Marketing to China

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IN TRO DUCTION

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THE CON SU MER

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IN TER NATIONAL IDEALS

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SO CIAL MEDIA

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MADE IN BRI TAIN

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JON ATHAN SAUNDERS x LANE CRAW FORD

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This report is going to explore the Chinese market focusing on consumerism, luxury brands and the role of social media.

Starting with the Chinese consumer, there is not a singular type of customer, even though onlookers may assume this. Like in any Country, the population is diverse. I will examine the different consumers and how this affects brands in how they appeal to their target market. China consists of higher and lower tiers, in which a different type of consumer is present. Companies will market to these varied consumer types in tailored ways in order to be successful in their approach.

THE CHINESE CONSUMER

LUXURY LABELS China is one of the emerging markets along with Brazil, Russia and India. These four counties combined make up ‘BRIC’. BRIC is predicted to have the largest base of luxury consumers by 2015, this explains why high end fashion labels such as Chanel, are targeting these markets.

The Chinese consumer is said to be one who wants to parade their clothing, this is where the ‘logo strategy’ can be implemented, with luxury brands such as Louis Vitton, Dior and Hermes, as they have a strong brand identity.

SOCIAL MEDIA

However with the Chinese governments’ crackdown on corruption and the widespread production of fake copies, the Chinese are beginning to move away from these brands, meaning companies such as LVMH are planning new strategies to win back their consumers.

Moving away from the ‘logo strategy’ and looking at a sophisticated, well-informed Chinese customer who prefers a subtle and unique label, here we can see where the tables are turning - contemporary or even Chinese brands are beginning to take the lead.

MARKETING STRATEGY

With no Facebook, Twitter or YouTube in China, you may begin to think that there is an absence of social media here. Nonetheless, the reality is quite the opposite. Social media in China is hugely popular and influential, with their own hybrids of the social media sites; Renren, Sina Weibo, Youku and Qzone, these have a great impact on consumer behavior and are increasingly utilized by labels in China. By using social networking platforms to their advantage, brands can connect with their consumer in an effective way, expanding brand awareness.

INTERNATIONAL EXPOSURE EMERGING DESIGNERS

Luxury brands are taking advantage of social media to connect with their consumers. A good example is British brand Burberry, who has embraced all things digital, without eroding their strong heritage background.

Burberry has had vast success in China, along with other brands such as Mulberry, Belstaff and Boodles. These luxury brands know how to target their customer in China, whilst retaining a strong presence from their origin.

BRITISH BRANDS

BRAND AWARENESS

They are leaders paving the way for British labels and emerging designers to break into China and become international brands. Businesses such as UK Trade & Investment and British Fashion Council are supporting British labels to expand their consumer base internationally. I will look into these and share my own example of how British designer Jonathan Saunders can use social media to his advantage in China.

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“There is no such thing as a single ‘Chinese consumer’” - Mario Van der Meulen

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China’s population is estimated at approximately 1.354 billion people, a country of diverse lifestyles and aspirations.

This report assumes that brands should adopt bespoke strategies to fully engage their target market. China is largely divided into and analyzed using a tiering system. Each tier often defines a cities population, growth and development. There are naturally fewer first tier cities than second or third tier. First tier cities are more affluent and widely recognized; they include Beijing, Shanghai, Shenzhen and Guangzhou. Second tier cities are harder to define.

According to online property trading website, Rightsite.com, there are certain criteria that second tier cities fall under. The population of these cities is five million or more, they have a strong economic growth, the city is the most significant in its area or it has a historical and cultural significance. Second tier cities also have rising consumer spending, which is drawing the attention of foreign brands.

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CONSUMER BEHAVIOUR Consumer behaviour varies considerably between the tiers. Upper tiers are populous and generally motivated by authenticity and exclusivity. They exhibit both a current and historical preference for foreign luxury brands, although there is an emerging trend within upper tier consumer behaviour that suggests a maturing of their wider aspirations and growing sophistication in tastes and demand for luxury that goes beyond that of simply aspiring to foreign originated luxury goods.

In contrast, second-tier shoppers are less ‘brand-savvy’ than those in first-tier cities.

Brands with a prevalent logo are popular among second-tier consumers, they are also aspirational and brands are making their way into these cities hoping for a positive response. These consumers tend to be less sophisticated and seemingly ‘status’ purchase; often opting for heavily branded apparel. In recent years this has transitioned into a logo lead market and aspirational western labels along with domestic brands are continuing to exploit this market. The second tier younger consumer, including those born in the 1980s and after, are less prejudiced towards Chinese quality, opening further opportunities for luxury brands to localize both manufacturing and marketing potentially moving the brand nearer to its target this customer.

“Chinese consumers now account for about 27 percent of all global luxury purchases – but almost 60 percent of those purchases are outside the mainland” – (Michael Zakkour, May 21, 2013, Jing Daily) It should also be noted that there is a difference between the ‘China market’ and the ‘China demographic’. The luxury China demographic consists of those consumers who frequently travel outside the mainland to Hong Kong, America and Europe.

Chinese tourists travelling overseas has risen from less than one million in 1995, to 88 million in 2013, implying this is an ever increasing trend. A reason for this is that Chinese luxury consumers are actually saving money by travelling broad to purchase goods.

Johanna Kolerski-Bezerra, research analyst at Euromonitor states, “tax on luxury goods in China can be as high as 57 percent.”

“Brands should take advantage of Chinese consumers’ obsession with travel to communicate and showcase their rand heritage and culture in ways that are not possible in China” – (Sage Brennan of China Luxury Advisors, Jing Daily) Luxury labels are putting smart strategies in place to welcome the Chinese consumer away from their mainland.

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“being able to wear international labels reflects ones wealth” – Dorian Ho (Dorian International Ltd)

The wealthy Chinese consumer can usually be found in the four major cities, however this is not to say the well off is nonexistent in tier two. According to research, around 30 percent of the wealthy Chinese live in first-tier cities, yet it is estimated that the next generation of wealthy consumers will in fact crop up from those in lower tier cities.

The affluent Chinese are in fact much younger compared with those in the west, making them extremely important to major luxury labels.

In this fast growing and young market, brands can literally adapt their marketing strategies to accommodate consumers in their chosen tier, shaping the spending habits and loyalty of customers.

There is a constant pressure between stability and displaying

status,

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an

example:

‘we see stratospheric saving rates, extreme price sensitivity and aversion to credit card interest payments. On the other, there is the Chinese fixation with luxury goods and a willingness to pay as much as 120% of one’s yearly income for a car’ – (Tom

Doctoroff,

May

18,

2012,

WSJ)

This could be a result of the pressure those young and well-off consumers have to show off their status.

Brands need to differentiate between the tiers in order to create the perfect marketing strategies, what works in Beijing may not be relevant in Chengdu.

“No longer will they (the Chinese consumer) be content with a brand simply because it

is big, foreign or expensive.

They will expect their brands to meet their needs both rationally and emotionally” – (Mario Van der Meulen, Design mind)

Luxury brands are continuously searching for new ways to create bespoke experiences for their customers, something that no-other brand is doing, heightening their exclusivity.

Yaffa Assouline, founder of luxury magazine, luxuryculture. com, states, “luxury brands are no longer marketing only to the super rich, who are becoming more selective, but also to the emerging middle classes who are trading up.” This suggests labels also have to consider these emerging markets, which are still significant to their brand.

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THE WEALTHY

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“Overall their populations represent 42% of the people of the world” – (Target Group Index survey)

As mentioned earlier BRIC’s emerging markets play a pivotal role for luxury brands wanting to expand internationally. After the recent financial crisis of 2008, the luxury industry has been affected with Japan, US and Western Europe being hit badly.

Key target markets within each of these countries are those people of working age who live in the major cities. These cities offer the largest number of potential revenue for the respective brands. For Brazil this is Sao Paulo and Rio, in Russia: St. Petersburg and Moscow. For India: Mumbai, Delhi and Kolkata and in China this includes Beijing, Shanghai and Guangzhou.

