Renee Hartmann | 01 March 2014
Despite the proven purchasing power and attractive spending patterns of traveling Chinese consumers, brands continue to underinvest in this global customer segment in home markets.
Many brands that led the pack in executing China market-entry strategies during recent decades have subsequently missed the opportunity to engage the traveling Global Chinese Demographic in their home markets – precisely where they have the most to offer customers who are ravenous for authentic brand heritage and culture.
Prestige Brand Managers are already closely watching the Chinese consumer, who recently became the number one luxury spender in the world, representing 27% of global luxury purchases (compared to 20% from American consumers) in 2012. This trend is only predicted to deepen, with Bain Consulting predicting that Chinese consumers will account for 33% of global luxury purchases by 2015.
Opening flagship stores in Beijing and Shanghai, signing Chinese celebrities, hosting lavish fashion shows and tailoring products of all kinds to the nuances of Chinese tastes, marketers have made substantial progress in engaging consumers within China. Entering China’s domestic market is not trivial: a thankless pursuit that requires intense investments of management resources and capital.
And despite all this effort, Chinese consumers are largely buying outside of China, driven by the brand awareness that your China counterparts have carefully and expensively cultivated through monumental efforts within China.
Chinese consumers currently make more than 60% of their luxury purchases overseas, representing more than US$28.3 billion in sales. This number is expected to grow by 31% – four times the rate of growth in China’s domestic market (a more modest 7%).
Focused as they are on the tremendous long-term potential for luxury brands within the domestic China market – many luxury brands are missing the more immediate (and larger) opportunity of the Global Chinese Consumer. What should luxury brands be doing better?
Think Globally, Act Locally
Chinese customer relationships are no longer owned by your China group – they are global consumers that need to be attracted, engaged and retained wherever they disembark.
Companies that maintain a silo mentality and miss the opportunity to leverage marketing and CRM-driven customer information across borders will lose in this customer segment. It is imperative to eliminate competition between country groups and incentivise cross border collaboration. Las Vegas casinos figured this out, and haven’t looked back.
Master Your Own Shopping Experience
While your China team may understand the Chinese customer and the nuances involved in service standards, cultural norms, merchandising preferences and negotiating tactics, it is also vital that your store staff around the world quickly get up to speed on this customer group.
A recent McKinsey study noted that more than 50% of Chinese luxury consumer respondents cited in-store experience as the most influential factor in their purchase decision. And with more Chinese consumers spending on “impulse” items (McKinsey cites 37% of respondents purchasing an item less than 24 hours after deciding they wanted the item), your shopping experience is a crucial piece of the puzzle.
Segment Customer Groups
All Chinese consumers are not alike – in fact there are profound differences across geography, age, affluence and wealth creation patterns that manifest not only in brand choice, product choices and shopping habits, but in the way customers dress and act.
Luxury brands that judge the spending potential of Chinese customers based on perceived norms from other customer groups do so at their peril. Brands need to understand the differences in customer preferences and develop systems, partnerships and internal mechanisms for tracking customer relationships and preferences across borders to avoid the “Pretty Woman” debacle.
Utilise Overseas Travel to Build Awareness
In a country in which almost anything can be manufactured overnight, one of the most valuable assets a prestige brand can espouse is its history and heritage. Chinese customers view luxury purchases as investments in brand heritage, much as real estate investors covet prestigious addresses.
Brands should take advantage of Chinese consumers’ newfound obsession with travel to communicate and showcase their brand heritage and culture in ways that are not possible in China, with its glitzy-glass-and-marble retail environments and ubiquitous luxury fashion shows.
Chinese consumers are hungry to learn and experience history and heritage and understand luxury brand quality and workmanship. Utilize these assets to give your customers a truly unique experience that they cannot get in China. They will love your brand all the more for it, and reward you with higher spending across the globe.
China is Not a Simple Equation
Nothing in China is easy and neither is the Global Chinese Demographic. The Chinese travel landscape is incredibly competitive, nuanced and complicated.
Chinese travellers tend to buy what they know in China, the advertising and promotions landscape is crowded and expensive and consumer preferences are changing so quickly that by the time you think you know where you stand, everything changes. There is no “silver bullet” that will conquer this customer.
The brands that have profited the most from this customer have put in the hard work over many years to understand the customer, invest in brand awareness, connect with the customer online with Chinese platforms, train their staff around the world and aggressively reach out to the customer through all means possible.
Like China market entry, the rewards of engaging the traveling Chinese consumer are tremendous for those with the right strategy, patience and attitude.