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Date

6 June 2019

Author

John Haakon Chen

The Social Luxury Boom in China

6 June 2019

Author: John Haakon Chen

Why have luxury brands LV and Gucci continued to have strong growth in China while other competitors like Prada have fallen behind? Understanding and engaging with relevant luxury trends and fresh branding strategies are essential for China success. 

As brand builders, we are often asked by clients, “How can I build a luxury brand with strong market share growth?” To which, we always first ask them to define what “luxury” means for them. Responses to this question range from heritage, product quality to exclusivity and top-pricing as being key factors. Though individually none of these factors are incorrect, it can be difficult to outline the precise mix of qualities needed to create a luxury brand for the Chinese market.

Through our discussions and research, we came up with our own definition of a luxury brand:

A luxury brand is characterized by the high level of physical and emotional relationships that the brand and its products establish with consumers. A luxury brand tells compelling and desirable stories that provide consumers with user journeys that enable superior pricing.

Based in Beijing, our research and experiences have shown how Chinese consumers are focused and social throughout their purchase journeys. They spend on average 3-5 hours per week researching luxury trends and topics. In Europe and the States, there is an average of four consumer touchpoints before a purchase is made, while in China, there are eight, which further highlights the considered and thoughtful nature of Chinese consumers.

WARNING: RELEVANCE IS KEY
It’s better for luxury brands to target key channels than being omnipresent on every digital channel. China has an evergrowing number of digital platforms and a smart brand needs to understand how each can directly benefit its marketing and sales performance. Brands that create social content that stirs feelings of individuality, freshness and fosters a sense of community are more successful in driving consumers to their channels and keeping them there.

Off-White Drives Streetwear Growth | SOURCE: JINGDAILY

Luxury fashion knows the impact of engaging social content. They recognize how creating an illusion of freshness through the introduction (or recycling) of “new” products can appeal to post 80s and post 90s generations’ sense of individuality and desire for self-expression. They also have tapped successfully into the imagination of consumers and understood how an association with luxury brands acts as a form of social capital that helps consumers feel part of a distinct and exclusive community.

Fashion powerhouses such as LV and Gucci posted record 2018 results in China. Gucci sales increased by over 30% while LV increased by almost 20%. In both cases, their successful, localized marketing campaigns and the continued growth of the China luxury market were critical factors. Prada meanwhile, has seen its earnings tumble for the last four years and its operating profit declined 10% to 328 million euros in 2018. A major factor has been their poor marketing campaigns (especially their recent Chinese New Year Campaign which was viewed as too funereal) which have failed to engage with Chinese consumers and has led to a weakening of their brand image. This has resulted in lower engagement rates on WeChat in comparison to LV and Gucci.

Gucci 2019 CNY Campaign Success | SOURCE: GUCCI

Building from these case studies and observations, if one were to start a luxury brand in China today, what are the key factors that can demonstrate brand excellence and create differentiation from competitors.

1) Freshness Reigns Supreme
Consumers born during or after the 80s make up more than 70% of the total number of luxury Chinese consumers and their total spending. To attract them, your brand has to feel relevant, fresh and in tune with their needs. Many brands may take this to mean they have to offer a steady stream of new products and designs but this doesn’t have to be the case.

Burberry, for instance, has been more active in the past year in releasing products and promoting a more street style aesthetic to match Chinese consumers’ burgeoning appetite for streetwear. Chanel, in contrast, keeps its designs chic and doesn’t feel the need to constantly overproduce new products. They are now worth over 10$ billion for the first time in their history and saw significant sales revenue growth coming from China.

To quickly summarize, it seems that staying fresh means ensuring your brand resonates more closely with the lifestyle choices of its consumers than with just creating another brand collaboration or an endless number of new product lines.

CHANEL CHIC | SOURCE: JINGDAILY

2) Be Part of My Community
Your brand should be a desirable club that people want to be part of. Exclusivity can be one way to appeal to consumers. More effective though, is providing a holistic brand experience that inspires engaging user-generated content. This will help your brand build a strong community of brand heroes who will champion your products. It will also help you create differentiation from competitors.

3) Confident Design
Confident design attracts your target market and makes them feel comfortable in choosing your brand. Great design sparks a conversation that helps strengthen emotional relationships with customers. As a creative agency that has created hundreds of logos and key visuals for clients, our number one piece of advice is to make sure that you develop a visual identity that is firmly rooted in your products, philosophy and overall brand identity. The renowned art director Paul Rand put it that “Design is the silent ambassador of your brand” but in today’s fast-consuming digital age, perhaps design should take a more prominent role.

4) Entice with a Promise
Consumers want to be taken on a journey. They want to believe that your brand is the best. They want to feel inspired. A key factor in engaging with prospective consumers is the promise your brand makes. A strong brand promise touches every aspect of your business and communicates your brand’s values and vision to your target market. If it’s based on their lifestyles and aspirations then it can be even more effective in creating a long-lasting bond that will drive brand profitability and market share.

5) Service Excellence
A seamless user experience from offline to online that matches but ideally exceeds consumers’ purchase experiences, is vital for success in China. Brands may be moving more and more of their marketing budget towards digital but offline is still the predominant discovery touchpoint and point of sale for wealthy consumers.

In China, new retail is taking off and the line between offline and online continues to blur. It would be wise for brands to jump on board and reimagine their in-store experience to include more digital capabilities that can offer customers a sense of personalisation. If customers feel they are being paid individual attention through relevant digital and offline channels, then your brand can occupy a more prominent position in their hearts and minds.

The co-founder of Jimmy Choo, Tamara Mellon, once said that it takes up to 30 years to build a luxury brand. In China’s fast-growing market though, consumers are increasingly drawn towards confident new brands that offer them a strong sense of individuality. Brands like Yeezy and Off-White, with the help of Chinese luxury consumers, have created luxury brands in less than 10 years, proving Ms. Mellon’s theory to be out of date. Brand values and heritage will always be important factors but if brands fail to transpose and localize their brand philosophy within the context of modern Chinese consumers, then there is every chance that a bold new brand can sweep in and be a success. This makes it as exciting a time as ever for the development of luxury in China and we at PBB can’t wait to work with more newcomers and established luxury brands in China.

SHANGHAI FASHION WEEK STREET STYLE 2018 | SOURCE: ADAM KATZ SINDING

SOURCES:

GUCCI WECHAT

https://mp.weixin.qq.com/s/FlMYvwCqhXX_bOR9TLr0hA

LOUIS VUITTON WECHAT

https://mp.weixin.qq.com/s/SyLz1riDTzewf9mCFrhgzQ

KERING GROUP PROFITS

https://finance.yahoo.com/news/strength-china-higher-gucci-sales-065818641.html

LVMH FINANCIAL REPORT 2018

https://www.lvmh.com/news-documents/press-releases/record-results-for-lvmh-in-2018/

McKINSEY CHINA LUXURY REPORT 2019

https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/how%20young%20chinese%20consumers%20are%20reshaping%20global%20luxury/mckinsey-china-luxury-report-2019-how-young-chinese-consumers-are-reshaping-global-luxury.ashx

BURBERRY NEW PRODUCT LAUNCHES

https://www.reuters.com/article/us-burberry-products/burberry-joins-luxury-sectors-race-to-refresh-products-monthly-idUSKCN1MP24E

CHANEL FINANCIAL INFORMATION 2018

Chanel reveals that it’s a US$10 billion company for the first time in history

PRADA REPORT

Prada Becomes the Latest Victim of Declining Chinese Tourist Shopping