Last year, the video game Honor of Kings had more than 100 million daily users on average, with 95 percent of its users in China, making it a massive platform where close to 10 percent of the Chinese population meet and interact daily in a virtual world.
Burberry’s suggestion that cotton from the Xinjiang region is controversial, and its public stance not to use any of it in its products, did not sit well with its Chinese target audience. In fact, it triggered its removal from the Honor of Kings video game.
Luxury brands must realize that the virtual world is as important as the real world. However, in the virtual world, repercussions that can happen dramatically faster are, therefore, more severe.
Honor of Kings is the world’s most played online game. Last year, it had more than 100 million daily users on average — the first game ever to cross that mark. Even more remarkable is that 95 percent of its users are in China, making it a massive platform where close to 10 percent of the Chinese population meet and interact daily in a virtual world. The multiplayer game is run by Tencent, the Chinese digital entertainment giant that also operates its dominant WeChat platform and has a market capitalization of almost $800 million as of March, currently the seventh-highest in the world, according to CompaniesMarketCap.com.
When so many people meet daily in a virtual space, it becomes a massive place for brands to interact with customers while targeting, advertising, and selling virtual products. In 2020, gamers spent $2.6 billion on the game, making Honor of Kings not only the most profitable game of all time but also a significant new marketplace. For some luxury brands, virtual products have already become a large part of their sales since people who spend a lot of their time and passion in virtual worlds often apply the same behaviors online as they do in the “real world.”
As such, it was no surprise that Tencent recently announced a strategic partnership with Burberry for the company to provide brand-designed “skins” for video game characters. These partnerships allow brands exclusive access to the most important luxury customers worldwide: young, affluent Chinese. Brands come to life virtually, and people can experience and interact with brands in cyberspace.
What brands start to understand is that the same rules of cultural sensitivity apply in the virtual space as much as in the real world. Virtual reality becomes a blended, highly-connected reality. Burberry learned it the hard way when Tencent suddenly suspended their partnership. Tencent announced the suspension in a post on Weibo, the popular microblogging platform, citing the British fashion brand’s position of no longer using materials from the Chinese Xinjiang region and supporting the Better Cotton Initiative as a member.
The initiative is a non-profit, multi-stakeholder governance group promoting better cotton farming standards and practices across 21 countries, including China. Burberry’s suggestion that cotton from the Xinjiang region is controversial, and the public stance it took to not to use any of it in their products, did not sit well with its Chinese target audience and triggered its highly-publicized and instantaneous removal from the platform. It followed the similar Nike ban from Tencent’s game League of Legends Pro League. Although Nike is the official sponsor of all the teams in the league, Nike merchandise and logos were removed as a protest against Nike’s similar position.
Ongoing controversies over Western brands in China over the past few years, from Dolce & Gabbana’s infamous canceled Shanghai Fashion show disaster to Burberry’s virtual reversal of fortune, underlines how luxury brands must develop a much higher cultural sensitivity in other nations. While it is important, even critical, to take a stand, brands cannot have it both ways: taking a position against a country (showing insensitivity toward local feelings) yet assuming those customers will continue to support them.
The stakes in luxury, in particular, are high. Luxury brands create so much connection and desire that I often compare the relationship between them and their customers as a love relationship. Therefore, cultural insensitivity acts like a catalyst for breakups. As Chinese customers embrace their culture and local values, national pride has been rising significantly over the last two decades, so brands need to be much more careful. When consumers break up with a luxury brand, it is usually forever. And they share their emotions, which isn’t a good thing for any brand, to put it mildly.
It is always easy to point to the customers and say, “They are overreacting.” This reaction is typical, and I usually hear it in luxury brand boardrooms when these backlashes happen. The first reaction is always the easy one: blame it on the people (then reluctantly apologize). But Western brands need to reflect upon why these cultural missteps keep continuously happening, especially in China. I believe it reflects how these brands do not understand the customers they are serving enough — their dreams, preferences, and expectations.
Luxury brands will only win in China and other regions when they truly nurture the love relationship with their local customers, respect them and their feelings, and provide extreme value to them. As long as brands think profits first and then try to sell themselves to customers worldwide, we will see more of the same. Only when brands redefine their approach, put customers at the core of what they do, and build an ongoing, understanding, and respectful relationship can they touch their hearts.
This episode teaches us two things. The virtual world is as important as the real world to luxury brands. The same rules apply, as well as the same opportunities and risks. However, in the virtual world, repercussions can be dramatically more severe. Your revenue can plummet from a hundred to zero in a split second if you get pushed off a platform or an e-commerce store decides to delist you. In the real world, those decisions cannot happen suddenly or without warning. But in the interconnected digital world, they happen in real-time since information spreads instantly and on a global scale.
Luxury brand cultural sensitivity and real-time management have never been as critical as they are now. It is another aspect of today’s real-world luxury market disruption that most brands don’t understand. China will soon be where more than 50 percent of all luxury purchases are initiated, whether they are buying in China or abroad. That number will easily grow to 60 percent by 2035, as more and more local people improve their economic means and enter the middle class.
Équité estimates that 400 million additional Chinese customers will have the means to purchase luxury brands over the next two decades. So, the clock is ticking for Western luxury brands as they try to get it right. More and more, local Chinese luxury brands are emerging across every category. And when they look back in the 2030s, many Western brands will see where they missed an opportunity to truly connect with Chinese customers.
Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger