Why Do Luxury Businesses Fail in China? Study the Data.

The real reasons for poor performance in the China market are usually a lack of precise and timely consumer insights and the willingness to translate those insights into approaches that express the global brand positioning in an authentic and relevant way to Chinese consumers. Photo: Shutterstock

It’s amazing to me how much the sophistication and complexity of the Asian market continues to be underestimated today. Many companies still apply a one-size-fits-all approach to their marketing content in China and then wonder why the results are underwhelming there. Luxury brands — including some of the most successful in the world — have yet to exploit their potential in China and in the rest of the Asian region. Recently, Prada blamed the slowing Chinese economy for their malaise, but to me, it sounds like an excuse to mask weaknesses in brand execution. The real reasons for poor performance in the China market are usually a lack of precise and timely consumer insights and the willingness to translate those insights into approaches that express the global brand positioning in an authentic and relevant way to Chinese consumers.

Let’s start with insights, something most companies just haven’t gathered before starting to do business in China. As an example, a famous European luxury fashion house wanted to analyze why some of their results in Asia were less than satisfying. How were they underwhelming? It turns outs, in a surprising amount of ways.

First of all, the majority of this luxury brand’s consumers were still 45 years old and up, meaning they were unable, for some reason, to reach the huge Chinese Millennial and Gen Z markets. Secondly, the customers who purchased the brand’s most iconic and traditional product lines were even older, while their younger customers were buying less branded, entry-level products and showed a lot less brand loyalty. In other words: The brand’s top customers were very old and slowly dying out! Another important observation: Consumers with the highest spends (over $10k per purchase) were leaving the brand, while newly acquired consumers were spending below $3k on average. Therefore, some basic math can show us that as older customers die, the brand is becoming less profitable. And lastly, many store locations were losing money due to high operational costs in China.

By Daniel Langer.

Full story at Jing Daily.