How to build Faith within the Chinese Luxury Market?
Chanel has been very good at protecting its brand image and preserving the luxury and exclusive quality of its brand. Tightly controlled distribution, very few licenses, consistency across all its métiers, quality of manufacturing, well-crafted advertising campaigns... The strength of Chanel, is that it capitalizes very well on its heritage while being very current and relevant to customers' aspirations and desires. It is a difficult balance, and the brand never seems to fall in either a dated tone or over-trendiness.
Ten days ago, Chanel announced a price cut in China and Hong Kong to fight the gray market. Lines have been forming in front of Chanel stores since, with customers who were planning to go to Europe to buy handbags... "There is no need to travel to Europe now!" one of them told Bloomberg. This price cut is more a readjustment: prices have been artificially inflated by exchange rates, taxes, and mark-ups, and it created huge price differences between Europe and China. For Chanel handbags, the difference went up to 40%. The gap created a parallel market for luxury goods in China. It also drove 50% of Chinese luxury spendings abroad.
By lowering its prices, Chanel aims at considerably reducing the price difference between Europe and China, so Chinese consumers will be driven to Chinese stores to buy Chanel goods and won't rely on middlemen to bring back Chanel from Europe, or fake products.
This is a bold move that apparently not many brands will follow in the near future. Of course, it might hurt the results in the short term, but in the long run, Chanel's transparency will probably prove to be a great idea.
Corporate gifts don't drive demand in China anymore, and Chinese luxury consumers are more sophisticated and demanding in terms of quality and authenticity. They understand value, which means they recognize an inflated price when they see one. Despite the Chinese being some of the most connected consumers in the world, stores are still one of the most important staples in the buying decision of luxury goods, according to McKinsey. Luxury malls in China are far from crowded, consumers know they get a better deal abroad.
If brands don't build traffic to their Chinese stores, how are they going to build a relationship with them? How can you talk to someone if you have no means to meet them? Advertising is only a one-way conversation, it is nothing compared to a store visit. Chanel is driving consumers to its Chinese stores with the price cut, and they can create a conversation with their consumers, they build a closer relationship. They bring authenticity to Chinese consumers, they build a following of trusting consumers, fans, ambassadors... They build faith.