Brands must differentiate between consumers in each of these four markets. Each buyer comes with distinct preferences and values. What the Indian consumer wants differs to what a Chinese consumer wants.

To develop further, BRICs brands must devise bespoke marketing strategies to identify with different value and cultural ideals.

The Indian consumer is value conscious, looking for products to accommodate their needs. Goods that are stylish and aesthetic engage them.

Craftsmanship and values are important, these build strong relationships between the brand and the customer. The Chinese buyer wants to see visible and status-driven products as well as brands with a prevalent logo.

In Brazil, the more affluent consumer is considerably westernized in their buying habits, meaning that global brands and succeed here. Whereas the less wealthy do not respond in the same way, therefore international brands need to adapt and localize their products to this consumer. In Russia, the market readily purchases international products, however conservative consumers used to products from Russian companies, will prefer a product from a homegrown brand rather than an international brand.

‘BRIC will contribute approx 36% of the global luxury market by 2015 and is predicted to have the largest base of luxury consumers.’ – (Dr. Ashok Som)

“Chinese have become, and will remain for along time, the most important luxury consumers.”

– (Bruno Lannes of Consultancy firm Bain & Co, October 4th 2013)

Luxury labels such as Hermes, Prada, Chanel and Givenchy outnumber China’s homegrown brands. These foreign brands usually make their way into China via first-tier cities, where there is a dominance of international luxury labels. Global brands must consider well thought out strategies before entering China, marketing to this consumer is not the same as marketing to an American or European customer. “multi national companies traditionally invest in time-heavy processes… before going into the market” – (Mario Van der Meulen)

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ASPIRATIONAL TRADING

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The Chinese consumer’s aspirations are high. They judge themselves as well as others on what they buy, which in turn has an impact on how products are branded.

“80 percent of those surveyed like to buy products that are of good quality, even if they are more expensive” – frog survey, Mario Van der Meulen

Large companies produce aspirational marketing to appeal to Chinese consumers, presenting elements of exclusivity, limited edition products and lifestyle dreams the Chinese want to buy into. Branded products are also seen as more reliable, iconic logos, colours and prints characterize their individuality over an extensive period, this helps to build brand loyalty.

Curating a luxury brand experience, which moves away from emotional connection, is important when targeting the affluent Chinese customer. A good example of this can be seen at Louis Vuitton. The label knows that its lower-tier luxury buyer likes to be treated like a VIP. Therefore the label creates this ‘VIP experience’ by closing certain stores for half the day and arranging private showings for those customers spending more than 200,000rmb.

“Luxury is no longer just about the product or object, but an entire experience” - Yaffa Assouline, founder of online luxury magazine Luxuryculture.com.

L U X U R Y E X P E R I E N C E

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Hermes created a ‘made in China’ luxury brand specifically targeted towards the Chinese consumer. Chinese designer Jian Qiong Er and Hermes founded Shang Xia in 2008. The products which include jewellery, fashion-garments and furniture are produced in China and designed with Chinese tradition and craftsmanship in mind. Shang Xia opened its first store outside of China, in September 13 in Paris.

Preferring Shang Xia to Hermes demonstrates that sophisticated Chinese consumers are beginning to prefer elegant, subtle brands compared to those with flamboyant logos.

“Can these Hybrids really be considered ‘Chinese Heritage Brands’ in the same way Chanel is considered a French brand. “ – Stephany Zoo (Global sources – October 4th 2013)

Even though brands such as Shang Xia, Osiao (Estee Lauder brand for premium Asian skincare) or Shanghai Tang (owned by Richemont) are entirely devoted to appealing to the Chinese consumer, it is difficult knowing if these consumers are really connecting to the brands, or if they are still viewed as foreign corporations.

With the Chinese market evolving rapidly, brands are now pin pointing what it is that the Chinese consumer wants; tradition, exclusivity or quality?

With this in mind, an increasing number of labels are using the concept of ‘limited edition’ to attract buyers. Meaning only a certain number of that model is produced, giving customers a unique buying experience. Something that independent designer MaryH is embracing.

