Meng Niu Dairy was sitting pretty. Founded in 1999 by former cow herder Niu Gensheng, in four short years the company had become the country's fourth-ranked dairy business.
2003 was a particularly good year for the firm, after it secured a plum role as official sponsor for the milk on China's historic Shenzhou V rocket launch. It followed this up by landing CCTV's highly-coveted first advertising slot after the evening news, paying Rmb 310 million (US$37.5 million) for the privilege.
A growth rate of 1,000 per cent over the past two years is impressive business, and Meng Niu took advantage of this success, planning a dual listing on the Hong Kong and New York Stock Exchanges for later this year.
Then the rumours started. In March, the Hubei health authority issued a notice that it had received news of Meng Niu's milk being 'poisoned'.
This was, clearly, not the kind of publicity that Meng Niu was after.
However, it soon transpired that only a few bottles of milk were tainted, and the health authority retracted its notice. Most remarkably, the authority instead said that the company had been the victim of sabotage.
While it is still unclear as to which of its rivals is to blame, Meng Niu finds itself in a difficult predicament. The police continue their search for the perpetrator of the crime, and the company is faced with the tricky task of rebuilding trust, which has already been weakened in China by a succession of unrelated food poisoning incidents.
The prize at stake is huge. The milk market in China has been growing strongly since the '80s, and there is still room for expansion. According to the China Consumer Association, annual per capita milk consumption currently stands at 6.5kg, well below the 105kg world average.
On the domestic front, Meng Niu remains well-placed to ride out the storm.
It counts Morgan Stanley, CDH Investment and CGU-CDC China Capital Partners as major investors, and has cultivated an image which blends cheerful Mongolian cows with a space-age appeal. The real question is whether the bad publicity will jeopardise its proposed listings.
DIAGNOSIS
JOHN MORGAN, EXECUTIVE DIRECTOR, GOLIN/HARRIS FORREST
Sour milk couldn't have happened at a worse time for Meng Niu Dairy.
It did all the right things to build its brand and business, and did it in just a few years.
Meng Niu's brand has always been fresh, fun and vibrant - sort of like the American 'milk moustache' campaign.
It went big time as the milk sponsor for the Shenzhou V rocket, and later secured the highly-prized first advertising slot after the evening news.
The company climbed to the mainland's number four dairy spot with smart management, who serviced the domestic market exceptionally well, and knew exactly when to recruit international partners for a dual listing in Hong Kong and New York.
However, Meng Niu didn't put adequate resources into protecting its brand.
Companies that sink millions into advertising and sponsorships are notorious for not making crisis prevention a priority, or acting quickly to repair consumer confidence.
To be fair, though, Meng Niu is still restricted by mainland authorities on what it can and can't say.
I believe Meng Niu's brand will continue to prosper in the long run (though the US listing is on shaky ground).
It has great marketers and consumers will forgive brands they like and trust (at least once or twice).
The challenge Meng Niu faces is putting procedures in place to prevent this happening again.
NICK WHEELER, GENERAL MANAGER, KETCHUM NEWSCAN BEIJING
With an astonishing growth rate of 1,000 per cent in the last couple of years, Meng Niu has surged to the top three of China's enormously thirsty milk market.
Its huge investments to build its brand name through catchy advertising and marketing initiatives have made it the fastest-growing milk company in China today.
However, Meng Niu does not appear to have a clear and consistent branding strategy.
This is evident in its advertising. For a while, Meng Niu set up billboards promoting its products as 'natural Mongolian milk'.
These featured expansive green pastures suggesting the Mongolian steppes and clear blue skies, with the Meng Niu logo - no words, no yurts, no cows, no Mongolian herdsmen - just grass.
Then, the theme of its advertising shifted to outer space.
Celebrating the success of Yang Liwei, China's first astronaut, ads featured children and mothers in space suits.
The new packaging featured an official-looking seal saying 'The special milk of China's astronauts'.
Meng Niu has signed a cooperation deal with the China National Sports Bureau in another effort to build its 'healthy and active' image.
It will be the official milk supplier of China's national sports teams.
This is probably a prelude to even more aggressive association with the sports industry, such as sponsorship of the 2008 Olympics Games in Beijing.
TREATMENT
Morgan's prescription
- Pump up the volume on all marketing efforts. Don't shy away from what you're already doing well.
- Protect the brand - conduct a thorough crisis preparedness initiative.
A novel idea: appoint a 'chief trust officer' to continually prepare for a crisis and spring into immediate action.
- Make visible changes on product packaging to reinforce product integrity - in words or design.
- Build a 'trust bank'. Ramp up community service initiatives and get credit for being a good corporate citizen.
Wheeler's remedy
- Continue to emphasise the 'naturalness' of its products. The Chinese view Mongolian milk in the same way that the French trust the Alps as a pure source of water. In light of recent poisoning rumours, this positioning becomes even more significant.
- Meng Niu needs to continue to find ways to remind the public of the pure Mongolian origins of its product. By shifting the branding focus away from its Mongolian roots and towards space, Meng Niu is risking confusing consumers.