When it comes to selling luxury in China, most brands do not focus enough on creating an actual luxury experience. And in part, this is why most brands are not as successful as they could be in China. In my brand audits, there is one recurring theme. Most western companies replicate their winning playbooks from other regions in the Chinese market with too few adjustments. This includes both organization setup and go-to-market. And then they are surprised that it does not work.
Often the underperformance is detected too late. When a brand launches in China, initially sales will grow as distribution expands. Even if a brand is behind target, global leadership teams are typically blinded by growth rates that are beyond what they are used from other markets. Hence, they swallow the local profit losses, focus on growth, and celebrate the local teams until the growth slows. By then, their total global growth has been dependent on the growth rates in China, so they can't afford the slowdown. More money is pumped into China, losses compound, and panic starts. Results get worse and worse, and local teams are demotivated as the pressure on them mounts. Yesterday’s superstars are the faces of underperformance today. What are causes, and how can this be prevented?
What I typically observe as an organizational model for China is a replication of the pipeline model most companies use outside of China. It generally is product and function focused. The pipeline starts with products and inventory, moves on to activation, advertising and promotion support, and brand building. This linear approach is inefficient in China as expenses grow linearly (often even exponential) with sales growth. Operations become financially unsustainable as the Chinese sales grow.
But there is an additional issue: The pipeline model typically has service and experience creation within certain functions, often in marketing. This creates silos and prevents the brands from delivering excellence in consumer experiences. I often see here the western pipeline model failing miserably in China. The result: underperformance in revenue, market share, and significant losses. After-the-fact intervention then becomes incredibly expensive, as the plane has to be repaired while it’s already in the air, as I like to put it.
In China, selling to millennials and generation Z means selling to digital natives who will interact with the brand mainly digitally. They expect excellence in every touch point and a branded luxury experience both online — even beyond the website as they will interact with the brand on WeChat, etc. more than on the brand's website.
The experience cannot be delegated to one department, with all other departments focusing on pipeline and inventory selling. Companies need to build a radically different organizational model for China (I even recommend it beyond China), a model that puts customers into the center of all thinking in the most rigorous fashion. Hence, the organization should be built around customer experience creation with a clear playbook on how to create perfect customer journeys.
With digitally native consumers in the center, a sound, transparent, and usable CRM becomes key for success. It needs to collect data online and offline. Thus, all functions must be consumer-oriented to cater to consumer-driven activities. At the scale of China, customer journeys need to be triggered in an automated way using AI, machine learning, and software systems that make sense of the collected data. In most brand audits, I see companies collecting data but not using it sufficiently. The experience breaks down.
Apart from insufficiently organizational workflows, we typically find an insufficient go-to-market model in our audits. In China (and beyond), luxury consumers expect to be addressed in a highly individual fashion. This requires specific consumer journeys that are perceived as highly relevant and personalized. In short, brands need to create a perceived authenticity of brand interactions. And those interactions require sophisticated data analytics, as most will happen digitally. A one-size-fits-all approach that is based on the opinions of marketers does not work with young Chinese luxury consumers, but it is what most brands do today.
The relevance of the content is critical; such is KOL selection and consumer activation. To derive relevance, we are using social listening into specified consumer groups and SEO (search engine optimization) as well as keyword identification. Traditional retail is still essential to sell to Chinese millennials, but the consumer journey has to be seamlessly integrated with the online journey.
I recently went to the Shanghai flagship store of one of the top three luxury fashion and leather goods brands in the world. The store received a lot of fame due to its outstanding decoration, making it an experience place that many brands envy. However, my personal experience was underwhelming. When I came into the store, the service was relatively indifferent. I was not treated as a client but felt that I had to "qualify" as a new client, despite having bought several items at other brand stores around the world. The customer journey had a clear breakdown and was unpleasant. Hence, the millions invested in the store were worthless because the customer journey was not perfect. In luxury, everything less than perfect is not acceptable.
This is one of the most important lessons to sell to Chinese millennials. The experience can't have any breakdowns. If the last experience is unpleasant and not personalized, as it was in my case, consumers will be disappointed and turn away. The previous experience is all that matters. And will define how consumers will see the brand in the future, whether the experience is digital or physical.
To master the challenge, companies need to think differently in China. They need a fluently integrated online and offline system that puts the customer in the center of all thinking. They need to become masters of experience creation, building the entire organization around it. Many companies claim customer centricity, but few master it. And only those who are excellent will be successful over time. The last experience is all that matters.
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