Luxury brands need a change of approach

One successful brand focusing on "affordable luxury" is Coach, which concentrates on leather products with an average price of $300 per piece. The US brand raked in more than $5 billion in annual sales in the fiercely competitive luxury market even during the recession days. For many young Chinese consumers, affordable luxury is a lifestyle choice that combines both fashionable design and good quality. Kate Spade, another American example of "affordable luxury", plans to focus on meeting the demands of the emerging middle class in China.

Even top luxury brands, such as Chanel, Armani and Cartier, are adopting the "affordable luxury" principle and providing more lower price products for Chinese consumers. Small accessories, such as key rings and scarves, have proved very popular in the Chinese market.

Since gift buying has been hit by the government's anti-corruption and frugality campaign, it is no longer a major reason for luxury purchases in China. What luxury brands should follow in the domestic market is aligning their product lines to meet consumers' real expectations and purchasing power.

The last principle is they need to "embrace the Internet". Marketing and sales channels are changing rapidly. Chinese shoppers are extremely tech-savvy and well-informed. According to Bain's findings, 73 percent of consumers in China use the Internet to get information about luxury goods purchases before they buy.

Nearly 60 percent of consumers have made at least some luxury purchases through parallel channels known as "daigou" (via overseas contacts, via Taobao, or via other professional buyer agencies and websites) rather than from brands or department stores. Half of those who have not purchased this way would consider doing so in the future.

Therefore, luxury brands also need to be tech-savvy if they are to succeed in the Chinese market. One brand that has successfully positioned itself in China as a premium lifestyle product is Apple, and its strategy was put clearly in the spotlight in October when Angela Ahrendts, then-CEO of Burberry, joined the high-tech giant. Ahrendts doubled the stock price of Burberry during the eight years she was in change of the well-known British brand. In an online video called Burberry's Social Story, Angela announced with her iPhone: "This is the entrance to our brand."

Other luxury brands should take note of Ahrendts' move and prepare for the digital luxury age; otherwise, they will risk losing their market share in China quickly.

Until recently, luxury brands were showing their best performance in decades thanks to Chinese consumers. However, they are going to have to work harder if they want to continue winning the consumers' favor.

The author is a writer with China Daily. zhujin@chinadaily.com.cn