Since the week of Chinese New Year celebrations is behind us, the question is: quo vadis luxury? Are we facing the big crisis that so many commentators foresee? Should brands even rethink launching in China now? How should luxury brands deal with economic uncertainty?
Economic uncertainty is nothing new. The term VUCA was created back in 1987 to describe volatility, uncertainty, complexity, and ambiguity of situations. In short, nothing in life is certain. Last week during the holiday, according to the Ministry of Commerce and National Statistics Bureau, spending was up 8.5 percent year-on-year. While below the previous year’s growth rate of 10.2 percent in the same holiday period, it’s still an extraordinary growth rate, far above most other economies in the world. I think it’s important to put this growth into a global perspective: It means that the economic conditions in China are still dramatically more favorable than in many other regions including Europe, the U.S., and Japan, despite decreasing growth rates.
Should luxury brands be worried about the slowing rate? For sure, it is imperative to have a clear market outlook and to factor economic developments into strategy processes. However, I always warn my clients to rely on economic growth as the primary predictor of future success. Economic growth is just a framework, and high market growth rates are often more dangerous for companies than lower ones. The reason is that in times of double-digit market growth rates, organizations usually get complacent. It’s human nature to attribute externally-driven growth to internal mastery, but when growth rates slow down, the market separates brands that create high brand equity and excellent consumer-centricity from brands that took their success for granted.
In this respect, slowing growth rates in China should be a wake-up call for brands to check on how well positioned they are and to use the time during a market that’s growing at high single digits to take corrective actions where necessary. Keeping this in mind, here are three essential aspects luxury brands should focus on:
1. Millennials and Generation Z need to be your number one consideration.
Why? Because according to Tencent — the company that runs platforms like WeChat — millennials were by far the largest spenders during Chinese New Year, followed by Generation Z. This is a paradigm shift from a situation just a few years ago when Gen Z was hardly noticeable in terms of retail spending and millennials were seen as an up-and-coming demographic, but not yet the most important luxury consumer group.
For brands to be relevant to these target groups means to shift thinking entirely. Many managers are not yet comfortable with this new situation where one thing has drastically changed: Millennials and Gen Zers are digital natives, which also means they are the youngest and best-informed consumers ever. They’re also the most demanding. Brands that do not step up their game in providing luxury experiences will be the ones that lose out the most.
2. Luxury is all about creating the most value possible for your consumers.
No touchpoint can be overlooked. From a consumer’s perspective, the entire perceived experience counts. A lot of brands we work with initially believe that it’s sufficient to only optimize one specific aspect of their business, such as revamping the store, changing advertising, or creating social media content. None of this is wrong, but brands should ideally start with a holistic approach that clearly defines major concepts. What does the brand stand for? How does the brand inspire (millennial) consumers? What is the purpose of the brand from a consumer perspective?
Creating powerful luxury brand equity is the precondition to being successful, especially as competition heats up and consumers become more demanding. Depending on the platform, the customer journey needs to be designed strategically, and all touchpoints must be rigorously planned. The mistake many brands make is to define isolated actions before the brand model is crystal clear and differentiated from the competition. This will create more harm than benefit, often leading to irreversible brand destruction.
3. You need to listen to your customers 24 hours per day, seven days a week, across all channels, from social media to blogs.
Measuring consumer sentiment in real time; combining those measurements with other data like sales, order numbers, website visits, store visits, inquiries, etc.; and using artificial intelligence to quickly make sense of this data is a total game changer in managing luxury brands.
Without it, results become random, innovations could miss the sweet spot, marketing budgets get spent without a clear ROI, and the potential to maximize market activities can’t be fully realized. This doesn’t just represent a missed opportunity to create a competitive advantage — it ultimately puts the entire brand at risk now that consumer preferences change at ever-accelerating speeds.
Luxury brands that internalize these three lessons and make the change towards radical customer-centricity have the best position and odds of thriving in a highly competitive market. Because of this, super-empowered and highly demanding consumers, disruptions through technology and trends, new players, and increasing uncertainty from the overall market can be seen as opportunities to those brands that act swiftly.
Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger