China’s market potential is huge. But with great potential comes great responsibility so much so that the Chinese luxury market could turn into a double-edged sword for foreign brands
When it comes to luxury consumption, the Chinese have been ranking first for three years now, representing one-third of the global spending. Despite this, international brands do not seem to take the Chinese luxury market seriously, risking to damage the brand awareness in the Dragon irreversibly.
The Chinese market potential is huge, especially for what concerns the luxury market. However, as the latest missteps of some important fashion firms revealed, China’s shining market could be a double-edged sword. Last March, the global management consulting firm Bain & Company released a report, which shows that for every brand that grew more than 25% from 2017 to 2018, there were two brands that grew less than 10%. Chinese consumers are becoming increasingly discerning and reach their hearts might not be so easy.
But reaching the Chinese luxury market is not the only challenge, a new problem has come out this year. The Middle Kingdom has demonstrated to have no room for complacency so much so that those brands that failed to keep the attention high have lost it all, with tremendous consequences.
© Pexels. In 2018, 425 million high-end consumers worldwide spent around $1 trillion. This spending was mostly driven by Chinese Millennials.
We all remember Dolce & Gabbana’s fail in late 2018. Unfortunately, this was just the first of a series of fashion brand’s slipups that unveiled the Western lack of understanding of the Chinese market.
In November 2018, D&G launched three teaser videos starring a Chinese model trying to eat large-sized Italian spaghetti, pizza and a cannoli with chopsticks and a voice-over making inappropriate jokes about eating big Italian food. Despite the name of the campaign was “D&G Loves China”, Chinese people rightly felt insulted. If three racist stereotypical videos were not enough, a fashion insider started to publish personal conversations with Stefano Gabbana where he was constantly offending the Asian country and its people.
While trying to do marketing in China, the Italian Maison not only unintentionally led its “Great Show” – a big catwalk presentation to be held in Shanghai on November 21 – to be canceled but it also brought Chinese people to boycott D&G products.
Worst of all, Dolce & Gabbana was kicked out of major Dragon’s e-commerce platforms such as Tmall, JD.com, and Little Red Book. Unfortunately, the apology video of the two designers reading a trivial script has not changed the result of what will be remembered as the biggest marketing epic-fail of the brand.
D&G was not the first nor the last important brand to be kicked off Chinese social media. Balenciaga as well had a hard time when footage of a security guard in a scuffle with a Chinese shopper in Paris went viral.
Burberry followed weeks later with its Lunar New Year campaign, which displayed a disturbing family-portrait-style shoot. That shoot was so dark and gloomy that Weibo users associated it with certain scenes from Asian horror movies. “This is a group of people who plan to kill this ultrarich grandma and keenly fight over her inheritance,” one user wrote.
This Summer, even Versace, Coach, and Givenchy lined up to apologize to Chinese customers. Their misstep even managed to pose a threat to China’s sovereignty, a move that offended both the customers and the country’s history and politics.
They were selling T-shirts which implied that Hong Kong and Macao were independent of the mainland. Although the shirts were promptly taken off sale, the damage was more than done. Their local ambassadors cut ties with the brands, undermining the firms’ position in the Chinese luxury market.
Nine months after and despite the apology, D&G is still struggling to recover from the reputational damage. And so do Versace, Coach, and Givenchy. Although things come and go very fast on social media and the internet, these episodes marked the brand’s awareness in the country indelibly.
Chinese consumers have earned their space in the luxury market and the emerging middle-class, obviously, do not intend to be offended by international brands. These firms betrayed Chinese customers’ trust, a trust that now needs to be restored from the ground. “Apologize, lay low for a bit and then slowly get back and try to gain back those consumers,” suggested Alessia Grassi, a marketing lecturer at the University of Huddersfield, while talking to Forbes.
© Dolce & Gabbana. In 2017, “D&G Loves China” campaign already gained media attention. Netizen criticized the choice of showing lower parts of Beijing avoiding the wealthiest ones.
But why is China’s luxury market so sensitive?
Last year, Chinese spending on high-end consumer goods accounted for 33% of the annual global spending. China’s personal luxury goods market is projected to expand by 6% annually through 2024, and by then Chinese shoppers will contribute 40% of the worldwide sales, driving 70% of the global luxury growth, according to Boston Consulting Group.
The constant expansion of a rich middle-class in China that aspires to establish its reputation through the purchase of high-end goods definitely drives the trend. Indeed, middle-class consumers will represent an estimated 65% of all Chinese households by 2027, as reported by Bain & Company.
Moreover, Millennials and Generation Z – those born between 1995 and 2002 – represent today’s high-end buyers, who are destined to change the country’s consumption history in spite of the recent slowdown. They are the main customer base for luxury goods, accounting for 27% of luxury consumers, a figure that is expected to rise to 40% in the next 5 to 7 years. All these figures combined make the Dragon the most important market for the luxury industry and brands cannot afford to lose it.
“People are obsessed with the shiny new object, in the case of luxury brands that is China. But they lack cultural sensitivity, so they underestimate the Chinese consumers and the Chinese market,” Daniel André Langer, CEO of management consulting firm Équité, told Forbes.
What led the mentioned brands to fail in China was the conviction that the marketing strategies that work in the Western world would work in the PRC. Indeed, what we learn from these marketing epic-fails is that knowing the target is crucial as well as deeply understand the culture the company aims to address. Netizens are more informed and open-minded than previous generations, therefore they are not willing to blindly accept foreign trends or weak marketing attempts.
Among all the mistakes done by foreign enterprises, arrogance and lack of local understanding have been the major issues that led the Chinese to boycott their products. Moreover, online communities are a great resource for brands, they contribute to increasing visibility, but they can become the worst enemy when not respected.
If the major international companies spend an impressive amount of money to study their target and to develop the most effective marketing strategies in one particular market, how can they fail so bad in China?
© Pexels. With the increase in awareness at the time of purchase together with the growth in purchasing power, since 2000 the Chinese have become more demanding customers.
Nevertheless, despite the damage to their own companies, these latest slipups are teaching a lot about the Dragon’s luxury world. First, as well as in the economic or politic sectors, the People’s Republic does not intend to be trampled. Paying attention to the country’s pride is, therefore, extremely important for Chinese consumers.
Second, Chinese tech-savvy generations are more willing to fight for what they believe. Therefore, social-status is not the only added luxury value anymore. Today, Chinese consumers pursue the value behind the brand and are ready to speak up when a firm betrays their trust.
China is taking back its role on the international stage and Chinese consumers demand the same, they do not want to be taken for granted anymore. It is a great teaching for the luxury world. Given that Beijing drives the world’s high-end spending, major marketing campaigns should be driven by the Chinese audience as well.
MORE ON THIS TOPIC