Rich consumers (generally 20-60 years old) are fairly concentrated in large urban areas, with Beijing, Guangdong, and Shanghai housing about half of this group. These individuals are successful entrepreneurs, top managers, and business owners. They pursue the best products available, particularly imports, and are the perfect candidates to market new products to. Premium supermarkets have already emerged in China to provide high-quality products to wealthy consumers. This is the background for why China social ecommerce is booming right now.
Chinese rich consumers chase luxury brands
For many Chinese consumers, luxury brands from Europe and the U.S. are seen as prestigious. In fact, labels like Louis Vuitton, Chanel, Cartier, Burberry, and Apple were among the favorites for gift-giving by wealthy Chinese consumers. In recent years, “Made in the USA” brands, including Tory Burch, Kate Spade, and Michael Kors, become increasingly popular in China. U.S. export businesses expanding into China can benefit from a halo effect from these products by emphasizing their own U.S. origins, particularly if they are marketing luxury items. In marketing materials, international businesses might emphasize that their U.S. exports are high quality and that customers feel good about themselves when they use them.
Global business owners benefit by focusing on luxury brand products that Chinese consumers are more likely to use in public. This is because rich customers will pay for luxury cellphones and handbags without any concern of money – another key driver for China social ecommerce.
Characteristics of Chinese luxury consumers
The growing number of luxury consumers is due to the increase in household incomes in China. International luxury brands target these consumers because of their spending and purchasing power: they are powerful drivers of this industry. Nonetheless, it is important to recognise the power of the middle class because of the rapid growth. For luxury brands, this class is at stake in the future. Indeed, these people follow the Bandwagon and Veblen phenomenon. These theories highlight the rise in consumption. The price influences the prestige of the product. Therefore the more expensive the product the more the costumers want to purchase it. As price is an indicator for prestige. It has been noticed with an increase in price there is also an increase in product consumption. It is called conspicuous consumption.
A luxury consumer is characterized by his need for consistency and social status. A 2015 McKinsey report said 500 million people who bought luxury goods were middle class. By 2022, this number is expected to reach 550 million people.
Chinese luxury consumers are, in general, younger than their western counterparts. On average, Chinese luxury consumers are 25-35 years old. This is due to the fact that millennials (Gen Z) and generation Y have access easily to information through digital platforms. Indeed, a Deloitte analysis (2017) reported that luxury shoppers resort to online resources like the brand website, webzines, influencers, and WeChat/Weibo/Redbook to collect information on luxury brands. Therefore, brands benefit from an O2O communication strategy (online to offline) through digital exposure.
Moreover, it has been pointed out that women are more likely to buy soft luxury (apparel, leather goods, accessories, etc.) and men hard luxury (watches, cars, etc.). Therefore, women participate in the rise of fashion luxury consumption. The evolution of Chinese consumers’ mindset and aspirations has increased sales in the luxury industry. Chinese customers have a higher demand for disposable income and shifting needs.
Finally, nowadays luxury products are not enough for luxury brands to distinguish themselves from one another. Customers are looking for an experience, a lifetime moment. In their strategy to integrate more customers and enhance awareness, luxury brands are developing human-centered services to retain and attract consumers. For instance, Cartier has developed personalized services for bridal purchasers.
Where do rich Chinese consumers purchase?
The main shopping place for Chinese luxury consumers is overseas. It’s estimated that 60% of luxury sales take place outside China. Aside from the fact that a luxury item is about 10% more expensive in Asia than in Europe, this stems from the fact that Chinese people travel more and more around the world.
Favoring security, a simplified visa process, and tremendous landscape, Chinese consumers are exploring Europe. Statistics showed they search for gourmet and luxury (from apparel to wine) items and hospitality experience. Moreover, Chinese customers are less subject to stereotyping in overseas retail areas. As price and security are banned from certain stores in China, the customer can be often analyzed according to his outfit and followed around the store. Sale policies and practices are different in the European sector.
Chinese luxury consumers have a tendency to purchase a lot of items online. For instance, recently the Louis Vuitton store closed in Shanghai as the conversion rate was decreasing. Even though luxury is a thriving industry, each brand has to adapt itself and its strategy to its consumers.
What is crucial in understanding the Chinese luxury consumption is that it is getting further away from traditional communication, favoring digitalization and searching for experiences.
The Star Product Effect
Nothing is more important to a brand than its products. Star products of a brand can be its best sellers, award-winning products, or the most popular products. In the collectivistic culture of China, an individual’s purchase decision is easily influenced by others, and consumers tend to buy products widely talked about.
Skincare brands are adept at knowing how a star product can make a brand. For example, Clinique 3-Step System Kit, which includes three products to cleanse, tone, and moisturize, has been very popular in China for years. “Three steps, three minutes” offers users a simple but effective way of daily skincare. This has helped Clinique achieve great revenue and long-lasting fame in China. Some sought-after skincare products have been given nicknames by their Chinese buyers. For example, Lancôme ‘Advanced Génifique’ Youth Activating Concentrate is known as the “little black bottle” in China, and Erno Laszlo ‘Phelityl’ Night Cream is “tofu cream”.
Star products also play a significant role in clothing & footwear brands. Stuart Weitzman has won the favor of Chinese spenders thanks to its 5050 boots. This iconic up-to-the-knee boot has a uniquely stylish design of half micro stretch and leather, which is comfy and makes your calves look slim. So, Chinese women who try everything to lose weight and stay slim are crazy about the boot. To attract more Chinese buyers, Stuart Weitzman carries the boots in small sizes like 4 and 5.
Luxury and Digitalization are Why China Social Ecommerce Work
Nowadays, art is not just about auction houses and online art sales. According to figures in 2016, the online art market was expected to grow by 15%. Auctions have completely changed because of the digitalization of the market. Sotheby’s and Christie’s are major players in this market. At Christie’s, they recorded an increase of 84% in sales. At Sotheby’s, they decided to make a strategic investment in video content. Instagram represents of one its basic tool to communicate and influence buyers. Chinese consumers have evolving taste and they are looking for personalized products. International brands try to integrate the tastes of Chinese consumers. For example, regarding jewelry, they intend to like Jade.
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Artnet can be taken as an example to illustrate the mix between technology and luxury. They launched a mini program on Wechat with the purpose to catch the Chinese upper class. They put emphasis on search functionalities in galleries through GPS maps.
Daigou helps march into the Chinese market
It is important for some rich consumers to acquire certain luxury items or products because some collections and items are exclusively sold overseas. Daigou (middleman buyers) helps US brands attract Chinese rich consumers efficiently. Daigou provides a more convenient method to purchase the products or items rich Chinese consumers like. Actually, for some consumers, the way to get what they want is much important than money.
If there is no concern about price and discount, product safety would be the top concern for Chinese rich consumers. Food and product safety problems exposed in the media can strongly influence Chinese consumers. For example, media reports in March revealed that clenbuterol, a drug that accelerates growth, was found in pork from the Shuanghui Group, a local leading pork manufacturer. The following month, Shuanghui’s retail sales dropped 45%, and many consumers would not buy its products.
Chinese consumers generally favor foreign brands. As product safety incidents and lack of government supervision have scared Chinese consumers away from domestic products, consumers will often pay a premium for foreign brands to ensure quality, especially among rich consumers. To increase their products’ appeal, many Chinese companies register an office in the United States or Europe and brand their products as “foreign.” This has made it increasingly difficult for consumers to discern domestic from foreign brands, and they thus turn to famous and leading brands instead. Foreign companies should devote their resources to ensure Chinese consumers know their products’ true origin.
Localization is the key for success in China social ecommerce
Facing such a unique group of consumers, foreign companies should focus on localizing operations. It is not easy for many US brands or other global brands to do marketing in China if they still think like a westerner. Localization does not simply involve opening an office and using Chinese packaging, but it also includes marketing, maintaining patience, and investing in research and development. Though the PRC government no longer requires foreign retailers to form joint ventures with local companies, many foreign retailers still favor partnering with local companies, which have more regional knowledge.
Define your target
In western countries, the customers of the luxury industry are mostly people in their 50’s. However, in China, millennials meaning people born in ’80-’90s represent a serious target. Indeed, compared to their parents they earn more money and their living standard keep growing. These people grew up with technology and their consumption habits are different from western customers. The digitalization of the market really needs to be considered in your strategy. Thanks to new methods and tools such as artificial intelligence, you are able to collect data and learn their habits well.
Carve out a strong brand for your company
No matter what business you’re in you can sell on your own site or join a selling platform. You’ll need to build a solid reputation through your website and social media. Especially in the luxury market, the competition is very fierce because of the leading big international players. You’ll need to design a visible identity. Be trendy as much as possible. In order to achieve this goal, it is very important to have a wide knowledge of the Chinese market. You’ll need a good website with qualitative content. The reputation you’ll have also depends on good SEO on Baidu. Indeed, Google is forbidden in China and Baidu has its own way to function.
Bet on Social Media and China Social Ecommerce
It’s a waste of time and resources to focus on Facebook and Google when these sites are blocked in China. You need to familiarise yourself with Baidu, WeChat, and Weibo. WeChat is one of the most popular platforms to engage and attract Chinese consumers, incomparable to any western social platform. Younger Chinese travelers are able to research, plan and purchase their trips abroad within the WeChat application alone. Increasingly, mobile payment apps such as WeChat Pay (similar to PayPal, but so much more) have become an indispensable part of their lifestyle and travel. This is another important means of connecting with Chinese tourists. Find brand ambassadors who will spread news of your brand on Chinese platforms, and make sure you stay visible and relevant.
The probability that the majority of sales will take place through China social ecommerce, rather than retail sales, is high. It’s something that you need to adapt your business model to and take advantage of. It is essential that your website is in accordance with Chinese standards and easily available in Mandarin.