How Luxury Brands Can Unlock Their Potential In The Chinese Market

Returned But Unresolved: Hong Kong's Deepening Rift With China

“People are obsessed with the shiny new object, in the case of luxury brands that is China. But they lack cultural sensitivity, so they underestimate the Chinese consumers and the Chinese market,” says Daniel André Langer, Ph.D., CEO of management

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The phrase “Crouching Tiger, Hidden Dragon” is an idiom taken from an ancient Chinese poem that reads “behind the rock in the dark likely hides a tiger, and the coiling giant root resembles a crouching dragon.” It has become a common expression in China that refers to people with extraordinary talents or abilities that are hidden from view. It’s a reminder to keep people from underestimating others.

That expression comes to mind when considering how luxury brands view the Chinese market. On the surface, China looks so promising with so many possibilities. But as a recent series of missteps by luxury brands has shown and were expertly detailed in this Forbes article by Isabel Togoh, too many people underestimate the crouching tiger ready to pounce and the fire-breathing dragon hidden from view.

The data on China’s luxury potential is indisputable. Bain and Company estimates that Chinese consumers represent some 33% of all global spending, about $95 billion in 2018. McKinsey puts it even higher, at $115 billion.

Further, McKinsey reports China contributed more than half of global total luxury spending growth between 2012-2018 and is expected to “deliver 65% of the world’s additional spending heading into 2025.”

But Bain issues a warning for brands thinking that China is an easy road to prosperity. The researchers looked at the revenue growth for the top 20 luxury fashion and lifestyle brands. They found that for every brand that grew more than 25% from 2017 to 2018, there were two brands that grew less than 10%.

“While luxury sales are robust in China, not every brand executive feels euphoric. As their incomes rise, and as they spend more on luxury goods, Chinese consumers are becoming increasingly discerning. Some brands are more successful than others at serving these needs,” the Bain study states.

Daniel André Langer, Ph.D., CEO of management consulting firm Équité and author of several textbooks on luxury marketing, understands the tremendous opportunities for luxury brands in the Chinese market, but more importantly the pitfalls that increasingly are catching them unawares. What he finds is that luxury strategies that work in the Western world don’t translate easily to China.

“People are obsessed with the shiny new object, in the case of luxury brands that is China. But they lack cultural sensitivity, so they underestimate the Chinese consumers and the Chinese market,” Langer shared with me.

Lost in translation

Luxury brands too often dictate strategies from thousands of miles away based upon their Western world view, but with a poor understanding of the Chinese cultural perspective. What’s more, headquarters will brook no dissent from the locals.

“I hear it all the time from local executives working for European brands that they can’t do this or modify that because it comes from the top,” Langer says. “Someone decides from far away that it must be done the same way all over the world. It becomes a one-way street.”

Langer doesn’t believe that luxury brands should abandon their over-arching global platforms, but they must empower those in the local markets to adapt and refine the context and content to suit the culture. “Brands need to allow different expressions of their brand values so that they are communicated effectively in the culture,” he says.

Langer takes as an example the brand proposition of pride. “Say a brand’s emotional payout is pride; that people should feel proud to own that brand,” Langer explains.

“That context would be appropriate in China, but not in Germany, where after the last world war, Germans didn’t grow up with that concept. The culture ultimately sets the context. In some countries you have to play up one aspect a bit stronger and in other countries you have to create it differently,” he continues.

Langer stresses that the overall brand story can and must be the same, but how it is expressed and which elements of the story need to be emphasized or downplayed must to be fluid.

Pride comes before the fall

This top-down, one-way street approach to luxury branding in China is what got Dolce & Gabbana in so much trouble with its pizza-chopsticks ad. The brand then followed with a condescending response to the controversy on Instagram which was even more infuriating, even though the company claimed its Instagram account was hacked.

“Before the whole Dolce & Gabbana thing erupted globally, I arrived in Hong Kong and asked the taxi driver if he knew about the ad and what he thought. It was eye-opening. He was so upset. He spent the whole 30-minute ride talking about it,” Langer shares.

