Lining

About segmentation, we considered below factors:

1. Growth trends and price sensitivity

A sporting goods market on the order of 55-80 billion RMB was anticipated by 2008, more than half (a predicted 47 billion RMB) expected to originate in second- and third-tier cities, due to Li NingЎЇs dominant position in those cities, we aims to focus on young people who are active in sports from 14-34; in Mega and first-tier cities, since middle and high school students who ask for money from their parents are not quite as price sensitive, while university students are value conscious due to limited budget, they can be segmented.

2. Brand recognition

In second and third-tier cities, competitors Nike and Adidas were still fairly weak, while local sporting goods companies cannot compete with Li Ning, given its ability to open additional franchise stores, we should focus more on these geographic market.

3. Accessibility

Li Ning will open 1500 more stores adding to its present strong networks, customers in second- and third-tier cities can be accessed, and for university students in mega and first-tier cities, more outlets should be opened.

4. Level of competition

Main competitors Adidas and Nike are slow to penetrate second- and third-tier cities (we asked Vice president of Adidas on this point last week, he mentioned that Adidas is cautious on penetration into ChinaЎЇs second and third-tier cities due to sophistication of business environment in those cities), Li Ning can continuously dominate those markets; while in mega and first-tier cities, university students are price-sensitive to buy Adidas and Nike due to much higher price (30-40% higher), as well as their loyalty to Chinese own sporting brand (based on Li NingЎЇs marketing campaign incorporating more Chinese elements in branding), Li Ning can enlarge their market share on this segment, meanwhile, they can possibly keep brand loyalty on Li Ning after they graduate from university.

5. Active