One of our agencies, Language, recently wrote a piece looking at luxury in China. The article, by Ben Hui the managing director at Languagge Brand Communication in Manchester, discusses how the landscape is changing for luxury brands selling to Chinese consumers.

See the original post here.

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A New Affordable Luxury

During this ‘cooling-off’ in the growth of the luxury market in China, a number of ‘affordable luxury’ brands have seen dramatic growth. American brand Coach, for example, reported 40% growth in China in 2013 having positioned itself in this category. According to a QQ Finance analysis of Chinese media, Coach is successfully pitching itself as a brand that many Chinese consumers either use themselves or buy for family and friends. It doesn’t hurt that compared to many European brands, Coach products are usually 40-60% cheaper.

Fuelled by such growth, Coach is likely to continue expanding beyond its 49 stores in China and focus on opening in second and third tier Chinese cities. The affordable luxury sector in China is also witnessing the emergence of new indie labels targeting a number of specific niche crowds. This is positive news for British designers and brands who would otherwise struggle to compete on the same level as major international brands. This shift in customer preference represents huge opportunities for British brands, whether they are fashion designers in London or whisky distilleries in the Lake District. Multi-brand boutiques or lifestyle stores also offer a perfect match for these smaller, niche outlets.

Furla, an Italian accessories brand that targets the affordable luxury market, is already exploiting these opportunities. In a recent interview, the company’s CEO, Eraldo Potello, said: “The Premium market, with premium referring to ‘affordable luxury’, is where the big numbers are going to be. It’s not just because the Government is discouraging extravagant spending. People tend to want value for money and great, authentic products at affordable price points.”

Exclusivity VS Accessibility

One of the challenges faced by luxury brands in China is in finding the perfect position between exclusivity and accessibility. Whereas brands such as Coach have found it profitable to operate within the ‘affordable luxury’ bracket, some brands have taken the decision to define themselves at the other end of the scale.

One such example is luxury travel agent, Affinity China, which provides unique travel experiences for wealthy Chinese. Dubbed by Forbes as ‘post-luxury luxury’ and Marketing Magazine as ‘extreme luxury’, Affinity China and similar brands are aiming at the exclusive elite. As the Chinese luxury market gets more sophisticated, opportunities for brands that have a truly unique brand proposition can only increase.

Engage Digitally

November 11 is ‘Singles’ Day’ in China – a day of celebration for all people who are single. In 2013, Taobao and Tmall, two of China’s most popular e-commerce platforms, took 5.75 billion USD10 of sales on this day. The huge potential of e-commerce platforms is forcing all brands, luxury or not, to invest in their digital strategy. Coupled with this, the next generation of luxury consumers typically defined as the ‘post-90s’ demographic, have grown up with mobile. As a result, it’s little surprise that buying online is becoming the norm in China.

Burberry’s comprehensive digital strategy combining social, e-commerce and content marketing, is cited as a prime example for other brands: having resulted in a 70% increase in traffic to their website and 400,000 fans on Weibo.

Relationship With Customers

Chinese consumers are well known for being less tolerant of mistakes from western brands than Chinese brands. That is why developing a good relationship with consumers is vitally important for all brands looking to tap into the Chinese market. After a hiccup in customer service last year, Apple’s CEO issued a direct apology to Chinese consumers whilst in 2012 the boss of French boutique hotel Zadig and Voltaire (by the fashion label Zadig and Voltaire) was forced to apologise after saying that they intended to ban Chinese tourists. In both instances, the sentiments went viral via social media with both the public and influential bloggers recommending a boycott of each brand.

Developing a good relationship with Chinese consumers is not dissimilar to the relationship a brand would seek to develop in any other country. The most important thing to remember is to treat customers well, treat them with respect and make them feel special.

Conclusion

2014 will see China’s luxury sector enter a new era. As Chinese consumers become more sophisticated, their desire for stand-out brands across different price points will only increase.

The slowdown in growth has already created winners like Coach or Furla, but for new brands targeting China this is a very interesting time to enter the market.

There is no denying China’s competitiveness, but the potential in many second and third tier cities remains largely untapped. New brands should learn from the experiences of key international brands who have entered the Chinese market in the last decade. There are many great examples of brands that have successfully launched in China, but similarly there many examples of brands that have been less than successful in their approaches.

The Chinese market is definitely hungry for the right proposition – is your brand ready for it in 2014?

 

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