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“…shift the taste of domestic consumers from a western – biased aesthetic to one that is decidedly sophisticated and Chinese” – Daniel Kong, fashion writer of The Black Renaissance

Luxury brands are increasing their understanding of the Chinese consumer, meaning they can adapt strategies to work to their advantage. Western companies have launched entirely new brands that combine their reputation with a distinct Chinese appeal. The industry has termed these ‘Hybrids’.

(October 4th 2013)

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Luxury brands are considering market opportunities beyond Beijing, Shanghai and Guangzhou.

They are exploring second and thirdtier cities where rapid growth is predicted within the coming years. However this is relatively risky and could not work to the labels advantage.

LVMH achieved a disappointing sales-growth despite a previous expansion into second-tier cities, as a result LV will hold back on lower tier expansion to ‘avoid becoming too commonplace.’The shares had only risen marginally compared with Cartier, Richemont, Burberry who have all seen shares rises by 20%.

Chanel began opening stores in the second-tier cities two years ago, yet it hopes to ‘stay exclusive’ as it is ‘strategic not to be everywhere’ – (CEO Maureen Chiquet, October 21, 2013)

LVMH is adapting its strategies in order to rectify issues it has had in China’s luxury market. One difficulty is that Chinese consumers are moving away from conspicuous logos, due to the governments crack down on corruption and a change in global trends.

LVMH decided to cut down on advertising its classic logoprinted products and focus on promoting more low-key goods.

Another major problem is the popularity of fake bags available in China, this has a detrimental effect on the brands image, pushing Chinese consumers away from the label.

After using Fan Bingbing as their brand ambassador, LVMH decided she represented more of a mass-market appeal rather than a luxury image.

Therefore, Liu Wen was hired for their advertisement campaign, presenting a fresh, relevant and luxury image.

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“social media adoption by prestige brands is now ubiquitous” – (Alex He, 29th August 2013)

SOCIAL MEDIA

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“Ninety-five percent of Chinese consumers trust a brand more if it’s blogged about” – China Daily 2011

Social media in China is huge; luxury brands trying to engage with the Chinese consumer must use this to their advantage.

Since social media was introduced in China in 1994, it has become considerably popular. Social media has 300 million users and 40 percent of Chinese online users spend their time on social networking sites. Brands must consider social media as an intrinsic device when marketing and engaging their target market.

YouTube, Facebook and Twitter are non-existent in China. Instead, as stated previously, China has its own hybrids of these social media sites, these include, Youku, Renren and Sina Weibo. The Internet is highly influential in China compared with other countries; it is a powerful tool in decisionmaking. It is also seen more as a device for social interaction and selfexpression instead of primarily being used for work.

Chinese consumers using the Internet feel it is their duty to share their experiences with a product or a service online. ’40 percent of Chinese online shoppers read and post reviews online’ – (2012 Boston consulting study)

Brands entering China, as well as those already established in the country, are utilizing social media to engage their consumers.

Clinique launched a drama series titled ‘Sufei’s Diary’ this was broadcasted daily on their dedicated website. It was seen as an entertainment series, not strictly an advertisement, yet their skin care products were prominently featured. Clinique’s online brand awareness boosted greatly from this, 27 percent higher than its competitors.

Whilst Dove’s Real Beauty campaign works in the UK, it’s introduction into China did not have the same reaction. Chinese consumers viewed the women as unattractive, meaning the campaign was unsuccessful.

(In reaction to this) Dove collaborated with ‘Ugly Wudi’, the Chinese adaption of US show Ugly Betty.

This way they could entwine their Real Beauty message into the story lines, they also added a blog and live chats with Wudi. This in turn increased awareness for Dove’s Real Beauty by 44 percent.

Youku works in a similar way to YouTube, however it targets a high-educated, affluent crowd such as young professionals. Like YouTube, Youku is connected to other social media sites, and has a large presence across various platforms.