The Chinese people can smell Western elitism from thousands of miles away and will be unforgiving if they get even a whiff of it. “The Chinese people are proud of their culture that spans thousands of years of history. Because they are a proud people, they will not accept anyone condescending to them or worse mocking them. Luxury brands need to adopt humbleness,” he says.

Humility, however, isn’t a word often associated with luxury brands, but it is a word they need to learn and internalize for lasting success in China.

Define what the brand stands for in culturally-relevant terms

This leads to another challenge for luxury brands in China. The brand values that resonate in Western cultures don’t necessarily do the same in China. Attributes like heritage, craftsmanship and quality specific to the product don’t set a luxury brand apart there, rather they are expected, simply the price of entry.

“Luxury brands rely too much on the tangibles, but not enough on the intangibles that drive value,” Langer believes. “I see a direct correlation between the success of a brand and how specific the brand values are expressed.”

“In many cases when I hear top management talk about their brand, they are actually talking about the category, not about the specific distinctives that drive customers to their own brand,” he continues.

Gucci is a brand that gets China. It is a brand that is specific about what it stands for (i.e. the tangibles) and is also in touch with consumers’ need there to express their individuality (i.e. the intangibles).

“Gucci is positioned as an ‘anti-establishment,’ even an anti-French brand. Twenty-something Millennials in Shanghai or Hong Kong want to do things differently than their parents.” Langer says.

“So Gucci gives them the tools that they can express themselves with, even go a little crazy with. Gucci is so successful in China because it has such a strong value system behind it. But if you look at other brands, they are not so clear,” he continues.

Make it personal

To succeed in China, luxury brands have to shift their focus from the tangibles built into the product to the emotional rewards that consumers derive from it. These intangible attributes are what Langer defines as the added luxury value (ALV).

For Chinese consumers much of that ALV is found it a brand’s social-status effects, such as the feeling of enhanced attractiveness, pride in ownership, being perceived as an expert or the experience of discovering something new.

“This is what confounds managers of highly-engineered brands (like cars) or design-driven luxury brands (like handbags). The product can be an identifier or enabler, but it’s not the value driver,” he explains.

The brand story and how it makes the ALV real to the consumer requires a human connection. That is the primary role of a luxury brand’s local boutique. “Given that the value of a luxury brand depends on delivering the brand story consistently at each touchpoint, the human factor becomes the most decisive,” Langer says.

“Defining the brand story with clarity and training staff so that they understand how to deliver their part of the branded service is relatively affordable compared to real-estate investments or developing cutting-edge technology,” he adds.

Langer finds that often luxury brands spend freely in those tangible elements while scrimping on the human factors. “This is, in fact, the costliest mistake a brand can make.”

Luxury brands must deliver exemplary personal customer service at the local level. But it also is critical throughout the entire global retail chain, since Bain finds that only about one-fourth of Chinese luxury purchases are made at home, the remainder during their travels.

“The staff needs to be trained in the fundamentals of luxury and their role in delivering that extreme performance point to customers, both rationally and emotionally,” he affirms.

But it stands to reason that it wouldn’t hurt luxury brands to pay attention to training all staff to understand and communicate the brand story effectively and to deliver the same exemplary humble, courteous and sensitive personal service throughout the world.

Hong Kong protests will be only a blip

Before closing, I asked Langer about the long term impacts arising from the recent Hong Kong protests. While the protests have disrupted business-as-usual since late-June/early-July, Langer believes the protests will have no lasting impact.

“If you look at the history of Hong Kong, these kinds of crises come around again and again every three-to-five years. This will likely blow over too. Obviously we are seeing a temporary impact, like the hotels I typically stay in are cheaper now than ever before,” he says, and predicts, “A lot of people I met in Hong Kong’s luxury community told me last week that this will ultimately be a non-event on terms of their expected long-term business impact.”

While people are cautious about traveling to Hong Kong now, Langer says that he has yet to see any protests in the areas where he routinely travels. “The media makes it look like the city is paralyzed, but in the five days I was just there, I didn’t see any protests. The luxury shopping areas were open for business,” he concludes.

