This essay won the top prize in the inaugural FT-Moet Hennessy essay contest for China business schools.

What did Time want to tell the world when Chairman Mao in Louis Vuitton appeared on its cover of June 27, 2005? China is undergoing an astonishing change and has become the destination for a new gold rush.

Foreseeing a booming market with over 160m luxury consumers (1), luxury brands are rapidly penetrating the Chinese market: Giorgio Armani said that it planned to open 22 outlets in China before 2006. Prada, with 22 outlets, is building a flagship store in Shanghai, according to chief executive Patrizio Bertelli. Ten years of devotion bearing fruit, Louis Vuitton has even begun to expand its business lines to second-tier cities in China.

A very strong premium and luxury credentials give the world’s leading brands great potential. But if they are to realise that potential - and make a full contribution to luxury’s revitalisation in China, still a fledgling market - the giants have a lot of work to do. The subject on their board memoranda reads: “What are the critical success factors for luxury goods companies looking to expand in China?”

Understand the Chinese market

“Look in his face, listen to his voice, ask his feeling, and the last but the most important – put a finger on his pulse.” So BianQue, the most famous herbalist doctor in ancient China, described the diagnosis process when he summarised his classic therapeutics. To follow the old oriental philosophy, the imperative for those looking into the Chinese luxury industry is to abandon your arrogance about your past success and bend down to listen to the voice of your customers and feel the pulse of this brand-new market.

“In the past, the golden rule for success in the luxury business was to be elegant, consistent and effective: Don’t ask consumers what they want; tell them what they should have.” But today, confronted with an unfamiliar market, a self-centred approach will not work anymore. You must know your customers, deeply understand their high-end value proposition. “Strive to know your consumers, not just be known by them,” Bain said in a 2005 luxury report.

LVMH’s enticing success in China is clear evidence that only by understanding the “why” that drives luxury purchases, can luxury companies gain new ideas about how to build their brands, touch the emotional needs of their target market, and sell more products

If foreign retailers want to enter China , they will have to really understand how the market works here. Listen to the market carefully; to the extent that you can be open and listen like a baby, you will win.

1. China is a huge market

Still low in terms of average income level, budding rich enterpreneurs and a burgeoning affluent middle-class have already become the main purchasing force for luxury goods in China. A Merrill Lynch report indicates “the Chinese mainland has at least 236,000 millionaires, about one-tenth as many as in the United States. The figure, however, is rising about 12 per cent per year.” The flourishing economy will inevitably steer China towards beingone of the top luxury marketsin the world in the near future.

2. Chinese have very strong brand consciousness and status concern

“Face” is of primary importance to Chinese. Striving to promote the outward expression of success after acquiring wealth, “the notion of using an internationally acclaimed luxury brand gives them extra incentive to buy,” according to Bottoli. Items with a shining brand label always sell the best in China.

3. Chinese luxury goods consumers are very young

Unlike in western countries, the majority of luxury consumers in China are aged below 40. CEOs of top luxury brands point out that Chinese youth between the ages of 25 to 30 are rapidly forming a luxury goods consumption cluster, at a much faster rate than their counterparts in developed western countries. (2)

4. Chinese women are big spenders on luxury goods

The emergence of economically independent professional women has reshaped the old male-dominated customer base in the Chinese luxury industry. Trendy and rich young urban ladies are willing to treat themselves and indulge in the glamour of luxury brands. Classic trench coats may still be adored, but products that add a modern style appeal to younger and women customers.

5. Chinese regional markets differ significantly

China still has very different values and attitudes across different regions. Something that works in northeastern China with its unique culture and values may not play well in the south. There are different values that resonate in different areas. Customers from northeastern China prefer the most expensive items and goods with notable brand labels, while the southern Chinese tend to buy lower-priced items and products with more implicit and elegant designs.

Fashion media concentrate on Beijing and Shanghai; yet customers from Dongbei in northeastern China are the main purchasing force as evidenced by the sales record of luxury watch brands in China.

6. Chinese consumers shop at different locations

Even when purchasing luxury goods, Chinese customers prefer to shop at downtown commercial centres or large shopping malls which gives them a chance to stroll around and browse different brands and products. Low brand loyalty means that Chinese consumers are not willing to go out of the way to buy a certain brand product. An isolated boutique remote from market centres may not work well here.

In addition, due to high tariffs, many Chinese enjoy buying luxury goods outside mainland China, especially in Hong Kong .

7. Chinese consumers are very open-minded

Unsophisticated Chinese customers are very open-minded to foreign brands, which gives both the top brands and some rising ones opportunities to establish a foothold once they can convince customers of their brand value.

8. More and more Chinese consumers buy luxury goods for their own consumption

Though gift purchases still account for a critical stake in luxury good consumption in China, customers have gradually moved towards buying for their own possession. Not lured just by the cachet of designer labels and fashionable style, today’s Chinese also want products that offer innovation and solid value, and an overall experience that reinforces that value. (3)

9. Chinese consume more personal luxury accessories

Not rich enough to buy villas, limousines or overseas family holidays, Chinese consumers concentrate their spending on personal accessories such as cosmetics, perfume and watches at this stage.

10. Luxury brands fight against counterfeits in China

“The biggest obstacle to expanding our business in China is the lack of effective trademark protection. The major task for us is to deliver a clear message of our positioning and differentiate our brand from other Valentinos,” complained Valentino, the top Italian luxury brand which has suffered a lot from fake products in the Chinese market .

Global luxury brands need to team up with the Chinese government and media to fight counterfeit manufacturers and sellers.

“Less anecdote and more science”. An efficient integrated Customer Relationship Management data system could help luxury companies in China to substantially understand the market and intimately connect with their customers.

By mining sales databases, a luxury company can gain insights into consumer preferences and assess potential demand. Customers who buy an accessory today may purchase another higher-value item tomorrow. Chinese tourists who buy a single item from one store in Paris may buy items of the same brand in other stores in Shanghai.

Data-mining enables multinational brands to know how important their Chinese customers are, no matter in which store they shop around the world (4). By closely monitoring Chinese shopping abroad, companies would have a good feeling for how the market might work even before they open stores in China.

“An effective CRM system contributes to directing marketing efforts towards customers who will respond to them, and yield products and services that customers really want in the first place,” commented a store manager for LVMH in China.

Guard the brand first

With global luxury brands pouring into China, the potential risk for them is expanding too fast and opening too many stores without solid strategic branding.

Entering the Chinese market should be seen as a long-term investment. Even if the growth rate is high, it will take time for the market to get established. Don’t ruin your name by making major business decisions blindly. Reputation takes years, even decades, to build. Yet it can be lost in seconds (5).

The most successful companies began the process of building their brands long before they first opened their doors to do business. Chinese customers know little about luxury brands. It’s almost like a new launch even for the big names in the luxury world. Make sure both the timing and local conditions are right for entry.

Align your expansion plan with a strategy to build long-term brand value. For those eager to expand in China, it is critical to take note that success in the Chinese market requires far more than opening dozens of retail stores. Product, presentation, packaging, promotion, distribution, merchandising and advertising should all contribute toward an essentially simple, unified purpose - delivering genuine brand value to your customers (6).

Take Moet Hennessy, one of the most successful luxury wines and spirits brands in China, as an example. Following the establishment of its Beijing office in 1996, the company spent nearly five years conducting market research on consumer psychology and behaviour, distribution channels and media advertising before its formal entry into the Chinese market in 2001.

Heavily investing in marketing, public relations and retail networks, the company has a firm strategy of keeping balance between the enhancement of brand image and the expansion of distribution channels. Proud of its history, strong traditional values and uncompromising attitude towards quality, the company has endeavoured to perfect its brand image in all aspects. By 2005, Moet Hennessy had accelerated annual growth to about 15-20 per cent, with stable development in 26 cities across China.

Many other companies have seen their brands weaken when actions are taken to move them in a direction away from their brand strategy, and when inconsistent messages are given to the public. In an effort to leverage better distribution channels and the market knowledge of local dealers, as well as to lower operating costs, a lot of foreign luxury companies choose to massively license to Chinese retailers. Unfortunately, this strategy has led to failure for many who subsequently found that distribution channels had gone out of control.

How can you expect a customer to trust you again after he has spent thousands of renminbi on a counterfeit from your licensed retailer? This happened in July at a store promoting a world famous brand in a large shopping mall in Shenzhen.

When it comes to choosing your distributors, you have to carefully consider their history, their operational capability and whether their own brands match yours, before make a final decision (7). Instill the right kind of mindset in them, or their desire to make a quick buck will come back to haunt you.

A blurred brand image with an inappropriate license and franchise will erode brand value. As such, more luxury brands in China are choosing to build dedicated retail outlets of their own, cleaning the house of inappropriate licences, and focusing on the main stores.

Trusted luxury brands are not established overnight but are built up as a result of long-term investment in their brands, or as one executive described it, “a vision of luxury, an attitude”. In the chaos of a booming market, keeping your brand front and centre will ultimately increase your market share in China.

Sell your product and your culture

For luxury companies in China, it should not just be about selling products. They should seed their success through luxury culture apostles in the Chinese market. “Luxury stands more for your lifestyle than simply for the income level,” said Gaoyuan, a graphic designer and luxury brands collector. Products can be out of date, but culture and style are eternal.

Always expensive, luxury brands mean more than the enjoyment of culture. The intrinsic drive to purchase luxury goods is the pursuit of fantasy, aspiration and desire. Luxury cannot be realised without a strong emotional experience and psychological satisfaction. The more you know it, the more you enjoy it.

Though luxury can denote both wealth and sophistication, many Chinese customers have little sense of luxury culture, with the whole nation just recovering from general poverty. There are a lot of rich people in China, with a lot of money around, but they don’t have a full understanding of the luxury lifestyle.

The sudden release of a repressed consumption desire among newly-moneyed Chinese has resulted in a short-term boom in luxury goods buying. But only through the cultivation of luxury culture can luxury brands look forward to sustainable healthy development in China over the long term.

‘Cultural literacy’ - with this, luxury companies can manage through culture to get the best from their Chinese customers. Without it, you run the risk of destroying the very source of people’s commitment and passion. Culture defines the context in which luxury companies do business – and it is the wellspring of luxury brands’ distinctiveness and vigour (8).

The spoils will go to the brave apostle that can buildequivalencebetween the brand and luxury culture. “Chinese consumers are inquisitive. They want to know why something is a good product.” Fashion shows, special events and other public relations efforts by luxury companies create a luxury culture environment, giving ample opportunities to Chinese customers to practice their taste for a luxury lifestyle and building emotional connections with the brands.

Grounded in its core historical heritage, the essence of luxury brands is to consistently create and lead new cultural values across cultural divides. Luxury brands keep inventing new images as allegories - through ads, for instance, consumers learn different ways of understanding their place in society. When customers enjoy a soft drink or wine , or drive their car, much of what they’re consuming is the allegory (9). Sensing the emergence of pop culture among young Chinese, Hennessy switched its marketing focus to bartenders. Fancy advertising making the allegoric association between hip-pop and Hennessy VSOP soon captured the imagination of young Chinese in the cities. “By drumbeating bar culture, foreign wine brands have created a huge young consumer group,”said Mr. Lu, a retailer for Moet Hennessy, cheering the boost in sales revenue in recent years .

Train your talent

When the whole luxury industry sees golden opportunities in the Chinese market, companies soon discover gaps in their talent pool. Luxury brands suffer from understaffing, especially due to the lack of qualified professional managers in China.

Many see employing locals as a way to lower their operating costs. It does more than that! All luxury companies in China should train their people adequately and empower their employees to become culture and brand ambassadors. Employees interact every day with colleagues, customers, suppliers, competitors and industry experts. They also interact with a large number of people totally unconnected to the corporation, such as family members, friends, former colleagues and many others. Hence, they can serve as very effective brand ambassadors. This word-of-mouth effect can be extremely valuable and have a great impact on the overall image of the company’s brand (10).

To guarantee the sustainable development of luxury goods companies in China, talent with a practical knowledge of the local business and a widerunderstanding of luxury management on a global scaleis urgentlyneeded.

Keep refreshing yourself

The new luxury culture has already landed in China. But the line between lasting luxury and disposable fashion has been blurred, witha number of companies providing products priced more affordably and promoting fast fashion and personal experience, rather than goods with high prices and a limited edition status. Luxury does not only belong to the upper class. The new generation claims that everybody has the right to luxury.

On the one hand, real luxury brands should carefully draw a distinction between luxury and fashion brands. In this infant market, it is essential for the long-term growth of luxury brands to help Chinese perceive the differences between luxury and prestige brands, and between premium brands and fashion brands. Induce Chinese to appreciate “genuine luxury”. The existence of cheap fashion multinationals have made it more important for luxury stores to differentiate themselves by being more lavish and original, and less like a chain. A brand is either a luxury brand or it is not. There is no in-between (11).

On the other hand, it did not take long for luxury brands to realise the importance of being luxury without forsaking a fashionable image in China. The average age of Chinese luxury consumers is under 40. Young Chinese consumers enjoy mixing the use of luxury items with high-street fashion brands. As a result, leading brands have begun to provide some innovative services to Chinese customers:

1) A more customised service is being introduced by some top luxury brands in China, to offer a tailored customer experience - not just in exclusive stores.

2) The shelf life of luxury items is shortening each season with an increasing number and breadth of in-season offerings (12). More fashionable collections are introduced at a higher frequency by luxury brands in China.

3) “Available luxury” or “value-oriented luxury,” as illustrated by Louis Vuitton offering smaller (and therefore less expensive) items in China,focused on young entrants.


China’s luxury goods market sounds very intriguing, but without a serious strategy and consistent commitment, foreign operators will get nowhere. Success or failure really depends on to what degree you listen to the voice of the local market and seamlessly interact with Chinese culture. Take a deep breath, dive deeply into the minds of your customers. Remember the golden key to unlocking the burgeoning market: consistency in brand strategy, with a long-term vision.

Success or failure is in your hands. “Don’t blame China if your business venture flops.” (13)

1 China Brand Association

2 China News, May 24, 2005

3 Bain 2005 luxury goods research

4 ‘The Marketing of Luxury Brands’, A.V. Vedpuriswar

5 ‘Is Reputation Everything’, Jeremy Sampson

6 Brand Channel website

7 Sherri Wang, marketing director, Plucdiam Shanghai Ltd

8 Mark Fields, chairman and CEO, Premier Automotive Group

9 ‘Building Brandtopias – How Top Brands Tap Into Society’, June 24, 2002

10 ’10 Steps for Successful Corporate Branding’, Martin Roll

11 ‘Industry Wakes Up To The Dragon’, Adam Jones, Financial Times

12 Bain 2005 luxury goods research

13 Huang Guangyu, president, Guomei Electrical Appliance

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