At first glance, any luxury brand could be proud of itself for establishing an online presence in recent years on any of the busy e-commerce platforms serving the Chinese market. After a period of softness, the growth in China’s domestic luxury market in 2018 alone is expected to hit 20-22 percent.
But, as circumstances in luxury retailing and the digital marketplace change, any luxury brands that bet everything on the sales from a single e-platform will find out in coming months that they have a non-viable formula for success in China.
Here are the reasons why:
The sales platforms are walled gardens
The battle between giant e-commerce rivals Tencent and Alibaba will remain the theme of China’s digital retail industry for the near future. Despite both Alibaba and Tencent’s JD.com developing advanced traffic tools to target e-commerce consumers based on data analytics, the two platforms are essentially operating within their own invisible (and sometimes visible) domains of influence. As a direct consequence of this market reality, in order to do well in either brand awareness or e-commerce, the demands for investment and effort on a single platform is high.
Boosting brand awareness is not a strength of the e-commerce marketplace
When they first entered China, many brands understandably preferred to invest in Alibaba platforms/tools, a titan in the industry and a household name in the West. But selling on Tmall can be a vicious cycle – in order to have product visibility on Tmall, the brand has to spend more on the platform, therefore the spending on brand awareness efforts elsewhere decreases. Very soon the leads within Tmall can dry up and brand awareness will remain bare elsewhere on the internet.
Some of the brands I know invested up to 90 percent of their annual digital marketing budget on Tmall, and as the direct result of that investment strategy, the brands not only made no progress on social but also projected an ingrained image of a Tmall discount brand.
Chinese consumers are taking up to 32 percent of the global luxury market, but brands should take notice the open secret that two-thirds of the Chinese luxury consumers are buying overseas, and this reality is not likely to change in the near future. Instead of hoping third-party marketplaces will work their magic, brands should strive to create a commerce ecosystem that caters to both a brand awareness need in China and purchase demand in stores overseas.
Consumers are increasingly seeking a different shopping experience
The trend in luxury retail is to create an integrated consumer journey, a smooth, logical, organic experience from digital to physical stores.
As Chinese consumers age and accumulate wealth, they will become less and less price-sensitive, and more and more about self-expression and the quality of the shopping experience. Whether consumers can enjoy, interact and purchase in one integrated ecosystem that the brand itself controls will break or make that luxury brand.
This story was written by Chenyin Pan, China Manager of post-digital agency Fireworks.