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The phrase “Crouching Tiger, Hidden Dragon” is an idiom taken from an ancient Chinese poem that reads “behind the rock in the dark likely hides a tiger, and the coiling giant root resembles a crouching dragon.” It has become a common expression in China that refers to people with extraordinary talents or abilities that are hidden from view. It’s a reminder to keep people from underestimating others.

That expression comes to mind when considering how luxury brands view the Chinese market. On the surface, China looks so promising with so many possibilities. But as a recent series of missteps by luxury brands has shown and were expertly detailed in this Forbes article by Isabel Togoh, too many people underestimate the crouching tiger ready to pounce and the fire-breathing dragon hidden from view.

The data on China’s luxury potential is indisputable. Bain and Company estimates that Chinese consumers represent some 33% of all global spending, about $95 billion in 2018. McKinsey puts it even higher, at $115 billion.

Further, McKinsey reports China contributed more than half of global total luxury spending growth between 2012-2018 and is expected to “deliver 65% of the world’s additional spending heading into 2025.”

But Bain issues a warning for brands thinking that China is an easy road to prosperity. The researchers looked at the revenue growth for the top 20 luxury fashion and lifestyle brands. They found that for every brand that grew more than 25% from 2017 to 2018, there were two brands that grew less than 10%.

“While luxury sales are robust in China, not every brand executive feels euphoric. As their incomes rise, and as they spend more on luxury goods, Chinese consumers are becoming increasingly discerning. Some brands are more successful than others at serving these needs,” the Bain study states.

Daniel André Langer, Ph.D., CEO of management consulting firm Équité and author of several textbooks on luxury marketing, understands the tremendous opportunities for luxury brands in the Chinese market, but more importantly the pitfalls that increasingly are catching them unawares. What he finds is that luxury strategies that work in the Western world don’t translate easily to China.

“People are obsessed with the shiny new object, in the case of luxury brands that is China. But they lack cultural sensitivity, so they underestimate the Chinese consumers and the Chinese market,” Langer shared with me.

Lost in translation

Luxury brands too often dictate strategies from thousands of miles away based upon their Western world view, but with a poor understanding of the Chinese cultural perspective. What’s more, headquarters will brook no dissent from the locals.

“I hear it all the time from local executives working for European brands that they can’t do this or modify that because it comes from the top,” Langer says. “Someone decides from far away that it must be done the same way all over the world. It becomes a one-way street.”

Langer doesn’t believe that luxury brands should abandon their over-arching global platforms, but they must empower those in the local markets to adapt and refine the context and content to suit the culture. “Brands need to allow different expressions of their brand values so that they are communicated effectively in the culture,” he says.

Langer takes as an example the brand proposition of pride. “Say a brand’s emotional payout is pride; that people should feel proud to own that brand,” Langer explains.

“That context would be appropriate in China, but not in Germany, where after the last world war, Germans didn’t grow up with that concept. The culture ultimately sets the context. In some countries you have to play up one aspect a bit stronger and in other countries you have to create it differently,” he continues.

Langer stresses that the overall brand story can and must be the same, but how it is expressed and which elements of the story need to be emphasized or downplayed must to be fluid.

Pride comes before the fall

This top-down, one-way street approach to luxury branding in China is what got Dolce & Gabbana in so much trouble with its pizza-chopsticks ad. The brand then followed with a condescending response to the controversy on Instagram which was even more infuriating, even though the company claimed its Instagram account was hacked.

“Before the whole Dolce & Gabbana thing erupted globally, I arrived in Hong Kong and asked the taxi driver if he knew about the ad and what he thought. It was eye-opening. He was so upset. He spent the whole 30-minute ride talking about it,” Langer shares.

The Chinese people can smell Western elitism from thousands of miles away and will be unforgiving if they get even a whiff of it. “The Chinese people are proud of their culture that spans thousands of years of history. Because they are a proud people, they will not accept anyone condescending to them or worse mocking them. Luxury brands need to adopt humbleness,” he says.