Luxury brands are taking advantage of this, by launching exclusive video channels on Youku; this also helps with engaging consumers from second and third-tier cities.

Louis Vuitton was the first to use Youku in 2009, its channel is divided into numerous sections, aiming to present different aspects of the brand. Burberry also made use of Youku when they live streamed their fashion show in February 2011. This saw huge success with over one million views.

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“Youku occupies more than 35% market share in terms of use time spent online in china” - Jean Shao, director of public relations for Youku, Beijing.

MADE

IN

BRITAIN

“British fashion is back … people want to buy British.”

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There are a handful of British Luxury brands that have had success internationally, for example, Burberry, Mulberry, Jimmy Choo, McQueen and Stella McCartney. However, the most successful global designers are usually supported by large corporations who assist them out of Britain.

‘Made in Britain’ is an effective selling point when it comes to marketing globally.

Harold Tillman, chairman of the British Fashion Council states: “British fashion is back … people want to buy British.”

Boodles have an extensive history and has made a name for itself internationally.

Michael Wainwright, the fifth generation of his family to run the business, is ensuring that the brand stays current by lunching websites in Arabic and Mandarin as well as opening shops in Hong Kong.

These UK luxury brands have British heritage and a vast history attached to them.

Nonetheless, they must remain in tune with the 21st Century, utilizing the digital era and social media.

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BURBERRY

A good example of a British heritage brand, which is successful globally and is taking advantage of all things digital, is Burberry.

Burberry was founded in 1856 by 21-year-old Thomas Burberry and has come a long way since then. Burberry boasts tradition and timeless qualities. The Burberry trench coat is a symbol of Englishness, making it an iconic garment for the brand.

The oversaturation of its pervasive check print became too much of a good thing before creative director Christopher Bailey was introduced in 2001. He slowly decreased the use of this and by 2010 it was featured on less products, making Burberry a Fashion Week favourite.

This draws parallels to the situation with LVMH, how their conspicuous logo is being misused on fake copies, and pushing Chinese consumers away from the label. LVMH are taking measurements to rectify the issue, as did Burberry.

Despite Burberrys British heritage and history, the brand is renowned for its innovative use of all things digital. In September 2012, the collection, featuring an array of luminous coats, was streamed live to Burberry stores and online, allowing everyone to view the new collection as it happened.

Angela Ahrendts wanted to take full advantage of new technologies to present Burberry in the 21st Century and engage with its customers. ‘Customer 360’ is a program launched by Ahrendts, which digitally stores the Burberry customers’ profile including their purchasing history, preferences and fashion dislikes.

The controversial campaign can work for some customers, whilst being less successful with others. This idea works for those busy, working customers visiting Burberry on their break. They can be assisted by the salesperson using a tablet device, discovering preferences and purchase history in a short amount of time. If there is something the customer would like to buy it can be immediately determined if it is in stock and delivered to the customer’s house.

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“Asia Pacific is growing at a faster rate [than other territories] and it will very quickly be a third of the business, and I would say in the next three to five years it will easily be half of the business.”

- Angela Ahrendts

Burberry is a champion among Western brands in the Far East. It has opened several stores in China, and employs mandarin-speaking staff in all its European flagship stores to attract Chinese consumers.

Burberry is present in China’s first and second tier cities and plans to open 25 new stores in 2014. Burberry needs to enter new markets within the second tier before they become too saturated, whilst finding ways to appeal to these consumers of smaller cities. Digital and e-commerce strategies are a strong point for the brand; therefore this can be used to their advantage.

Burberry has set itself apart from other luxury brands by using social media channels in China. Burberry can be found on several social media platforms including Sina Weibo, Youku, Kaixin, Douban and Jiepang. This enables greater brand exposure and substantial engagement with their Chinese consumers. The labels e-commerce website is also unique as Chinese customers can interact with an ‘online service agent’, a common device featured on Chinese e-commerce platforms.

The Art of the Trench In 2009 Burberry launched Art of the Trench, a digital, photo-sharing micro site.

Photographers, bloggers and the public could share photos of people wearing the iconic Burberry trench coat. “a living document of the trench coat and the people who wear it” The site is also linked to social media sites and those Facebook pages of the contributors.

By 2010 the site had already gained more than 7 million visits. This strategy is appropriate for Burberry as it attracts a younger consumer as well as being relevant in the 21st century.

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Companies such as UK Trade & Investment, UK Fashion & Textiles (UKFT) and British Fashion Council (BFC) are assisting British businesses to venture outside of the UK, with connections to overseas companies who can cooperate. Looking specifically at UKFT and BFC, these companies focus on the fashion and textiles world, including emerging British designers.

Up and coming British designers can work with these associations to build contacts, receive sponsorship and attract buyers from overseas. BFC aims to showcase British designers and establish the UK as a great part of the international fashion world. Events such as London Fashion Week are great opportunities to present new British designers globally.

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To reflect on this research I produced my own product, this combines elements included in this report. I chose to look at Jonathan Saunders, a British designer recognized by the BFC. He won the Designer Fashion Fund in 2012 and has been successful acquiring international buyers as well as becoming an established brand.

I produced a micro site with the purpose of providing a social platform for the Jonathan Saunders x Lane Crawford pop up store. The site is an interactive platform on which users can view and share photos from the event and view Jonathan Saunders’ SS14 collection.

The micro site is connected with social media sites such as Twitter, Facebook, Instagram, plus RenRen and Weibo in China. This will allow both the Chinese and British consumers to instantly share photos, reviews or comments at the event. The hashtag #SYS - ‘Share Your Style’ is unique to the event, bringing all related images and tweets together onto one site.

From my findings of social media, I decided to make this an important element in my product. I have made this site accessible to both British and Chinese audiences through the languages options. This product represents a British designer adopting social media strategies to gain exposure in China, paving the way for emerging British designers aiming to internationalize their label.

JONATHAN SAUNDERS X LANE

CRAWFORD

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J SX LC

Users can navigate through the site of the The Jonathan Saunders x Lane Crawford micro site exploring each page. Contents include: About page; here will be a short description explaining the sites purpose as well as a synopsis on Jonathan Saunders and his design aesthetic. Users will be able to view past and present collections on the ‘collections’ page and click on ‘Stockists’ to view where Jonathan Saunders is available to purchase.

A Gallery page will contain images of the pop-up store for users to view and there is a Watch option to view catwalk shows and any videos from the event.

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The micro site is also available in Mandarin, meaning it is accessible to the Chinese consumer also. The user can connect to social media platforms they are using, including Instagram, Renren and Sina Weibo. Youku, the Chinese equivilent to YouTube is available to view videos.

I chose Lane Crawford as this is a leading department store in Asia, offering luxury and contemporary labels from around the world. The store is renowned for having the latest in fashion and showcasing new talent. Visual merchandising within the store is extremely significant, creating an inspiring environment for visitors. Many designers or labels have had collaborations with or within Lane Crawford which have been successful, as well as this, Jonathan Saunders menswear has already been introduced in Lane Crawford, meaning, bringing Saunders womenswear to the Chinese consumer is all the more relevant.

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The #SYS - Share Your Style hashtag page is connected to social media sites including Twitter, Instagram, Renren and Sina Weibo. This page contains a live feed of images, bringing all the images with the #SYS hashtag together in one place. Inpirations for this page are drawn from the Burberry ‘Art of the Trench’ page, which is a succesful campaign.

Users can scroll through this page, retweet, share and like any of the images. The idea is that visitors to the event will upload photos of themselves and friends, or people wearing their favourite piece of Jonathan Saunders. It is an interactive platform creating a unique connection between the designer and consumer.

Going further with this, the #SYS page would be projected in the store, allowing visitors to see and engage with the site exclusively. The pop-up store in Lane Crawford would initially be an exclusive event, inviting well known faces and influential people which will further the excitement around it. Visitors to Lane Crawford would then be able to browse Jonathan Saunders SS14 collection exclusively and be able to purchase pieces from that season.

NOT LIKE THE OTHERS