Understanding China’s luxury market is a challenge for most western brands. With more than 989 million people surfing on the internet, China has become the second-largest economy in the world right after the U.S, in terms of GDP, and middle-class consumers have begun to purchase goods that they previously couldn’t afford with their average salaries.
However, entering the Chinese market is not as easy as it might seem. Even well-known brands have to plan meticulously their strategies in order to adapt to Chinese consumers’ tastes and habits, but also adapt their marketing strategies for Chinese e-commerce platforms. In this article, we will explain why it is important to build an efficient e-commerce strategy if you want to sell luxury goods in China.
We will give you as well some tips to be successful on e-commerce platforms and attract Chinese consumers.
China: The World’s Second-Largest Economy
Before entering the Chinese market, it is important to understand China’s landscape, in order to take advantage of it and increase your sales. The market is indeed different from what you might be accustomed to, so it is essential to focus on Chinese consumers and on their habits.
Just by look at this data, we can see that China is the world’s fastest-growing market in terms of e-commerce, with a 44% share of the total retail sales.
China: An Eldorado for Foreign Companies and brands
China has been the world’s largest online market for years now, and it will continue to be as more people are taking part in this phenomenon. The online shopping industry in China is booming, with an estimated $1 trillion spent by consumers across various platforms last year alone according to Tencent Research Institute’s recent study on digitalization trends. In fact, Chinese shoppers accounted for a whopping 54% of global spending during Q4 2019!
With Covid-19 ravaging business transactions offline while also limiting internet connectivity at home drastically, there is no doubt that e-commerce giants like Alibaba will benefit from these adverse conditions.
Above all the major players in China, the luxury industry is one of the most profitable in China, with consumers that are more reliant on foreign brands than on domestic brands. Seeking high-quality products as well as renowned brands, they will be much more likely to purchase foreign luxury brands. Thus, this explains why China is an eldorado for foreign companies that want to expand their activities in the world’s most populous country.
Why being on e-commerce platforms is crucial for luxury brands?
China and its tech-savvy population: The reason why e-commerce platforms are this successful
After a shift toward new technologies and internet-related tools, the Chinese population has become one of the most connected in the world. From purchasing products on websites to paying for their taxi ride with an app instead of cash or card, this is no surprise that e-commerce platforms are now able to attract more consumers who don’t want to spend time in brick-and-mortar stores when they can simply shop from home.
As seen on the above graphic, the number of online shoppers in China keeps increasing, reaching more than 782 million online shoppers in 2020, following the Covid-19 pandemic. As a matter of fact, the Chinese population has changed its purchasing habits as they had to adapt to the Covid pandemic. In response, many brands have turned to new ways of promotion such as sending e-vouchers through social media in order to keep up with their competitors and attract more customers. Therefore, it is clear that the e-commerce boom is fueled by the expansion of several successful platforms as well as increased access to the internet, and a continually rising spending power.
The world’s most populous country is a wonderful opportunity to increase your sales
If you are looking to enter the Chinese market, it is probably because you know that Chinese consumers are spending more on luxury products than in other parts of the world. With the world’s largest population, China is the key choice for companies looking to increase drastically their sales. On the other hand, the Covid-19 pandemic has brought about a new era of business.
With the growth in online shopping, companies can increase their success by 20%. However, e-commerce is not only important for businesses but also for China’s economy as it contributes to more than one-third of its GDP.
To put that into perspective, if we look at the projected increase in e-commerce sales worldwide, China is by far the leading country with 862.6 billion dollars as of 2019 and is expected to reach 1,556.2 billion dollars in 2024.
The predominance of e-commerce in China
Now known as the largest e-commerce market in the world, China’s growth was unprecedented and unpredictable as it accounted for less than 1% of the global e-commerce market a decade ago. Over the years, China has drastically increased its global market share to more than 40%. China now handles more transactions per year than France, the United Kingdom, Germany, Japan, or the U.S.
But how is it possible? Chinese consumers are driving innovation with new technologies such as virtual reality shopping malls – where you can walk around like real life but shop on your tablet from home without getting out to go to physical stores. Moreover, with an increase in wages, Chinese consumers have now more purchasing power than before and are ready to spend more on high-quality products. One industry that has benefited from this shift in consumption is the luxury industry, with hundreds of prestigious international brands that have conquered China.
The future of China’s retail economy is looking bright as the country has experienced rapid growth in e-commerce sales. From just 12 percent in 2014, they have reached an estimated 36.6% and are expected to reach 64% by 2023 with a projected worth of $1.7 trillion dollars! According to Hootsuite’s report, it is estimated that 72.3% of Chinese consumers are looking online before buying a product and that 91.5% of them have visited an online or retail store in 2021, with an increasing number directly purchasing online.
