China's luxury market has challenges ahead, but there is cause for optimism. (Chen Man)
The Chinese media has been making foreign companies increasingly nervous over the past year with a string of bad PR campaigns leveled at foreign brands such as Apple and Starbucks. Last Wednesday, Ruder Finn CEO Kathy Bloomgarden addressed this issue at a talk at the Confucius Institute for Business at the SUNY Levin Institute, where she candidly advised businesses to expect great challenges in the China market in the future, but great rewards if they succeed in navigating it. Bloomgarden likened the current environment for foreign businesses in China to the term weiji (危机), which translates roughly into “crisis”, but, when broken down, means the situation has not only danger wei (危), but also opportunity ji (机).
Jing Daily took the opportunity to talk to Kathy more about her views on luxury in particular, with faces its own specific set of challenges—and major opportunities—when it comes to seeing continued success in the China market.
Do you see China’s business environment becoming more or less challenging for foreign companies in the coming years?#
Ruder Finn CEO Kathy Bloomgarden.
2013 has been a difficult year for businesses in China, as the economy is slowing, there is fierce competition for talent, and corporations are under increasing scrutiny from the media, general public and government. That being said, there is still tremendous opportunity for foreign companies in China. For instance, third- and fourth-tier cities are growing. Over the next two decades, dozens of cities with populations of fewer than 1.5 million people will drive exponential growth, contributing 40 percent of the total China urban GDP growth through 2030.
With this growth, the expanding middle class will gain new purchasing power as they look to spend their growing discretionary income. We’re seeing a trend in China as consumers are beginning to “trade up” to luxury goods, contributing to the growth of the luxury market in this region. Luxury purchases by Chinese consumers, both at home and abroad, account for over one-quarter of global luxury spending and are projected to increase to more than one-third by 2015. With newfound wealth, more choices and changing habits, consumers in China are evolving. Businesses can leverage this opportunity by strategizing an approach to reach these consumers in emerging Chinese cities and increase brand awareness to penetrate the growing markets
Ruder Finn just launched its 2014 China Luxury Forecast. What main changes have you see in China’s luxury market over your years of experience?#
As the luxury market matures, Chinese consumers are becoming more and more knowledgeable about the different luxury categories and offerings, and want experiences that truly reflect their expectations. Chinese consumers are looking beyond brand names to seek more unique products and establishing higher demands for the knowledge and friendliness of luxury staff. Ninety-two percent of consumers from China indicated that they were dissatisfied with brands’ services at home. These expectations of high quality and service are leading to more and more Chinese consumers traveling abroad to purchase luxury goods.
Another change is the growing prominence of e-commerce as an accepted avenue for luxury shopping. Thirty-six percent of mainland Chinese and 34 percent of Hong Kong respondents indicated that they preferred to shop online for luxury products—a 22 percent and 24 percent increase from last year. In addition, Chinese consumers are more frequently using mobile apps to connect with and obtain more information on luxury brands. In mainland China, 43 percent of respondents have downloaded brand apps.
What are some of the top challenges faced by foreign luxury companies in the China market today?#
Competition is fierce in the Chinese luxury market, especially as more and more middle class consumers look to purchase luxury goods, introducing an entirely new demographic for luxury brands in China. Luxury brands must understand the desires and needs of these consumers in order to stay competitive. Some are developing tiered brands to ensure each audience has a group of products they can identify with and can afford. Armani, for example, offers George Armani, Emporio Armani, and Armani Exchange.
Understanding and meeting the evolving needs of Chinese consumers is also vital for luxury brands’ success in this market. It’s no longer about just having the brand name, but having new and unique products that are meaningful to consumers. The key to meeting this demand is innovation. China has always been an important test market for global brands, and luxury brands must have this same mentality. Similarly, service can no longer be ignored. Chinese consumers are placing value in the experience, and brands must have sales staff that is friendly and knowledgeable of their products as consumers are already traveling elsewhere, particularly overseas, for better service.
How will the emergence of China’s middle class and income growth in smaller cities affect luxury companies’ marketing strategies in China?#
To capture the growing middle class, luxury brands must understand their needs and desires. We’ve seen many luxury brands offer tiered brands and sub-brands in China. Hermès, for example, developed a local Chinese brand known as “Shang Xia,” which is influenced by traditional Chinese design and offers products such as ancient styles of porcelain, cashmere felt, and furniture. About 90 percent of the brand’s products are made in China.
To succeed in China with today’s current business climate, companies need to focus on consumer awareness and penetration, from the coastal cities to the inland regions. According to a Bain study, more than 60 percent of shoppers list brand as a top consideration when making a purchase. By increasing awareness, businesses can gain a competitive edge by achieving a higher market penetration rate and in turn establish higher market share.
Ruder#
Finn was one of the first foreign public relations companies to enter the China market. How has this early entry benefited the company?#
As one of the first foreign PR agencies to enter China, we have the benefit of having a long-established network of media contacts, partners and talent. We have had more time to establish trust in the business community in a country that very strongly values trust. We have a strong understanding of the Chinese culture, customs and business environment. With co-headquarters in China and New York, we are able to bring a unique east-west perspective to our clients.