China’s Middle Class Holds the Keys to Luxury in China

“The stagnation of middle-class incomes in the rich countries,” according to the Harvard Business Review, has forced luxury brands to broaden their horizons and look for emerging markets in Asia. The largest of those markets is China’s, which currently stands as the world's second-largest economy by nominal GDP. China’s emerging middle-class is becoming a fundamental force that is shaping not just the domestic economy but also the global economy. According to Sophia Powe, Editor-in-Chief of Voice on Growth, “China’s middle class is expected to increase from 430 to 780 million by the mid-2020s,” and Interbrand highlights that “the resulting growth of the middle class is becoming the next economic engine in China. From 2009 to 2020, the size of the middle class will have expanded by 350 percent.” This demographic seems to offer an immense opportunity for international brands, but Western players remain conflicted about the segment, not knowing how to engage them. That’s because Western marketers don’t really understand China’s middle class, so cliches and misrepresentations are common. Interbrand states that, for decades, Chinese middle-class consumers had the same purpose: “study hard, work hard, and network hard in order to distinguish oneself from the masses and secure financial security for one’s family.” But financial security is already widely available, and Chinese millennials have lived their entire lives in prosperity and with higher purchasing power. Consequently, their buying behaviors, priorities, and preferences differ from older middle-class consumers. The meteoric rise of influencer marketing and the sponsored-post monetization model show that KOLs and idols are indeed the future of marketing. Given that the Chinese middle class drives luxury spending, marketers need to familiarize themselves with the characteristics of the demographic. China Business Review emphasizes that “China’s relatively new middle class consists of a rapidly shifting, diverse population,” and that the lower-middle class represents 44 percent of the total middle class. Yet it’s also estimated that households earning between 12,000 and 25,000 will see significant growth in upcoming years. As this is a varied group, marketers need to use personalized strategies for each subgroup. Below, we’ve outlined the best strategies for successful engagement with China’s middle-class: Designing creative experiences In a 1998 paper called "Welcome to the Experience Economy," B. Joseph Pine II and James H. Gilmore first coined the titular term. According to the authors, “experiences have emerged as the next step in what we call the progression of economic value” and “from now on, leading-edge companies — whether they sell to consumers or businesses — will find that the next competitive battleground lies in staging experiences.” Fast-forward to 2019 in the dynamic Chinese market, and it seems like every brand needs to offer unique and personalized experiences to get ahead of the competition. An Ipsos report titled “Engaging China’s Affluent Consumers” describes Chinese buyers as having advanced from “status-seeking through ownership of highly visible and recognizable brands to self-realization through experiences and knowledge about luxury brands.” This implies that international brands wanting to engage China’s middle class will use creative strategies that enhance the buying experience. With connoisseurship and emotional factors influencing purchasing habits, marketers have to create brand stories that are engaging and unforgettable, and luxury brands should emphasize digital content since it brings value to the consumer’s life. Creating a seamless customer experience “The move towards higher quality” implies higher expectations in every interaction with the brand. Since Chinese consumers are “more global, more demanding,” they expect a high-quality offering that goes beyond products and goods. Everything needs to be within the buyer’s reach, so optimizing processes for efficiency is crucial. According to Forbes, “the big push now is the experience cloud, which brings together things like customer data, digital experience, and personalization to create an efficient, modern way to monitor and interact with customers.” In short, innovative brands invest in the customer experience cloud to increase their efficiency and improve interactions with the consumer at every touch-point. Constant connection Digital accessibility and constant connection are now crucial for a brand’s success. Gone are the days of an inegalitarian relationship between brands and buyers when luxury houses addressed only a restricted, privileged segment of the population. Through the democratization of luxury, heritage and premium products are now available to everyone who has a mobile device and a bank account. However, this democratization has pushed e-retailers and niche domestic brands forward due to enhanced market competition. Additionally, the digital age has killed traditional players who didn’t know how to leverage the power of modern technologies. Although we acknowledge the importance of this tech, it could be argued that it’s the modern consumer who has accelerated these changes, as their expectations are at an all-time high. Salesforce says that, customers have moved further away from “basics like quality service and fair pricing.” Today’s modern customers “have much higher expectations, such as proactive service, personalized interactions, and connected experiences across channels.” Killing traditional marketing Times have changed, and younger consumers now distrust TV ads, advertorials, flyers, and billboards. Consequently, print marketing is in decline, and most magazines are having a hard time in the digital age. WWD reports that in 2017, LVMH reduced its marketing budget by 15.2 million to 216.3 million, while Estée Lauder Cos. Inc. cut theirs by 46.3 million to 95.3 million. WWD adds that large sums of the marketing budget are now “diverted to other avenues, like Facebook, Google, and influencers.” In the information age, social media has become a primary source of information that greatly impacts consumer behavior. Thus, it’s not surprising that social media marketing is surging. Younger consumers use social media to review products and share their opinions on businesses, services, and goods. And for millennials and Gen Zers, a brand validated by a peer is more trustworthy than one that has invested millions in advertorials in glossy magazines. The meteoric rise of influencer marketing and the sponsored-post monetization model show that KOLs and idols are indeed the future of marketing. If international brands want to profit from China’s well-off urbanites, they need to understand the priorities, desires, and hopes of this segment. Furthermore, a particular focus should be placed on the upcoming middle class. As China lifts millions out of poverty, a new, powerful consumer class is emerging, and innovative brands are already catching sight of the opportunities that come along with this new segment.

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China’s Middle Class Holds the Keys to Luxury in China