Want Luxury Business Success in China? Avoid These 3 Pitfalls

China accounts for the majority of global luxury purchases today (if you combine domestic and international consumer spending), owns one of the top three national luxury markets, and boasts one of the world’s highest growth rates, even after a recent economic slowdown. That’s why global luxury brands simply can’t survive today without a strong presence in China.

Because of this, China is atop the agenda of practically every luxury CEO at the moment. And yet, many of their launches fall completely flat or perform far below expectations. Prada just published catastrophic China results and blamed the slowing economy for them. But when desperate CEOs ask us to help them successfully launch, strengthen, or turn around their businesses in China, we always show them that their problems are 100-percent homemade. A weakening economy only amplifies problems that already existed.

After years of research with all types of luxury brands, our company has discovered that there are three main factors that international companies always underestimate upon entering or expanding in the China market.

1. To make the right move, your company needs the right data

Chinese consumers are much younger than in other markets and, therefore, have higher expectations. Companies that launch in today’s competitive Chinese market without advanced, real-time data or AI-based analytics tools are doomed. In my daily practice, I compare it to flying a plane without instruments. Sadly, we see that most luxury brands aren’t armed with modern data models and, therefore, can’t leverage their potential.

Dolce & Gabbana’s disastrous — and now infamous — advertising campaign uniformly offended most Chinese consumers and lead to some of the harshest social media reactions in recent memory. It’s hard to believe now, but D&G was completely blindsided. They did not understand their campaign’s impact or magnitude early enough, and they had no digital brand management tools in place to help them react swiftly and appropriately. As a result, they lost the majority of their Chinese distribution and, potentially, billions in revenue. An investment in advanced data — at only a fraction of the price of the brand’s canceled Shanghai fashion show — would have enabled the brand to steer clear of this catastrophe while setting the brand up for future success with deeper consumer insights.

2. China literally and figuratively views your brand differently

Chinese consumers access brands in a different way than Western consumers, who understand a brand via their multiple parts. So in Europe or the U.S., a Porsche campaign for the 911 will shape how consumers perceive the Porsche brand as a whole. Similarly, individual initiatives or launches, like Louis Vuitton’s collaboration with a company like Supreme, will shape the perception of the LV brand for Western consumers. But Chinese consumers are entirely different. They want to understand the entire brand and its history first. Only then, if it resonates with them, will they consider any offshoots or collaborations. When brands approach us, we first do an AI-powered brand scan where we assess how well the brand’s market position is defined.

In most cases, even with iconic, globally successful brands, we identify significant room for position improvement. For example, if a luxury car brand tells me their positioning is on point because they’re selling a “dream-car,” their design is distinct, and they offer extraordinary performance, I remind their CEOs that this is what all luxury car brands should offer. Brands need to be much more precise and differentiate themselves in a crowded marketplace if they want to be successful.

3. Know how to deliver your message

The way in which Chinese consumers access, process, perceive and share content is entirely different than Western consumers. Chinese websites look different because consumers are used to a different look and feel. Page scrolling, which is typical for Western sites, doesn’t work with Chinese consumers. Content on Western social media like Facebook or Instagram won’t work at all or will be irrelevant to Chinese consumers, and many Western websites can’t even be accessed from China. Without a proper WeChat strategy, Western brands won’t get any traction there.

Another issue is that most Western data analytics tools aren’t able to capture the full picture behind Chinese consumers, and if CRM (Customer-Relationship Management) tools are not designed to accompany those analytic tools across various sales points, then significant opportunities are lost or mismanaged.

We developed a different approach that emphasizes a holistic brand strategy and equally addresses these three major pitfalls. We enable our clients to operate all areas of their business from a rigorously data-driven perspective that includes everything from strategy development and brand maximization to the utilization of ongoing real-time insights that optimize everything from marketing to management. In my experience, this approach is a game changer and indispensable for continued success in China.

How does it work? We connect all the available data — social platforms, CRM, sales, finance, and after-sales databases — to create one integrated data platform. Then we use AI and machine learning to make sense of patterns in the data while filtering out irrelevant noise. This enables us to measure and steer a brand’s positioning around any competition, in every region, and with every conceivable consumer cluster. If enough data points are available, we can even assess if the window decor change in a brand’s flagship store in Shanghai, Paris, New York, or Tokyo has an impact on brand perception at a specific store elsewhere.

After our initial read, we conduct a brand audit workshop alongside our clients and identify the gaps and opportunities that will shape our game plan for future growth.

I recently wrote in Jing Daily about a case study where advanced analytics tools helped us to identify the exact reason why an Asian flagship store of a leading luxury fashion brand was underperforming. While the brand’s extremely experienced management team had hypotheses about why the store traffic was so low, it turned out that they were completely wrong. It wasn’t because they weren’t experts. It was because they didn’t have the insights of advanced AI analytics and ways of interpreting that data.

Cracking the China code is challenging, and launching a brand there without the proper tools and strategies in place is a recipe for disaster. Given the increasing influence of Chinese consumers on global luxury market tastes, brands can no longer afford to not be in China, and more importantly, they can’t afford to not to be successful there. In my view, only a thoughtful, systematic, and data-driven approach with real-time insights can work in today’s China market. This is the best practice, whether a business wants to successfully launch, accelerate, or turn around their luxury brand in China.

Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger

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The Future of Luxury