Survival of China's fittest luxury brands

Consumer behaviors and demands are changing and luxury brands need to focus more on their poor customer services

Luxury items are mostly rare and expensive, and their appeal to Chinese shoppers, particularly to the hard-working middle class, is great because they are perceived as a reflection of the owner's personal values.

With a higher disposable income, China's middle class is expanding. But the future of the luxury goods industry, in its connection with the Chinese middle class, is uncertain because of the rapidly changing social environment, the gradual changes in the composition of the middle class and its consumer psychology, as well as changes to enterprises in the luxury goods chain.

The ethos within China's society is gradually improving and has brought enormous changes in the middle class' buying behavior of luxury items.

Weibo (the Chinese version of Twitter) along with other social media made it much easier to deliver and communicate information. Anyone can become a media pivot and influence public opinion. Catalyzed by improving mobile Internet technology, the transmission of information in China has become increasingly transparent and faster. As soon as Xi Jinping took office, the new central government advocated honesty and diligence and issued a series of regulations to limit corruption.

The powerful dissemination of the misdemeanors of officials on micro blogs has become an anti-corruption movement. This policing wave has identified many corrupt government officials who spend more than they earn on expensive luxury brands, the news of which have spread quickly across micro blogs and have often resulted in the sacking of the officials.

Corruption-related information on micro blogs has also quickly spread to more traditional forms of media. It to some extent has become a deterrent to corruption. A growing number of officials and their relatives are apparently scared to wear their luxury watches and bring their handbags to public events. It could be a new code of conduct for officials not to wear watches and luxury brands. Since the second half of 2012, the sales of many watches and luxury goods have been affected.

Xi and his team, in order to punish corruption and promote the virtues of thrift, recently released a ban on consuming alcohol for the Central Military Commission. In a short period of time, high-end liquor sales were in decline. The Chinese liquor brand Moutai reportedly lost 40 billion yuan ($160 million; 119 million euros) in 20 days. With new corruption-related provisions promulgated, almost all government officials are beginning to make a clean break from luxury brands. The sales of many luxury brands are allegedly trending down over the last two or three months.

In recent years, luxury brands in China have grown exponentially. But Chinese society and its perception of luxury brands are changing and the number of purchases of luxury items will decrease. In my opinion, luxury brands in China are full of uncertainty.

In many ways, the middle class and its consuming behavior will largely affect the connotation and quality of luxury brands.

China's 30 years of reform and opening-up has gradually changed the composition of the middle class. Luxury brands should pay close attention to the generations of the 1980s and 1990s, for which consumer thinking and behavior decided the future of luxury brands in China.

The post-1980 generation is better educated and families are made up mostly of a set of parents and one child. These families grew up in a relatively favorable living environment and their preferences for luxury goods influenced and even determined how they consumed. Their buying behavior represented the early middle class luxury purchase pattern.

Compared to previous generations of China's middle class, people in the post-1980 had higher, more rational and mature requirements for luxury. They emphasized diversity, personalization and quality, and they did research on their purchases. They were not as easy to please as their elders.

This unique phenomenon thus poses challenges for luxury brands in China, but to small luxury brands, this may also mean great opportunities.

Some luxury brands in China are currently in a blind pursuit of maximum profits, which may threaten their future development. The luxury goods industry so far in China seems to have had unlimited success. Many luxury brands cannot help feel enraptured and smug over their operating results, but many of them are not noticing the potential crisis hidden behind the brilliant performances.

The crazy buying of luxury goods around the world by Chinese consumers is becoming more and more common. In addition to the fact that the prices for luxury goods in overseas markets are lower than prices in the Chinese market, another equally important fact is that during the purchase of overseas luxury goods, the level of customer service is better.

Many luxury brand stores in China regardless of how expensive their items are, how large their shops are, how luxurious the decorations are, or how beautiful the salespeople are, do not offer services that are essentially different from those found in the country's little street shops.

You can see a common and familiar phenomenon at luxury stores in China. The attitude of the shop's sales staff toward customers depends entirely on the price and amount of goods purchased by the customer. If you buy inexpensive goods, you are very likely to suffer scorn and resentment from the salespeople.

Perhaps we cannot blame these salespeople because your purchases are directly linked to a shop's performance and sales and perhaps because they think this kind of attitude can inspire greater customer purchases. But what's more frightening is that these sales practices may be taught from their management teams. The "customers as fish meat" sales attitude of some luxury shops has reduced China's overall customer service level and such inappropriate behavior is present in many luxurious shops.

In addition to the poor attitude of the sales staff, the after-sales service of many luxury brands is purely profit-oriented. Many shops that have opened in China know how to decorate their interior, but their level of customer service is far lower than that found overseas. In many luxury brand shops, when the merchandise is sold, you basically are unlikely to enjoy any possible free and decent after-sales services.

If you buy a battery for an Omega watch in its flagship store in Milan, the store commits that as long as the store is still operational, replacing the battery and cleaning the watch will always be free. But in China, replacing a battery costs you 200 euros, while the watch itself was just 3,000 euros.

If your Van Cleef & Arpels necklace is broken, its shops in Europe usually give the customer a lifetime of free maintenance services, though in in China the cost could be 150 euros and you may have to wait for three months. These two examples are not rare in China and almost all of the luxury brands in the country behave like this.

It seems that nearly every luxury brand, after entering China, chooses to maximize their profits. The Chinese retail market price is almost the highest in the world and after-sales services are usually expensive. Top notch after-sales services are now becoming a way of making money. The question is: If there are no such services, can these high-priced goods still be called luxury items?

Perhaps today's flood of purchases of luxury items has blinded brands. Under this "people who buy do not use, people who use do not buy" social context, the operators of luxury brands may mistakenly believe that they do not need to provide attentive services and that their sales will skyrocket without them.

This sales growth at the expense of brand reputation and customer loyalty is very dangerous. If the operators do not improve their service standards in the Chinese market and treat it as an important goal, their future in the Chinese market is bound to be worrisome.

From the blind and irrational herd consumer behavior to a more mature buying behavior, the Chinese middle class is increasingly showing the same consumption pattern found in Europe and the United States. The customer service found in the US and Europe should be an example for the Chinese market.

Due to the great differences in the social environment in China, Europe and the US, coupled with the rapid development and changes found in the forming of society, leading luxury brands really don't know the Chinese middle class well enough. If they want to win the next two decades of the world's largest luxury consumer groups, luxury brand operators may need to come up with in-depth and practical measures to grasp the middle-class consumer. Some wise managers of luxury brands understand this need and are beginning to address this. But perhaps the right strategy is not enough. In order to keep up with the rhythm of China's high-speed developments, luxury brands also need to take action fast and effectively.

The author is director of Beijing Vogue Glamour Brand Marketing Inc, a brand consultancy. The views do not necessarily reflect those of China Daily. Contact the writer at voguead@163.com

(China Daily 02/08/2013 page13)