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Jun
2015

New terms of engagement

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There was a time, not long ago, during which luxury brands could expect Chinese consumers to ‘come and buy’, rather than ‘having to sell’ to them. The vast majority of people walking through the door were pretty sure that they were making a purchase just because they could and they had the cash. For the sales staff, their job was to some extent involved a simple demonstration and little persuasion.

One only has to look at year on year sales figures for luxury cars for example during 2010 and 2011 where records were broken to understand the situation. It wasn’t a case of shall I buy a Ferrari or a Bentley, but rather which model? The money was available and the future looked very bright for China’s wealthy classes.

Just like the global economic crisis, it would have been obvious to many that the stratospheric rise in sales couldn’t continue indefinitely and that in fact the government couldn’t let this happen either. Things had to slow down and they did, causing what appeared as a result to onlookers as a disaster. 20 to 30% growth disappeared only to be replaced with 7 to 8%! How would we all survive?

Slower spending patterns

Whether executives in luxury brands could or should have spotted the probability of changes in the economy due to government action, political changes or just the need to cool things is a different question, but what effect did it have on consumers and how did luxury brands react? Those who have some understanding of Chinese culture will know that saving money and having reserves is second nature, so as the economy slowed, so did spending. This didn’t and doesn’t mean that money has gone away, but greater time is now applied to making decisions, and more questions are asked along the way to making that decision.

The process of buying luxury for Chinese consumers is now about understanding what they are buying, and considering their choices in greater detail. We can see this in all categories as projected volumes are adjusted downwards, and brands have to invest more of their smaller budgets in understanding their existing consumers, while working very hard to find and engage new ones. The game has changed, and a new approach is required.

What do the new terms of engagement mean?

The change in consumer attitude and their spending patterns presents both a challenge and an opportunity for all luxury brands. The ever-evolving market has been a constant variable for those brands already operating here, and they are used to a level of flux that isn’t seen in Europe and the US, but this most recent change has been a real shockwave has been significant. Handle it well and they will come out the other side better than some of their competitors, but fail to do so and they will fall behind. For the brands planning to enter the market, then their opportunity is the other brands loss. Their issue is also handling it well, particularly with a limited knowledge of what went before.

First thing on the list for any brand currently is to establish or reinforce their position and brand values. This requirement is a necessity for those here or those planning their arrival. Consumers are now filtering out brands they want an association with, and those that don’t meet the grade will be dropped. China is pretty cutthroat so even establish brands need to be aware that their status is potentially at risk, and not to assume that loyalty is guaranteed.

The upside for newcomer brands to China is that as consumer’s attitudes have matured, they have started to look for new things to fill their lives, but their approach is different from that of the past. They want to see that brands have heritage, a solid base of international customers and hooks that they themselves can connect into. By hooks, I mean attributes that add to their lives in China and have a Chinese essence. During the major growth period of luxury in China, consumers craved the cache that international brands brought them, but now brand values must fit the needs of the Chinese world citizen.

Adding the relevance

So for luxury brands wanting to sell in China, or in fact to sell to Chinese overseas, the advice is to make yourself relevant to the new Chinese consumer, who is the old one but more educated and pragmatic. Culturally we must accept that they are quite different to other nationalities, and it’s the small differences the brand introduces that will win their hearts and minds.

Tell them why they should trust and select you, and keep on telling them. This is not a new adage but the how and the when have changed.

Connect your brand to their lives in some context, whether it’s through your heritage, your design or materials, and make the connection clear. They are looking for hooks, so give them some.

Don’t assume they will know your name, your position and values or your fame elsewhere in the world. A common mistake made by everyone, so clearly state what maybe obvious to you and consumers elsewhere in the world.

These consumers still have money, and are now more considerate in their spending patterns, so don’t ignore this fact. They can take you or leave you, and they will, depending on how well you connect. The past mass purchasing period of luxury is over in China, and a new one of filtering and selection has begun. Brands that were once the darlings of the Chinese consumer are at risk, and those late to the party still have a chance of entry, its just about adapting to the new terms of engagement.


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