Can AI really help Western luxury brands win over China’s millennials and Gen Z?
- While luxury names like Dior, Hermès and Gucci are beloved by China’s millennials and Gen Z, several Western companies underperform in China, for lack of an appropriate operating model
- That is where artificial intelligence for data analysis comes in
On a recent flight from Shanghai’s Pudong airport to Hong Kong, most of the younger travellers were dressed in Gucci, Balenciaga, Off-White or Burberry, and showcasing the logos prominently.
I spotted several Dior and Hermès handbags and several gold watches by Audemars Piguet and Patek Philippe. All of it worn by people who looked to be younger than 40.
How did these people make their brand choices? What drove them to decide between Gucci and Balenciaga? How did they know what was a “hot” item within their favoured brand?
Conversely, how can companies understand what is trending in China against what is fading? How can they identify sentiment? And how can they see the warning signs that consumers are losing interest in a particular item?
Traditionally, Western companies have relied heavily on market research surveys. An iconic luxury brand recently told me about their experiences with these studies in China. They called them a disaster.
They surveyed customers in China using conventional market research methods, but they generated negligible actionable insights, and they weren’t sure if the results were even relevant, because they couldn’t cover enough cities.
They received results, but they didn’t know if those results were representative. It was a slow process that didn’t allow for changes in sentiment or trends. Frankly, most brands tend to struggle with this challenge in China.
It is why most Western companies underperform in China. Even if they have initial growth, few stay profitable over time, and the luxury companies leaving China because they couldn’t hit their targets include quality businesses like French retailer Carrefour and Japan’s Takashima.
It was reported that Takashima lost money in China in the three years before its departure – a closure that was estimated to have cost about US$30 million. On June 28, 2019, the South China Morning Post quoted a Takashima spokesperson as saying, “Rapid changes in the consumption structure and fierce industry competition have exceeded our expectations”.
Like others, they were too slow to generate insights into the rapidly changing consumer sentiment/habits/trends in the Chinese market, and by the time they understood what was happening, it was too late.