Should Luxury Brands Target Lower-Tier Cities?

Key Takeaways:

  • Visibility boosts brand awareness, reputation, and brand recognition. And in the luxury industry, brand recognition is the real equity.

  • Luxury brands use strategic sales to build a connection with a new audience.

  • Today more than ever, data is king. Having all the information on the target customer helps brands come out with personalized content, products, and promotions.

In the past, luxury brands were only focused on developing growth strategies for China’s colossal tier-1 cities. Yet that’s hardly the case anymore.

Key luxury players have reimagined and sharpened their brand positioning strategies to achieve long-term growth and success across the entirety of the Chinese market. Considering the high competition in China’s big cities, it has become increasingly difficult to boost margins and gain a competitive edge. Therefore, luxury brands were forced to reach out and try to connect with new audiences in lower-tier cities.

Nevertheless, the question remains: Is there a real return on investment (ROI) for global brands as they try to connect with first-time luxury buyers in lower-tier cities? The issue is far more complex than a simple yes or no.

Adopting a market development strategy makes sense when a brand has reached its saturation point. But penetrating new markets is a tedious and expensive endeavor, so brands need to properly judge if they are ready for this gigantic leap.

Now, let’s look at the ROI for global brands in China.

The ROI of brand building

Louis Vuitton, Chanel, Gucci, and Tom Ford command high engagement and are relevant in China. But in the dynamic tier-1 cities, shifts in market demand are common, and who is on top today could be forgotten tomorrow.

Take, for example, Pierre Cardin, who was the first Western designer to organize a fashion show in China in 1979. He was a titan in the Middle Kingdom, but his star dimmed, and his designs lost their luster. The Global Times says that the Cardin label became a “second-tier” clothing brand that had no appeal to younger demographics.

The ROI of optimized visibility

It has repeatedly been said that brand visibility matters. Visibility boosts brand awareness, reputation, and brand recognition. And in the luxury industry, brand recognition is the real equity.

The fashion world is bursting with talent. Yet, most emerging designers won’t find the funding to launch their own labels. And even if they do, they probably won’t encounter the right brand visibility opportunities to grow their label and become household names.

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The Guardian revealed that Louis Vuitton made its “Italian shoes” in Transylvania and Romania, although it advertised them as “Made in Italy.” And Reuters highlighted how undocumented workers slaved away in dangerous conditions in a sweatshop in Naples, Italy, to make leather accessories for high-end brands like Armani, Saint Laurent, and Fendi.

But despite the scandals, lies, ethics violations, and questionable practices, customers still flock to these brands because they identify with superior quality, craftsmanship, and prestige. The truth is most luxury leather goods are produced at assembly lines or in sweatshops. Yet consumers turn a blind eye to human rights abuses, confirming that entry-level luxury items are acquired not for their unique qualities but as status symbols.

Caroline Hu, Yiqing Yin, Anaïs Jourden, and Yuhan Wang are designing truly remarkable collections that redefine luxury and craftsmanship. And yet, the vast majority of the world doesn’t know their names. These designers don’t suffer because of lack of talent or creativity but because of low brand awareness. High exposure, visibility, and brand recognition build brand equity.

The ROI of strategic sales

Luxury brands understand the strategic importance of selling entry-level products to consumers in lower-tier cities. That is how they build a strong connection with a new audience.

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At the same time, they are also educating the tastes of a fresh generation of buyers by influencing their buying behavior. Luxury brands build loyalty through strategic sales.

The ROI of customer insights

According to Luxe Digital, 85 percent of luxury brand sales come from customers registered in their database.

Today, more than ever, data is king. Having all the information on the target audience helps brands generate personalized content, products, and promotions.

Moreover, brands use data analytics tools to drive business growth and develop successful marketing strategies, saving crucial resources.


Market Analysis