Overview of the Luxury Industry in China
Chinese consumers are fond of luxury goods
You have probably already seen groups of tourists entering the most luxurious commercial centers, and buying luxury goods worth thousands of dollars and euros. Indeed, Chinese consumers are extremely fond of luxury products as appearance is an important criterion for them. Materialism is also part of their culture, as it reflects their lifestyle. Over the years, international brands have been able to enter the Chinese market and target Chinese consumers. Therefore, everyone in China can easily find luxury goods in all the biggest commercial centers.
Luxury in China: An Extremely Competitive Market
China is one of the world’s most lucrative and promising markets for luxury goods. With a surge in e-commerce platforms, China has seen an economic boom over the years that led to rapid growth in its luxury industry – making it among the three biggest global players in this sector with US$38.1bn worth of revenues annually, followed by the U.S and Japan.
Nevertheless, China is a fast-paced, ever-changing country full of fierce competition. Selling luxury products in China can be tough because there are so many competitive companies on the market – both Chinese and foreign. Some people have described this as an “e-commerce war zone.”
In order to find success there, you need to react quickly and stay one step ahead of your competitors by finding inspiration and being innovative to stand out in the market and attract Chinese consumers’ attention. Even though for a long time foreign brands have been far more popular than domestic ones, some Chinese brands have been able to grasp Chinese consumers’ attention thanks to their innovative packaging, new products, etc.
Therefore, the luxury industry has become an extremely competitive market for brands that are just starting out in China.
Why is China attracting all the most popular international brands?
As mentioned earlier, China is an interesting place for brands to develop their activities and increase their audience with millions of enthusiastic consumers. China is extremely lucrative in a diversity of fields, from cosmetics, jewelry, fashion, perfumes, etc.
Brands like Louis Vuitton, Chanel, Hermès, L’Oréal, Burberry, Lancôme, Gucci, Dior, etc are among the most popular brands in China, with millions of followers on social media.
It is also important to take into account that Chinese society has changed a lot in the last decade and that Chinese millennials are the main drivers of the luxury market. In comparison, with around 400 million millennials, China has five times more millennials than the U.S, making up around 68% of the country’s consumption growth by the end of 2021. In recent years, tourism has also been a key driver for this new wave that is taking over from older generations who would rather keep their cash at home than invest it in luxury products.
What are the most popular e-commerce platforms for luxury brands in China?
First of all, it is important to know that according to your sector of activity, selling on any of these platforms will be extremely rewarding as they all have a wide audience and are particularly appreciated by Chinese consumers. However, it is true that they each have their specificities, and that registering on them will be different according to the platform you will choose.
If we look at the biggest e-commerce players in China, Taobao is paving the way, with more than 490 billion U.S dollars of gross merchandise volumes, followed by Tmall and JD.com.
How to Develop your Luxury Brand in China?
What are Chinese consumers looking for when shopping on e-commerce websites?
Chinese consumers are more than ever requiring trustworthy and accessible shopping platforms and services. E-commerce platforms provide verified brand stores that give Chinese people a one-stop-shop for all their needs. Brands who want to conquer China will have no choice but to be involved in an online marketplace if they want to get exposure and legitimacy with China’s fast-growing market.
The Content should be user-friendly and luxury-oriented
The general design of the website counts a lot, especially in luxury. From the visual to the typography and the organization of categories, everything has to be designed to initiate interaction with the potential consumer. You have to convince them to click on your webpage and then look at your products. Indicate clearly the prices because this is what your customers want to see first. Bet on transparent pricing to show your customers that they have the right to know the value of the product. Don’t forget general important information such as the place of the factories, a “behind the product” rubric. You can also include storytelling by choosing a “from product to story” approach: product-focused or story-focused.
When it comes to luxury, it’s all about the experience
The user experience is as important as the design of your website. Pay attention to the drop-off rate, which is the number of visitors or attendees who left the conversion process without completing it. The drop-off rate shows you where prospects stop the sales process, often pointing out a weakness in your strategy.
From visitors to customers, the average conversion rate is 1.9%, and the reasons for failed conversations are often the same: price, shipping costs, and offline purchase. Luxury consumers expect a real digital experience from brands operating online, it’s a matter of credibility.
Exhibitions: The Best Way for Chinese Consumers to Share a Memorable Experience
One of the best ways to develop your brand awareness and retain Chinese consumers is to provide a memorable and intuitive experience. For example, it is common for well-known luxury brands in China to organize exhibitions to display their limited and rated item, giving a certain vibe that is particular to the brand.
Recently, Gucci launched its ‘Gucci Archetypes Exhibitions’ in Shanghai, an event that was successful and allowed Chinese people to discover the brand from a different point of view.
This art exhibition offers an immersive multimedia experience using multimedia channels and tools, allowing spectators to discover, explore, and experience Gucci’s environment through its creative vision of design and fashion. Gucci’s Archetype was first introduced in Florence, Italy, and then begins its global tour in Shanghai.
