit margins. In 1998, Harbin Pharmaceutical Group’s Sixth Factory recorded revenues of just 228 million yuan, with a net profit of 16.98 million yuan. Yet by 1999, after launching its advertising campaign, the factory’s revenue surged to 1.07 billion yuan—a growth rate exceeding 400%! Meanwhile, its post-tax net profit climbed to 24.83 million yuan, representing an increase of only 46%.

Harbin Pharmaceutical Group's legendary story has continued for over a decade. In 2010, the group achieved revenues of 18 billion yuan, with net profits soaring to 1.13 billion yuan.

The collapse of the Harbin Pharmaceutical Group model thus began—by 2013, Harbin Pharmaceutical Group had achieved revenue of 18.092 billion yuan. However, soaring sales expenses squeezed profit margins, resulting in a net profit of just 169 million yuan that year.

Subsequently, Harbin Pharmaceutical Group had to significantly cut its advertising expenses in order to boost net profit. Between 2012 and 2018, Harbin Pharmaceutical Shares' advertising and promotional spending plummeted from 898 million yuan to just 16 million yuan.

But once the advertisements disappeared, all of Harbin Pharmaceutical Group's shortcomings began to surface one by one.

Harbin Pharmaceutical Group's revenue has begun to decline steadily.

Meanwhile, net profit saw a brief increase after advertising expenses were initially cut, but then began to decline as well.

The lifecycle of older products is coming to an end, and due to past neglect in R&D, Harbin Pharmaceutical Group’s product pipeline is starting to run low. In 2018, Harbin Pharmaceutical Group had 211 products currently in production and on the market, with 338 distinct product specifications—201 fewer specifications compared to 2017.

Harbin Pharmaceutical Group, struggling financially, was forced to undergo mixed-ownership reform in 2019. The familiar advertisements that once echoed in people's minds, along with Harbin Pharmaceutical's former glory, have now become part of historical memory.

What is gained through the "Harbin Pharmaceutical Model" may be lost by relying on it.

In 2018, Harbin Pharmaceutical Group's operating revenue was 10.8 billion yuan—just 100 million yuan more than in 2009. After a winding journey, Harbin Pharmaceutical has returned to where it was a decade ago.

For generic drug manufacturers, the Harbin Pharmaceutical model exerts an almost irresistible allure—quick to yield profits and easy to replicate with straightforward "borrowing and adapting" techniques.

However, once the "Harbin Pharmaceutical Model" was adopted—long-term neglect of R&D and product differentiation, coupled with aggressive, money-burning marketing strategies to sustain revenue—even a slight reduction in marketing expenses would immediately lead to a decline in performance.

This is a terrifying dilemma: spending money on advertising will inevitably lead to death in the long run, but failing to spend money will result in immediate demise.

How can brands achieve precise marketing, delivering ads directly to the right audience instead of broadcasting them indiscriminately? And how can they maintain a balance between R&D and marketing, avoiding the pitfalls of over-reliance on a single product—like the cautionary tale of Jinshengao? As the Harbin Pharmaceutical Group’s approach proves less effective, these challenges are putting pharmaceutical manufacturers of generic drugs to the test.

*Disclaimer: This article is written by a contributor to Sina Medicine News, and the views expressed herein solely represent those of the author and do not necessarily reflect the position of Sina Medicine News.