“China is the new emperor.”

The pace of transformation in China’s luxury market is stunning, yet it is unique. Due to its size and diversity, China can not be viewed simply as one market, but as many smaller markets with different degrees of maturation. Therefore, China requires different approaches.

In 2012, we expect to see a greater level of customization toward individual markets within China based on geography and consumer sophistication and the hot pursuit of Chinese travelers. Also, online business in China will continue to grow, but more companies will seek cooperation between their online and offline business. We expect experiential luxury to be increasingly important to wealthy Chinese in 2012.

Adapting to Different Regions and Diverse Consumers in China
While Chinese luxury consumers are generally getting more sophisticated; beyond that, it is difficult to generalize. There is a fair amount of variability in the market due to regional differences so country-level strategy will not be enough.

China has 31 provincial regions, 656 cities, 56 ethnic groups and more than 80 local dialects. There are also enormous disparities in income, education and lifestyle between different regions.

To thrive in the Chinese luxury market, companies need to understand regional development and local preferences, as well as other growth drivers that comes from income growth and changing tastes, and be quick to adapt to change. For example, marketing in tier-3 or tier-4 cities, where traditional stores rather than modern formats are popular and where promotion is still valued over service, will be very different from those in Shanghai or Beijing.

Also, strategies will have to address the diversity in consumer sophistication. Companies will need to determine whether they should educate and shape consumer tastes or coax consumers to buy more or trade up.

The Hot Pursuit of Chinese Travelers
In 2012, department stores, airlines, hotels, theme parks and museums, and entire cities, globally will ramp up their pursuit of Chinese customers. VIP treatments will be more prevalent for Chinese travelers.

The Chinese took over 30 million trips overseas in the first half of 2011, up 20% since 2010. This compares with only 37 million outbound US air travel during the entire 2010 according to the China Ministry of Public Security and the Office of Travel and Tourism Industries. The World Tourism Organization has estimated that the total number of outbound tourists from China will reach 100 million by 2020.

According to trendwatching.com, “In July 2011, Hilton Hotels Worldwide created a service targeting Chinese travelers. Called “Hilton Huanying” (Mandarin for “welcome”), the program is available at 30 Hilton hotels across the world, and offers tailored assistance for Chinese guests, including check-in in their native language and in-room facilities such as Chinese tea and television channels, as well as slippers and a welcome letter in Mandarin. There’s also a breakfast buffet available, with congee, dim sum and fried noodles on the menu.”

Starwood Hotels will offer a similar service called the Starwood Personalized Travel program this year.

Moreover, entire countries are pursuing Chinese tourists. Australia is spending USD 30 million over three years to market itself as a luxury destination for wealthy Chinese tourists. The Australian tourism board has embarked on a marketing campaign to 13 Chinese cities and will hit more than 30 cities by 2020.

We can likely expect more overseas companies without actual stores in China embark on campaigns to bring awareness to their businesses in order to increase their share of the Chinese tourist business in their own countries.

Online and Offline Channels Working Together
Online channel will continue to evolve as companies seek more cooperation between their on- and offline business.  Customers value the convenience of online shopping, but they still prefer to see and touch the product. Since consumers place a great deal of trust in brands, brand leaders will undoubtedly have a head start online, especially those who have physical stores where customers can check the quality of the product.

Overall, Chinese consumers are becoming more discerning so companies will have to work harder to show how their products are relevant to particular groups of consumers. The challenge is to figure out how to meet the demands of so many diverse consumer groups.


photo credit: shanghai tang