China’s Luxury Market A Tough Nut To Crack (If You Don’t Know The Culture)

Brands, Companies With Limited Knowledge Of Cultural Buying Habits, Brand Recognition Face Difficulty Even In World’s Fastest-Growing Market

Porsche has worked hard to prove to potential buyers in China that they are a critical part of the brand's global strategy, choosing the Shanghai Auto Show as the venue to debut their new Panamera Turbo

Porsche has worked hard to prove to potential buyers in China that they are a critical part of the brand's global strategy, choosing the Shanghai Auto Show as the venue to debut their new Panamera Turbo

This week, Reuters wrote on the difficulties that many brands have encountered when trying to enter or expand in the Chinese market. Although many like to think that Chinese consumers will be ready and willing to snap up any and all imported luxury goods, the difficulties often lie not so much in the products themselves or their prices, but in their marketing and branding techniques. Everything from the transliteration of a foreign luxury brand’s name to its “localization” strategy to advertising and consumer outreach can mean the difference between an imported brand becoming the next LVMH or BMW (two brands that have excelled in China) and brands that have only managed to break even or have given up on the Mainland altogether.

Over the last couple of months, several articles have tried to explain the phenomenon of the Chinese luxury consumer — the opportunity and difficulties inherent in this massive and growing consumer base. Why will they save for months to buy a Gucci handbag, yet will pass up the lower-priced yet still-luxury Coach bag? Why will the white-collar office lady sacrifice her food budget for a Gucci wallet yet remain indifferent to Prada? Why have some (mainly European) brands attracted this important luxury buyer base while other brands leave them cold? Much of the answer seems to come back to the cultural particularities of the Chinese middle- and upper-class, particularities that set them apart from other Asian consumers and illustrate how different they are from other global buyers.

Last month, Brand Channel featured an excellent breakdown of this huge yet sometimes hard-to-reach consumer base, noting some of the reasons why some imported luxury brands succeed and others fail. This article uses the examples of LV and Gucci, two brands that did exceedingly well in China last year, growing even as traditional markets in Japan and North America contracted dramatically. As they write in this article, much of the success of these brands comes down to their intensive and groundbreaking localization work:

LVMH has done an excellent job of brand positioning, says Ben Cavender, senior analyst at China Market Research Group. It has succeeded in securing the particularly enviable position of gaining a following among the top percentage of China’s wealthy. As the financial crisis stretches on, LVMH customers in China still have money to spend.

LVMH’s brand imaging, which relies heavily on pushing its European heritage, is so successful that it has benefited other brands by proxy, says Paul French, one of the founders of Access Asia, a group dedicated to tracking regional consumer and marketing trends. “Everyone hangs on the coattails of Louis Vuitton’s brand imaging in China.”

It also effectively reduced unit prices by moving production to China but keeping retail prices the same, he says.

Gucci is also enjoying a great amount of success in the Middle Kingdom, luring in first-time consumers with simple wallets and accessories. “They have made their products attainable,” Cavender says.

China’s rich are still getting used to the power of their yuan, and they approach buying luxury brands with no small amount of trepidation, Cavender says. New consumers are unsure about buying extravagant luxury goods but still want to flaunt their wealth. “When Chinese buy, they are thinking, ‘how am I going to use this?’” Cavender explains.

Continuing, this article does a good job of indicating why many potential Chinese buyers will pass up stores even if they’re interested in the product. As they succinctly point out, much of it comes down to the still-developing tastes of the consumers operating in tandem with a sort of elitism inherent in these stores’ Mainland locations.

[S]ome luxury brands in China are making a critical mistake at the consumer level: Many luxury goods purchasers simply don’t like to shop in Mainland China, Cavender says. “People don’t feel welcome in stores.”

Though industry names are starting to deal with the problem, the high staff turnover rate on the mainland means that luxury goods staff are often woefully undertrained and uneducated about the brand.

Rags-to-riches Chinese may want to buy luxury clothes but are unsure of how to mix and match, Cavender says. Untrained sales staff can exacerbate the problem, resulting in a loss of customer confidence in the brand.

Many brands also make the mistake of stocking shelves on the mainland with last season’s lineup, or even last year’s. Mainland China consumers are wary of this practice. “They’re getting the old stuff,” Cavender says. “They want the latest fashions.”

This is a key factor in the failure of many brands’ China strategy: they simply underestimate the sophistication of the Chinese consumer. This consumer tends to be middle-class, somewhat educated (but not always), urban (at least from a second-tier city) and, due to their non-superrich status, wary of parting with a huge chunk of their monthly income. They also tend to be highly male — something not shared in other major luxury markets. So retailers need to take these things into consideration and show the Chinese buyer that they’re not playing second fiddle to Japan. The Brand Channel article does a good job of explaining the mindset of the Chinese buyer in this context:

…[I]mage is key in China. Brands that wield advertisements emphasizing style and European heritage are likely to move ahead, regardless of the accuracy of the advertisement.

Ads that feature French seamstresses slaving over detailed stitching a la LMVH or public schoolboys frolicking with Kate Moss a la Burberry effectively obscure the reality that the product was put together with glue by a 17-year-old girl on a production line in Zhejiang province, he says.

“European labeling regulations are dead easy to get around,” French says. Meaning that though the majority of a luxury bag was assembled in China, if the idea or designs come from Europe, all that represents the Chinese effort is a small, barely noticeable Made In China tag stitched along an inseam.

So why do Chinese consumers continue to spend thousands of yuan on goods produced domestically?

French explains that if someone buys into the idea that a particular good is luxurious, it’s very, very difficult to break them out of that impression.

“When you try and tell them differently, they just switch off,” he says. “It doesn’t register.”

So, to come back to the article, “China’s luxury market still a tough nut to crack,” it is clear to anyone with any sense of Chinese culture and the country itself that — with the right “glocal” branding and marketing strategy, any brand can reach the Chinese consumer. They simply have to understand that despite its massive economic and GDP growth, Chinese consumers aren’t pushovers. While they’re eager to purchase imported luxury goods, they’re not going to do so if the brand doesn’t “speak to them” on a personal level, and if they feel that the brand is simply dumping the products that consumers from developed markets don’t want into the Chinese market. As Reuters writes,

Champagne house Taittinger said it could make high-end sparkling wine in China but the market was not ready for it yet, while Lamborghini said the country’s tradition of luxury chauffeurs, bigger than sports driving, made expansion there a challenge.

Jeweller Van Cleef & Arpels, owned by Richemont, found it tough to get its brand message across, while watchmaker Parmigiani Fleurier worried about finding the right partners.

“The specific challenge about China is finding a Chinese company you can trust and who understands the luxury business,” the luxury watchmaker’s Chief Executive Jean-Marc Jacot said.

Taittinger said there were many places in China where it could consider making high quality sparkling wine – champagne can only be made in the northern French region – but Chinese palates were not accustomed yet to the pricey tipple.

“It is probably a bit early,” Pierre-Emmanuel Taittinger said. “There is not a strong (high-end) wine culture there yet.”

“The challenge in China is being able to explain to 1.3 billion people what your brand is about,” said Van Cleef & Arpels Chief Executive Stanislas de Quercize.

While the number of high net worth individuals in China is set to continue to rise steadily, the bulk of the country’s population cannot afford upmarket Western brands.

But luxury groups agree that China, where consumers are very brand-conscious, will soon become the industry’s No 1 market and this year will be one of the few emerging markets to enjoy growth.

“China will be one (of), if not the most important market in the middle, long run,” Scilla Huang Sun, who runs a $30-million luxury fund for Julius Baer, said. “Chinese will not buy the very high end, like the Russians, but there are so many Chinese … (They) save a lot and it’s a huge country.”

While many extenuating factors are important in the Chinese market, like rampant counterfeiting and the fact that many high-end consumers would rather eschew the high luxury import taxes in the mainland and simply jet off for a weekend shopping trip in nearby Hong Kong, much of the Brand Channel report holds true, I think, and proves the defeatist attitudes of some brands wrong. While statements by brand managers like those at Tattinger think the Chinese market isn’t “ready” for their products, in my opinion they underestimate the demand from growing groups like the “haigui” — returned Chinese who studied or worked abroad — or even the growing expatriate populations in metropolitan centers like Shanghai and Beijing. Even though these groups aren’t huge percentage-wise, they shouldn’t be written off either. Look at the success of brands like Chivas Regal in China — through innovative branding and marketing techniques, Chivas has become one of the most recognizable and cosmopolitan alcohol brands in China, even though it struggles for market share in “sophisticated” markets like the United States. So, while some brands think China is a “hard nut to crack,” with a little bit of market insight and cultural knowledge, they may find that the Chinese consumer is far more responsive and willing to part with their cash — they just need to feel that the brand cares about their market segment.

2 responses to “China’s Luxury Market A Tough Nut To Crack (If You Don’t Know The Culture)

  1. Pingback: The Rise Of China’s Megacities: Good For Business? « ChinaLuxCultureBiz

  2. Pingback: Automotive Brand-Building In China: Opportunities And Challenges Abound « ChinaLuxCultureBiz

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s