Many American and European luxury managers still underestimate China. To many, China is just a large market with tremendous opportunity. Logistics is often seen as the primary challenge; thus, they focus on first- (Beijing, Shanghai, Guangzhou) and second-tier cities (Tianjin, Nanjing, Fuzhou, Chengdu, Wuhan), servicing the rest of the country online, often through e-retailers such as Secoo, Mei.com, or Net-a-Porter, to name a few.
What many brands forget, however, is probably the most important — consumers. In our experience, even some of the most successful luxury brands lack deep and timely insights and understanding of Chinese luxury consumers. Just think of Dolce & Gabbana’s infamous advertising campaign leading to a nationwide de-listing of the brand. And if some of the best brands lack insight and understanding, smaller brands practically fly without instruments when serving the Chinese market. And this is fatal. Because Chinese consumers are the most discerning in the world. Because it means inefficient use of budgets. Because it means gambling the success of brands.
Recommended ReadingIn China, Women Buy Up Luxury Cars as a Symbol of Their Newfound PowerBy Ruonan Zheng
This month in Shanghai, I visited Chinese electric car brand NIO. The first thing I noticed about that their $70,000 ES8 SUV was a radically different user interface with a small animated robot head sitting on the dashboard, blinking with virtual eyes that started to interact with me (most car functions are accessed by interacting with the robot). This is a level of immersion that no Western brand has come up with so far. Then I went on the front passenger seat, to my surprise — at the touch of a button — it reclined, with an electric footrest emerging, comparable to a first-class seat on an overseas trip. You will find this feature for a huge premium on specific back seat packages of top-of-the-line luxury sedans, but not on the front passenger seat of any traditional European car. These features reflect higher expectations of Chinese consumers and the willingness of Chinese brands to innovate. On top of that, the showroom experience was different — it was upscale, refined, and disruptive. Tesla started the trend, but NIO takes it to a different level. No European brand is there yet.
Chinese luxury consumers are younger than in any other country. Millennials account for about 70 percent of consumption (versus about 35-40 percent worldwide), and Generation Z accounts for another 10-15 percent (versus 3-5 percent worldwide). They are digitally native — more than 30 percent of all Chinese luxury consumers buy (at least occasionally) online, with Generation Z consumers reaching up to 60 percent. More than 75 percent of brand preferences are built online, through WeChat, Weibo, and KOLs (Key Opinion Leaders). Traditional advertising makes no sense in China, in my opinion, as it does not allow for building online communities. Troubling? No, it’s a new reality! Disruption in motion, at accelerating speed.
Hence, brands have to rethink their approach radically. When we use advanced data querying methods and AI to identify consumer insights in China, we can see in each project that the insights we generate differ from the insights that the brand teams believed based on their feelings and observations. Facts versus fiction. And the only way to succeed in China.
Recommended ReadingChinese Buyers Crave a New Sales Pitch: ‘Experiential Luxury’By Yiling Pan
The brands that manage to build digital systems and capabilities to operate in China, relying successfully on real-time consumer insights, can quickly deploy those technologies to other regions and markets that are slower in digital transformation. Winning in China today means winning in the world.
Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger