By Jasmine Zhu, Luca Solca
ACKNOWLEDGEMENTS
We are grateful to our partners in this research, Luca Solca and Maria Meiță from Bernstein Research.
The following is an edited version of the original paper published by Bernstein, on October 22, 2021; and by BOF, published on November 1, 2021.
Chinese nationals are the most important luxury goods consumers (making up approx. 30% of the market today and 50% of the market by 2025 according to Altagamma estimates). However, the key business decisions are still taken by Western executives in Europe. This has often resulted in overly commercial and culturally insensitive initiatives, which had the potential to alienate both the Chinese consumers and the brand's core customers.
In this report, we bring you the top 10 most common mistakes brands are making in Digital China:
1. Western decision-making for the Chinese market
2. Localization gone wrong
3. Lack of cultural & political sensitivity
4. Shallow depiction of Chinese culture
5. Overconfidence
6. Seeing China as one market
7. Just a little digital, not enough, and not fast enough
8. Not omni-channel yet
9. Over-reliance on celebrities or poor Brand-KOL fit
10. Favoring Western agencies or digital partners
1. Western decision-making for the Chinese market
Denis Morisset, ESSEC Business School professor, says: “Luxury has a culture of control and conformity”. Nowadays, most international luxury brands still keep rigid control of key business operations at their head office in their home country.
However, this model raises several issues. First, it creates an unbalanced structure. The local team often consists of one highly paid foreign top executive and a pool of local junior staff for support. “The staff are hired from a luxury brand background and provide mostly translation work”, recalls a luxury brand senior marketing executive. The executive usually holds a tight control over their staff, suppressing any incentive of innovation. This results in less agility and an inability to respond to the incredibly fast-changing pace of the Chinese market.
Pressure is high for both junior employees from brands, and from agencies who are responsible for “solving brand problems”. “We have waited for months to get approval from HQ on a WeChat development project, to later learn that the decision maker from Paris wants to identify a China digital director first, to evaluate options, before making his decision. It is not uncommon for this approval process to take 6-9 months.” explains a digital consultant from a development agency we interviewed.
Exhibit 1: So which brands do Digital China well and which don’t?
Source: Company websites, Bernstein analysis
Exhibit 2: The key business decisions are still taken by Western executives in Europe
Source: Company websites, Bernstein analysis
2. Localization gone wrong
Chinese local consumers’ expectations must be met. Therefore many luxury brands have been driven to customize their offerings and brand experiences. Local digital platforms have been successfully adopted to amp up brands’ competency for innovation. Paired with crafted communication campaigns, tangible sales results have been generated, instead of generic overseas communications.
Over-localization, on the other hand, reduces a brand’s ability to charm, inspire and educate, because part of the luxury appeal is its foreignness and its original cultural identity. Eliminating a good European story or international experiences and replacing them with Chinese alternatives, or worse, making an unsophisticated adaptation to a Chinese context, often leads to a massive loss of appeal.
Cartier released a Valentine-themed campaign “How far would you go for love?” featuring same-aged men riding bicycles, wearing matching rings, with a China-adapted caption reading “Father and son, bound by love, enjoying life’s journey.“ Cartier’s campaign attracted negative attention on Chinese social media. One Chinese viewer commented: "Trying so hard to conceal something has made something ordinary so weird."
Exhibit 3: Cartier's Valentine-themed campaign attracted negative attention on social media
Source: Company website, China & I, Bernstein analysis
Other companies do it better. Top digital China performer Dior has pioneered the localization strategy. By releasing a special capsule collection on Double 11 (11th of November = Singles Day, one of several dates in China equivalent to Valentine’s Day in the West), participating in campaigns led by eCommerce giant Alibaba and social media platform Bilibili, Dior earned nearly 400,000 views on the bag they were promoting.
Louis Vuitton directs their publicity and promotional ecosystem towards Chinese social media and e-commerce platforms, such as WeChat, Weibo and Xiaohongshu, as well as Chinese search engines to enhance consumers’ understanding of the brand and target localized market demand. They also let Chinese fashion bloggers come onto Louis Vuitton’s public WeChat channel, a step in innovating and adding local voices to their digital marketing efforts in the country.
Exhibit 4: Louis Vuitton uses KOLs as a means to target localized market demand
Source: Xiaohongshu, China & I, Bernstein analysis Exhibit 5: Their digital marketing efforts in the country are successful
Source: Weibo, China & I, Bernstein analysis
3. Lack of cultural & political sensitivity
Western luxury brands continue decoding Chinese culture through their own eyes without focusing on local consumers’ economic nationalism and growing cultural and political sensitivity.
Chinese citizens are proud of their country and especially its achievements over the last 50 years, giving it world power status. Not respecting cultural nuances or the Chinese view of political matters, like territorial integrity, will make the brand the target of attacks often with nationalistic overtones.
Versace, Coach and Givenchy all released T-Shirts with designs variously implying Hong Kong, Macau and Taiwan were not part of China. The merchandise had to be withdrawn after a major public backlash and Chinese celebrity ambassadors cancelling their contracts with these brands.
Dolce & Gabbana was subjected to public scrutiny in 2018 upon posting a video on Instagram of a Chinese model eating Italian dishes with a pair of chopsticks.
Chinese celebrities and consumers called for a boycott on the brand, condemning the videos posted as being racially insensitive. This controversial ad campaign also caused the cancellation of the brand’s runway show as Chinese celebrities and models collectively called off their attendance in the event in protest. The company is now again unfavorably in the news, this time related to a lawsuit against Diet Prada, the Instagram account that reposted anti-Asian comments attributed to one of the D&G founders.
Exhibit 6: Dolce & Gabbana is again on the wrong side of media, as they sued the account that led to their brand being 'cancelled' in China
Source: Instagram, China & I, Bernstein analysis EXHIBIT 7: Dior faced social media backlash after a video surfaced of an employee using a map of China without Taiwan in a presentation at a Chinese University.
Source: Weibo, China & I, Bernstein analysis Details matter - in 2019, Dior met with public flak on Chinese social media after a video surfaced of an employee using a map of China without Taiwan in a presentation during a talk at a Chinese University. The video fueled online criticism of Dior not respecting the One China Policy.
Burberry encountered backlash in China over their stance against Xinjiang cotton. Statements issued by the company resulted in the exclusion of Xinjiang cotton in the supply chain of multiple brands. In turn, this led to Chinese celebrities and netizens calling on Weibo - the Chinese version of Twitter - to boycott brands that refuse to use Xinjiang cotton.
Exhibit 7: Tencent canceled its partnership with Burberry on China’s top game Honor of Kings following the Burberry x Xinjiang cotton controversy
Source: Company website, China & I, Bernstein analysis
4. Shallow depiction of Chinese culture
Brands that frequently use traditional Chinese symbols risk looking outdated and out of touch with a modern and fast-moving clientele. Old and traditional Chinese stereotypes in campaigns should be avoided.
In the past few years, we have seen an overuse by luxury brands of the traditional colors red and gold during the Chinese New Year and certain images such as double happiness characters or dragons as an interpretation of Chinese aesthetics. This looks superficial, is becoming boring, and puts off more and more Chinese consumers.
Using traditional culture codes may work for an older and more traditional target group but is seen as very cliché by most of the younger and middle-aged consumers. Burberry once printed the character for prosperity on one of their scarves, which was displayed the wrong way around when worn. The company’s Chinese New Year campaign shot by a foreign photographer was perceived as tasteless and outright creepy with its ‘Zombie’ look. Similar comments were made about Prada’s campaign. Dior’s choice of the font Source Han San for the iconic Book Tote received criticism for its “lack of design” and “fake look”.
Exhibit 8: Burberry once printed the character for prosperity on one of their scarves, which was displayed the wrong way around when worn
Source: Company website, China & I, Bernstein analysis Exhibit 9: Burberry's Chinese New Year campaign was perceived as tasteless and outright creepy with its ‘Zombie’ look
Source: Company website, China & I, Bernstein analysis
Exhibit 10: Dior’s choice of the font Source Han San for the iconic Book Tote received criticism for its “lack of design” and “fake look”
Source: Company website, China & I, Bernstein analysis
Exhibit 11: Prada’s campaign also received criticism for looking out of touch with modern Chinese consumers
Source: Company website, China & I, Bernstein analysis
Gucci, on the other hand, got it right with its social media campaign entitled #GucciGram banking on consumer familiarity with the Gucci Tian print along with flowers and a hummingbird that drew inspiration from 10th-century artworks of Chinese painters. This proved to be a unique and tasteful way of integrating Chinese art motifs into their collection that resonated very well with the Chinese market.
Exhibit 12: Gucci tastefully integrated Chinese art motifs into their collection
Source: Company website, China & I, Bernstein analysis
5. Overconfidence
For historical reasons, many Western luxury brands view China as a market just to “sell”. However, it has become a market that brands need to “earn” first.
Chinese consumers today are in an extremely powerful position to accept, reject or complain as they please. The vast amount of social media apps, peer-to-peer review platforms, and live communication tools give consumers an unprecedented level of opportunity to express their opinion. Brands’ performance and behaviors are their talking points and an Haute Couture show live-streaming from Paris can be their nighttime entertainment. Not putting enough effort in the meticulous preparation of such an event targeted at a Chinese audience can draw a very negative response. Louis Vuitton experienced this in their livestream debut on Xiaohongshu which was widely criticized for the cheap-looking settings.
Exhibit 13: Louis Vuitton's livestream debut on Xiaohongshu was widely criticized for the cheap-looking settings
Source: Xiaohongshu, China & I, Bernstein analysis
The breadth and availability of choices presented to these powerful spenders and their ability to instantly accept or reject is still something new for even some of the most powerful brands. When an established and prestigious brand believes they are in a given one-to-one, secure and committed relationship with the customer, they are being overconfident and simply wrong. Apart from regular consumers abandoning the brand for others, its “celebrity ambassadors” are likewise not a given - they will easily terminate their contract over a mistake the brand makes in China, often leading to a collective (and very costly) boycott of the brand.
When a new luxury brand enters the market seeking to acquire new customers, it is naive to presume ‘unconditional love’ from the savvy Chinese consumers just because it is a new heritage brand with exceptional craftsmanship, quality products, and an international reputation. Jasmine Zhu of China & I Brand Management states that it is important to remind the client about the hard truth of the Chinese market: heritage, quality, and reputation are very important but to become truly successful in China, the new entrant must also curate exceptional brand messages, present unique selling and value propositions, be fast and agile enough to find its gap and deliver an outstanding customer experience.
Established top tier luxury brands - despite not having direct local competitors just yet – have already started to feel the threat from a rising competitive power of Chinese local brands. Amongst China’s GenZ, the key consumers of luxury, acceptance and sometimes preference of local Chinese brands is increasing.
Successful luxury brands are humble in China, carefully balancing the authentic notion of superior European craftsmanship with equal tribute to Chinese tradition and skill. This can be achieved by tastefully blending Chinese cultural elements into everything from the brand’s product design to its marketing campaign, showcasing strong relevance to their local customers. Kim Jones' Dior 2021 Fall menswear collection took inspiration from Chinese traditional embroidery techniques, bringing together both Chinese heritage and global modern high fashion. The campaign topped Chinese social media charts.
Exhibit 14: Kim Jones' Dior 2021 Fall menswear collection took inspiration from Chinese traditional embroidery techniques
Source: Company website, China & I, Bernstein analysis
6. Seeing China as one market
It is no longer enough to create a single China strategy. Tailored micro strategies are required to respond to the complexity, diversity and regional peculiarities of the Chinese market.
Multi-dimensional considerations on distribution channels, product development, positioning and communication are required from the brand’s headquarters and its in-country management. Certain products or marketing messages that are well received in Beijing or Shanghai might not resonate well with consumers in Nanjing or Xiamen. Products placed for Double 11 shopping events might not be appreciated by loyal VIP customers of a Hermès store in SKP. A campaign emphasis on scarcity or exclusivity might resonate well with middle-class professionals in top-tier cities but might be a complete turnoff for live-streaming commerce buyers who mainly look for durability or functionality from a luxury product. In fact, according to McKinsey, 75% of wealthy Chinese consumers live outside the top-tier cities.
When luxury first blossomed during the ’90s in China, there was only a certain demographic of consumers familiar with these brands and they could be purchased only in a limited number of locations in traditional ways. Things have been rapidly evolving along with China’s demographic shift, economic and technological advancement, and its geopolitical status. Luxury brands need to recognize the ongoing transition and decide not only how to react now but also how to position themselves for future changes in China’s society and its luxury market. They cannot afford to view China as a single market that can be serviced with one-size-fits-all products and services or communication approach. Luxury brands need to consider multiple regional head office structures within China to develop deeper local consumer insight and become more agile, proactive, and efficient to predict and meet local needs.
A prime example would be Gucci’s targeted localization approach in lower-tier cities to expand their reach and relevance throughout China. The strategy is based on tapping on the brand’s established network in first-tier cities like Shanghai, Beijing, and Shenzhen to support opening new stores in second-tier cities. Entry-level goods and accessories are offered in the second-tier cities as a means to build up and penetrate a market which is at a very different stage of luxury-spending compared to first-tier cities. In this way, the brand is able to establish new customer relationships and build momentum to introduce ready-to-wear products as consumer tastes develop.
7. Just a little digital, not enough and not fast enough
As recently as 2014, China’s digital market was still regarded as rather basic. Utilization of multiple social media platforms like WeChat and Weibo only evolved over time. Today, China’s digital market is the most innovative and diverse globally and its platforms provide a highly sophisticated environment for brands to operate in.
Due to millennials’ explicit calls for a digital experience, luxury brands are embracing Tmall and DTC platforms, such as the WeChat Mini Program or live streaming sites, a lot more. Nine out of ten Chinese millennials prefer their in-person experiences to be digitally-friendly when making a luxury purchase decision, according to McKinsey’s 2019 report The Chinese Luxury Consumer.
Digital-forward Gucci is aggressively investing in China and has recently opened two mono-brand online stores on Luxury Pavilion, which is accessible to Alibaba's 750 million users.
Bvlgari became a highly successful brand in adopting digital China strategies. Their China CEO led initiatives from investing in eCommerce, connecting with customers through an interactive luxury and digital sales tool called the “Barocco” app, using AR to facilitate a high-end jewellery online experience and creating interactive digital content to showcase brand heritage.
Exhibit 16: Bvlgari uses AR to facilitate a high-end jewellery online experience and creates interactive digital content to showcase brand heritage
Source: Company website, China & I, Bernstein analysis
Dior, the first luxury brand to sell a core product line on WeChat back in 2015, was also the first mover on youth-native streaming platform Bilibili in 2020. Following Dior’s lead, Fendi created a successful campaign about its Peekaboo Bar by collaborating with Bilibili, capturing the attention of Gen-Z through comic-influenced illustrations.
Exhibit 17: Dior was the first luxury brand to sell a core product line on WeChat back in 2015
Source: WeChat, China & I, Bernstein analysis EXHIBIT 19: Fendi, one of the first luxury brands on Bilibili, created a successful campaign around its Peekaboo bag, capturing the attention of Gen-Z through comic-influenced illustrations
Source: Bilibili, China & I, Bernstein analysis
By contrast, Prada fell behind China’s digital development for fear of losing brand exclusivity. Its CEO announced in 2014 that “the brand was not interested in pursuing online sales” and planned to make only 5% of its total revenue from online sales. The brand re-focused on eCommerce as its core strategy only in 2017.
While Prada, Hermès, and Tiffany & Co have official accounts on WeChat, Weibo, and Douyin, they still haven’t made an official footprint on other platforms such as BiliBili, Kuaishou, or Xiaohongshu. Implementing social campaigns, establishing official accounts and becoming a mainstay on these platforms would send a positive signal to the millions of platform users and improve the brands’ online visibility and customer outreach.
Exhibit 18: Prada, Hermès, and Chanel still haven’t made an official footprint on platforms such as BiliBili, Kuaishou, or Xiaohongshu.
Source: WeChat, Weibo, Little RedBook, Douyin, Bilibili, Kuaishou, China & I, Bernstein analysis
8. Not omni-channel yet
Omni-channel is a proposition based on digital luxury customers’ expectation to experience authentic shopping and brand storytelling anytime, anywhere for anything they want. Luxury brands in the past expanded in China until they had more stores there than in their home countries because back then this was the only way to increase customer numbers, build deeper customer relationships, and strengthen customer loyalty. Meanwhile, 82% of Chinese luxury consumers use a combination of online and offline channels to make purchases. It is also important to note that 50% of the worldwide e-commerce is generated in China.
Today, luxury brands must focus on integrating what they know of customer behaviour obtained from interaction in traditional stores with data obtained from online activities to create digital touchpoints, and use a customer’s purchase history to tailor unique in-store digital experiences or identify potential store sales opportunities.
For many luxury retailers, physical stores and online touchpoints are operated in different silos. A common CRM view is missing, which means “brands often do not completely know their customers and are unable to serve them sufficiently”, as observed by Skyler Yeon of Kung Fu Data, a Shanghai-based eCommerce agency.
While Cartier has been adding more stores since Covid-19 due to continued growth in China, they also offer a wide range of jewellery, watches and leather goods on both Wechat Mini program and Tmall. “E-commerce had a very phenomenal acceleration, especially through our flagship store on Tmall, which had fantastic results," said CEO Cyrille Vigneron.
Hermès likewise sells most collections on the WeChat Miniprogram online store. As such, Hermès saw growth in 4Q20, thanks to its adaptability with e-commerce assets in Asia, and especially in China.
Exhibit 19: Hermès launched exercise tutorials on its WeChat Mini Program to promote its latest accessories in May 2021
Source: WeChat, China & I, Bernstein analysis Exhibit 20: Burberry launched a Tencent-powered store in Shenzhen
Source: Company website, China & I, Bernstein analysis Louis Vuitton entered into a partnership with China’s e-commerce powerhouse JD.com in 2021, making it the French luxury giant’s first third party e-commerce channel to expand its market reach in the country. JD.com customized the model in a way that customers may just type “LV” in the search bar in the JD.com app and directly enter Louis Vuitton’s official mini program to enjoy the brand’s exclusive shopping experience. This connects the brand directly with JD.com’s high quality active customers while providing immediate access to all Louis Vuitton products, enhancing the luxury experience for JD.com users. A win-win for both parties - and the customers.
In 2020, Burberry upgraded its physical retail store experience when its Shenzhen flagship store partnered with China’s tech giant Tencent to become the “perfect modern social retail store”. By launching a Tencent-powered store, Burberry is able to bridge customer touchpoints to unique and seamless experiences through an in-store technology that integrates social and digital aspects with physical surroundings, creating a space conductive for interacting, sharing and shopping.
Contrary to this, brands like Chanel remain uninterested in selling RTW or Leather Goods core collections through China’s e-commerce channels (or any e-commerce channels for that matter). According to Vogue Business, Chanel experienced a 30% reduction in fashion show viewership as a result and lost ground to Dior in terms of Google search results over the past five years. This may serve as an indicator on how the brand’s resistance to embrace e-commerce has a negative impact on its ability to connect with and gain new customers, especially in Digital China.
"Today, e-commerce is a few clicks and products that are flat on a screen. There’s no experience. No matter how hard we work, no matter how much we look at what we can do, the experience is not at the level of what we want to offer our clients".
_____
Bruno Pavlovsky, President of Chanel
Exhibit 21: Chanel has lost ground to Dior…
Source: Google Trends, China & I, Bernstein analysis Exhibit 22: …partly due to its refusal to embrace e-commerce
Source: Company websites, China & I, Bernstein analysis
9. Over-reliance on celebrities or poor Brand-KOL fit
Luxury brands are increasingly collaborating with celebrities or KOLs to increase visibility, engagement and conversions among Gen-Zs in China, emerging as the biggest digital consumers of any market. However, poor judgement and the wrong choice of celebrity ambassadors or KOLs often evoke controversies.
The risk of relying on celebrities for engagement and sales has increased due to the proliferation of social media and the rapid spread of negative news about a famous person and more recently the drive of the Chinese government to discourage people from ‘worshipping’ entertainment personalities.
Not applying strict selection criteria when choosing KOLs for the brand or collaborating with influencers can lead the brand to select popularity over cultural and value conformity. Not strictly controlling online communication content puts the brand at risk of serious damage to its image and public perception.
At the beginning of 2021, brands such as Louis Vuitton, Bvlgari and Prada were making headlines for signing renowned big Chinese celebrities as brand ambassadors. However, just a few months have passed and the (Chinese) world is completely different. Scandals involving several of these celebrities are all over the internet. For example, Bvlgari and Louis Vuitton ambassador Kris Wu was charged by the police with rape. This has resulted in cancellations of many contracts, which - even when handled immediately and properly - still negatively impacted the brands’ public image in China.
Bvlgari has since adopted a more diversified approach to celebrity endorsements as a result. In August 2021, the brand launched a campaign dedicated to their new collection inspired by the architecture of the Roman Colosseum: The B.zero1 Jewellery Collection. Celebrity endorsers were well-known Chinese actors and actresses, BLACKPINK’s Lisa, and female comedian Lamu Yangzi. The campaign was met with positive reactions from Chinese netizens with Lamu Yangzi’s addition to the roster being hailed as the most impressive. This diverse approach allows Bvlgari to tackle a wider range of people as they partner with celebrities from different sectors while minimizing the risks that concentrating all their resources on one sector of celebrities would present.
Exhibit 23: Bvlgari's B.zero 1 campaign partners with a variety of KOLs from different industries – like comedian Lamu Yangzi – hedging KOL image risks
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