Humility, however, isn’t a word often associated with luxury brands, but it is a word they need to learn and internalize for lasting success in China.

Define what the brand stands for in culturally-relevant terms

This leads to another challenge for luxury brands in China. The brand values that resonate in Western cultures don’t necessarily do the same in China. Attributes like heritage, craftsmanship and quality specific to the product don’t set a luxury brand apart there, rather they are expected, simply the price of entry.

“Luxury brands rely too much on the tangibles, but not enough on the intangibles that drive value,” Langer believes. “I see a direct correlation between the success of a brand and how specific the brand values are expressed.”

“In many cases when I hear top management talk about their brand, they are actually talking about the category, not about the specific distinctives that drive customers to their own brand,” he continues.

Gucci is a brand that gets China. It is a brand that is specific about what it stands for (i.e. the tangibles) and is also in touch with consumers’ need there to express their individuality (i.e. the intangibles).

“Gucci is positioned as an ‘anti-establishment,’ even an anti-French brand. Twenty-something Millennials in Shanghai or Hong Kong want to do things differently than their parents.” Langer says.

“So Gucci gives them the tools that they can express themselves with, even go a little crazy with. Gucci is so successful in China because it has such a strong value system behind it. But if you look at other brands, they are not so clear,” he continues.

Make it personal

To succeed in China, luxury brands have to shift their focus from the tangibles built into the product to the emotional rewards that consumers derive from it. These intangible attributes are what Langer defines as the added luxury value (ALV).

For Chinese consumers much of that ALV is found it a brand’s social-status effects, such as the feeling of enhanced attractiveness, pride in ownership, being perceived as an expert or the experience of discovering something new.

“This is what confounds managers of highly-engineered brands (like cars) or design-driven luxury brands (like handbags). The product can be an identifier or enabler, but it’s not the value driver,” he explains.

The brand story and how it makes the ALV real to the consumer requires a human connection. That is the primary role of a luxury brand’s local boutique. “Given that the value of a luxury brand depends on delivering the brand story consistently at each touchpoint, the human factor becomes the most decisive,” Langer says.

“Defining the brand story with clarity and training staff so that they understand how to deliver their part of the branded service is relatively affordable compared to real-estate investments or developing cutting-edge technology,” he adds.

Langer finds that often luxury brands spend freely in those tangible elements while scrimping on the human factors. “This is, in fact, the costliest mistake a brand can make.”

Luxury brands must deliver exemplary personal customer service at the local level. But it also is critical throughout the entire global retail chain, since Bain finds that only about one-fourth of Chinese luxury purchases are made at home, the remainder during their travels.

“The staff needs to be trained in the fundamentals of luxury and their role in delivering that extreme performance point to customers, both rationally and emotionally,” he affirms.

But it stands to reason that it wouldn’t hurt luxury brands to pay attention to training all staff to understand and communicate the brand story effectively and to deliver the same exemplary humble, courteous and sensitive personal service throughout the world.

Hong Kong protests will be only a blip

Before closing, I asked Langer about the long term impacts arising from the recent Hong Kong protests. While the protests have disrupted business-as-usual since late-June/early-July, Langer believes the protests will have no lasting impact.

“If you look at the history of Hong Kong, these kinds of crises come around again and again every three-to-five years. This will likely blow over too. Obviously we are seeing a temporary impact, like the hotels I typically stay in are cheaper now than ever before,” he says, and predicts, “A lot of people I met in Hong Kong’s luxury community told me last week that this will ultimately be a non-event on terms of their expected long-term business impact.”

While people are cautious about traveling to Hong Kong now, Langer says that he has yet to see any protests in the areas where he routinely travels. “The media makes it look like the city is paralyzed, but in the five days I was just there, I didn’t see any protests. The luxury shopping areas were open for business,” he concludes.

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I am a market researcher, speaker and author focused on the affluent consumers’ behavior and mindset, including the HENRYs (high-earners-not-rich-yet) mass affluent. I

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