Brand Loyalty With Chinese Characteristics

In the heart of Paris at 101 avenue des Champs-Elysées sits a tourist Mecca that draws pilgrims the world over. Among the site’s most reliable visitors are Chinese tourists, who arrive by the busload, keen to get a glimpse of something truly unique. This is not the Louvre, nor the Eiffel Tower – it’s the global headquarters of Louis Vuitton, and the Chinese arrive in droves because they have cultivated a love and, some might say, an appreciation for luxury, prompted by a rapid rise in disposable incomes that fuel their growing purchasing power.

China’s growing appetite for luxury is most definitely real. According to a March 2011 McKinsey & Company report titled Understanding China’s Growing Love for Luxury, luxury sales in the PRC are expected to reach $27 billion by 2015, accounting for 20 percent of the luxury market worldwide. This reality has prompted Western heavyweights from Armani to Zegna to flood the market in the hope of cashing in. Gucci, the report notes, now has 39 stores across Mainland China, up from just six in 2006. Louis Vuitton has 36 stores in 29 cities as of March 2011, compared to stores in just 10 cities in 2005, and Hermes quadrupled its stores from five in 2005 to 20 today.

However, the multi-story boutique on the Champs-Elysées is unlike Mainland stores: it offers unique products that aren’t sold anywhere else, and an elite shopping experience shrouded in fashion and luxury legacy. This is what an increasingly sophisticated group of consumers crave, contrary to the ‘all money and no taste’ and ‘they’ll buy anything with a logo on it’ stereotype of China’s new rich.

How Marketers Become Salesmen

So as global luxury brands scramble to secure newly minted clients, the question must be asked, are they missing the opportunity to cultivate long-term relationships with consumers whose brand loyalty will last beyond this season’s must-have man bag? Numerous reports cite that Chinese luxury consumers now ask for more ‘bang for their buck’ and have become more demanding in terms of real value-add offerings – luxury goods can no longer just be expensive; they have to be unique. This is where the fine line between advertising and marketing can genuinely make a difference: advertising to mass audiences creates awareness, but developing long-term customer-centric marketing and communication strategies instills brand and product loyalty. Offering one-to-one services that emulate prestige could be a winning strategy. This may mean offering VIP memberships or loyalty programs, sending personalised emails or other forms of communication suggesting new goods that a particular consumer may like, or extending invitations to exclusive product viewings. Leading electronics brands such as Apple know exactly what to do to build awareness and anticipation to levels never seen before in the marketing world; but the jury is still out as to whether luxury brands are utilising these strategies to their full potential.

However, what is evident is that advertising can certainly detract from a luxury brand’s prestige if its reach spans too far, and this isn’t merely a problem in China. Case in point: Louis Vuitton in 2008 launched a Tetris-like mobile game in Japan – another global leader in terms of luxury purchases – that was poorly received as it seemed to compromise its core brand values, Morgan Parker, president of Taubman Asia, noted to the industry publication Media at the time. He added that this problem has extended into China, as brands tend to blitz an abundance of SMS, links, and ads across the Internet in hopes of reaching any consumer willing to pay the price.

Hermes Hits the Mark – Case Study

When marketing experts discuss luxury successes in China, Hermes tends to be among the most cited. As a first mover in the market, Hermes embarked on a campaign to educate consumers of its heritage, and in 2007 it launched an exhibition of its scarves at the Shanghai Art Museum as part of this push. And in 2010, as the brand’s legacy was only skin-deep in China, Hermes also launched a homegrown, high-end clothing and accessory brand, Shang Xia. Consumers could relate to Shang Xia on the most basic level, and take pride in it as a quality local brand. The move set the standard for both Western brands and emerging Chinese labels trying to take a stake in the booming luxury market. Shang Xia maintained an air of exclusivity by announcing its launch via a small press conference, with a low-key, in-store launch party and a VIP dinner cruise, The Wall Street Journal noted at the time. This was the same year that Hermes itself launched a limited-offer Shanghai Expo scarf sold in select stores on the Mainland and Hong Kong. These products flew off shelves, and were not only sought after by Chinese consumers, but by Westerners, who themselves travelled across the world to also find a unique luxury product to bring home.

In 2010, Hermes reported a 46 percent rise in net income to €421.7 million ($588 million), compared to €288.8 million the year earlier. Its global sales also rose from FY09-FY10 by 25 percent, to €2.4 billion ($3.4 billion). The brand specifically cited its robust performance to sales in China, Macau, and Hong Kong, likely through a combination of marketing to both new and seasoned luxury buyers in these markets.

“You have people with taste, and the desire for long-lasting, beautiful objects,” Hermes CEO Patrick Thomas told The Wall Street Journal at Shang Xia’s launch, recognising that Chinese consumers are perhaps no different from those in London, New York, or Paris. But as disposable incomes continue to grow and more and more high-end brands surface in China, we may yet discover that like most things in the Middle Kingdom, loyalty to luxury brands adopts certain Chinese characteristics that keeps marketers and brands constantly on their toes.