The global consumption landscape has seen better days. Rising inflation, the energy crisis, and political uncertainties have hit the global economy hard – and the high-end consumer goods market has not been spared. Compared to the same time period last year, the S&P Global Luxury Index is down 30 per cent, as of 8 November.
In China, prolonged COVID-19 measures have brought on a host of new challenges, hurting consumer confidence. China, the promised land for luxury and premium brands in recent years, is no longer flowing with milk and honey. Richemont and Burberry both reported double-digit declines in mainland China sales revenue for its H1 earnings season, while LVMH and Kering's revenues from Asia-Pacific markets were also held back by China.
While China may not be the growth engine it once was, the size of this market obviously still remains too critical to be deprioritised by global brands. Top luxury brands continue to invest heavily in mainland China, with many also starting to also focus on optimising their existing investments and overall operations in China to maximise return on investment.
Jacques Roizen, the former General Manager, Greater China of Danish jeweller Pandora, joined DLG (Digital Luxury Group) China as Managing Director, Consulting earlier in November. Armed with years of brand operating experience and market insights, he leads DLG's consulting business for luxury and premium brands, assisting brands in optimising their digital strategies in China and winning in an ever-changing business landscape. In an interview with Luxury Society, he shares his observations on the local market.
With the disruption caused by COVID restrictions and a nationwide economic slowdown, major Chinese shopping milestones are struggling to deliver significant sales growth. How should brands evaluate and optimise their e-commerce performance?
The most significant change in 2022 is that brands have to work harder to achieve decent e-commerce performance in China. In a challenging consumer environment, it is less about meeting internal targets and more about outperforming the industry and competitors. To outperform in this environment, brands must raise their game across the Chinese digital ecosystem.
For example, many brands are exclusively focusing on maximising GMV on their Tmall stores – which, on average, accounts for only 10 per cent of their total China revenue. This means that they tend to highlight entry-level products on their Tmall homepages on as these are the products that consumers tend to buy on this channel. While this focus maximises GMV on Tmall, it is a very dangerous practice. It ignores the fact that a very large proportion of offline shoppers (up to 80 per cent of them) will visit Tmall before going to an offline store, as part of the purchase decision making process. As such, a brand’s Tmall flagship store's mission should not be just to generate revenue, but also to inform and educate consumers about the brand universe, brand story, and entire product range.
This is just an example of some opportunities brands have to optimise their presence across the digital ecosystem, maximising awareness, desirability and revenue in China.
The adoption of livestreaming commerce has grown significantly in the last two years. For better ROI, brands are beginning to invest less in large livestreaming KOLs and more in brand-owned sessions. How should brands create a comprehensive livestreaming strategy to cater to various audiences?
You’re making a very good point. Because far too many brands today are still not really distinguishing between the types of livestreams available. It is critical to consider brand awareness livestreams as a once or twice-a-year event, whereas livestreams for a brand’s qualified prospects or VICs that target conversions and revenue can happen essentially every month. The latter sessions are directed at a highly qualified audience that should be recruited from a brand's CRM database or through sales associates. This type of livestream can be extremely profitable and should be extended and maximised throughout the marketing calendar. Finally, there are livestream stars like Li Jia Qi (Austin Li), who offer brands an opportunity to generate incredible revenue, but at a cost that can significantly challenge the economic equation of e-commerce. This type of livestream should be leveraged ahead of key moments in the marketing calendar, to boost the performance of participating products with Tmall’s algorithms.
Basically, it’s all about understanding the different types of livestreaming and leveraging all the best practices associated to each one, to maximise ROI.
Are fast-growing local platforms such as Douyin and RED starting to play a vital role at various stages of the consumer journey? In your opinion, how should brands build their presence on these platforms, and how should they leverage them to better drive conversions?
These platforms have established themselves as an essential component of the consumer journey through the AIPL funnel. They are no longer emerging trends, and best practices have been tested and proven. It is critical for brands to adopt all these best practices to ensure that their presence on these platforms is aligned with their e-commerce and overall commercial activities. For example, we still see many brands talking about a product across social media, without using the same words to describe the product as they do in their e-commerce stores. It doesn’t sound like a big deal, but it complicates the consumer journey and has a direct impact on conversion. There are many more best practices that brands can no longer afford to ignore when building their presence on Douyin or RED.
Given the saturated Chinese digital ecosystem, acquiring new customers is becoming increasingly challenging and costly. How will a well-established CRM infrastructure assist brands in acquiring new customers and activating existing ones?
When it comes to CRM, we see brands thinking about establishing a relationship only with existing customers. The beauty of the technology and rules in China is that CRM can be a fantastic tool for activating prospects and even generating prospects. By upgrading its CRM from segments that are solely focused on transactions and augmenting consumer understanding with data from the behavior of these consumers on WeChat – which is something any brand can do here – a brand can gain access to a wealth of data that allows it to have much more targeted insight into what type of content or activations are more relevant to which prospects or customers. This is rarely implemented by brands, because it’s not something that exists outside China, and CRM is often defined by global headquarters.
Why did DLG decide to expand its consulting capabilities at this time? What’s your outlook for the Chinese market for the next year?
I believe we are witnessing an accelerated maturation of the Chinese market with consumers who are becoming more hesitant to spend and thus more difficult to convince. In that regard, they are similar to consumers everywhere else in the world. Given the more challenging environment in the Chinese market these days, brands are starting to focus on optimising their business, rather than just counting on the growing number of consumers that are joining the Chinese middle class. In that context, many are starting to look for ways to ensure that their digital presence reflects market best practices.
DLG’s agency business is at the center of the luxury business and in China and therefore in a unique position to understand what local teams are doing and how the focus can change at times. This year, we observed that brands are looking more into maximising ROI and less at increasing their investment. Naturally, it felt like the right time for DLG to expand its consulting practice to address this shift in focus. With this, we are able to better support brands through this process, helping them to unlock the full potential of their existing digital infrastructure in China.