You can read our full article: Gucci: When Luxury Becomes Art
Market Research to Understand the Chinese market
Doing market research before entering the Chinese market is crucial in order to play carefully your marketing plan based on your competitors, price ranges, Chinese consumers habits, Chinese trends, targeted audience, etc. If you want more information about that, don’t hesitate to contact us directly and we will go deeper into the subject.
Having a Chinese website is crucial for Luxury Brands in China
Having a Chinese website is the first step to securing more potential customers. In China, 70% of internet users are on mobile devices; yet only one in five websites have been optimized for this platform. A well-designed and expertly translated site can enable you to stand out amongst your competitors as well as increase your brand awareness.
For (luxury brands) in China, a website in Chinese mandarin will also enable visibility on Baidu through SEO and SEM.
Having a Chinese website is barely an option to get started in China. Moreover, it is extremely important to have one optimized for Baidu SEO. As the first search engine in China, higher-ranked websites on Baidu will gain more visibility. For example, thanks to its popularity and strategic campaigns, Lancômes is one of the most popular cosmetic websites on Baidu. Don’t forget that developing a user-friendly interface optimized for smartphone users is key if you want to target Chinese consumers.
Set your marketing goals through sales funnels
You will need to have a detailed plan if you want to successfully launch your brand on e-commerce platforms. In order to do so, you can follow these guidelines and adapt them to your strategy:
- Brand awareness (early stage): generate traffic and brand awareness via blog posts, curated lists, email marketing, leadership, social media, and events…
- Market research (middle stage): generate leads via case studies, analyst reports, webinars, best practice guides, newsletters, and events…
- Encouraging consumers to purchase (late stage): convert leads to customers via newsletters, demos, trials, comparison guides, price sheets, smaller invite-only events…
- Retaining consumers (customer stage): retain customers, upsell, advocacy via case studies, consulting services, client workshops, training, advocacy programs, product updates, tutorials, consulting services…
The flourishing business of drop shipping…
Most of the e-commerce platforms do drop shipping, which consists of sending the product to China once the customer has purchased it, in order to avoid stocking in China. The margins are often very high since the product is produced in big quantities and sold on several websites at a time. Customers pay the product price and often the shipping is free, which makes it interesting for them to purchase on your website.
…may be of unfortunate surprises
The danger is to lose your customer’s trust, since they will think you sell your product at a very expensive price compared to the production costs, so be careful if you want to try dropshipping. In fact, a lot of drop-shippers are offering the same product at the same price, and to differentiate products in this ocean of similar offers is really tough. In this field, the Chinese e-commerce platform Aliexpress is often quoted. In addition, offering free shipping is often more expensive than you first thought and can seriously reduce the margin, so it can be a lot of effort for a few results.
Free and quick shipping to attract Chinese consumers
- 96% of customers are more likely to shop if the site offers free shipping
- 53% are willing to wait
- 357% increase in sales from returns
Implementing your e-commerce platform in China, from business data to communication
Handle business data
The average ticket (AT) represents the average amount your customers pay in one order; the customer acquisition cost (CAC) represents the money you spend to attract your customers. CAC includes promotion, advertising, special offers… The better scenario is the one where your AT is higher than CAC so you can invest in order to attract more customers.
Optimize the customer’s lifetime value
Be smart by choosing to communicate on special operations (11.11, Valentine’s Day, Mother’s Day, friends referring…) or brand extension (product diversification, new shapes, or colors), offer free shipping, discount on minimum… to increase customer loyalty. Even if the return cost of your money is out-of-pocket upfront, they increase profits in the long run by increasing customer loyalty. You need to focus more on the customer’s lifetime value than on sales.
Customer lifetime value = customer revenue - support costs x average length of relationship - support costs
How should luxury brands in China promote their Online Store?
Attracting potential customers through digital communication is the best solution. You can inform them about discounts and special offers and then gain more opportunities to create new touchpoints. The best way to do it is to combine SEO on Baidu to appear in the top results and beat the competition. Create accounts on WeChat and Weibo to follow your customers and get closer to them by making communication multi-channel and easier to succeed.
Contact us to get started and sell your luxury products in China
The Chinese luxury market is one of the most promising in terms of opportunities, both for smaller companies like startups but also for larger international brands. However to succeed you will need to do a lot of research beforehand as well as be prepared to complete the application process before selling your goods on e-commerce platforms which can be difficult and time-consuming.
That’s why working with specialists who have experience navigating this potentially daunting task could make all the difference between success and failure.
Working with an agency that has both western and Chinese points of view like Gentlemen Marketing Agency can help you overcome the pitfalls of the Chinese market. Our agency has accompanied many companies entering the Chinese market through Tmall, JD.com, Kaola, Vip.com, Taobao, Pinduoduo, Xiaohongshu, etc.
Proud of the success of the companies that have contacted us, our experts are ready to help any company willing to do business in China. So, if you are interested in doing business in China, do not hesitate to contact us and we will reply within 24 hours.