The Bottom Line.
In this China Markets Insight, Entrepreneur and ConchSociety CEO Bertrand Ternat provides his views on the Asian and Chinese luxury market. Fascinated by China and eager to understand how the Chinese markets work and how the Western culture, habits, and mindsets can fit, Bertrand has learned that the best way to fail is to try and sell without making any effort to understand and fit in the system. In contrast, the best way to do business in China is to step foot in those circles and to be recognized as being valuable by those in the circles. Asia and even more China are network-based countries, don’t think this is something you can avoid.
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China is the luxury market in Asia.
[By Bertrand Ternat]
People keep asking me what the luxury market is like in Asia, and I keep providing answers which surprise them.
In my personal opinion, the Asian luxury market is all about the Chinese market, and the basis of your business journey in Asia is extremely simple: your usual strategy won’t work.
Long story short, I arrived in the region a few years ago working for a couple of market research companies such as Albatros and Ipsos. My specialty was the luxury industry, and I rapidly realized that my Western clients expected to conquer Asian Markets with the same type of strategy they used at home. Except that these never work over here.
These things make me smile now, but what most Westerners don’t realize is that customers in the region operate with a very different mindset. Their consumption and purchasing behaviors are completely different, so you have no choice but to adapt.
At the end of the day, four very important things stick to my mind after several years working as a luxury strategist and from my experience as an entrepreneur in China. In my opinion, they are the key to doing anything around here – business or not.
First, China is THE market for luxury. Second, you need to start thinking differently because the Chinese market turns around people and communities so that the only way to access them is to join their community. Third, building a specific ‘Asian’ strategy is key. Fourth, investing in being unique is an absolute necessity.
China is the luxury market in Asia.
First things first, let me provide some thoughts on the luxury market itself. I see different aspects here, but as I wrote earlier my perspective is that the Asian luxury market is definitely related to the Chinese market, which will significantly influence the industry>
The luxury market.
The first thing is that the Chinese Market is THE global market.
On the one hand, the Chinese have a genuine ability to set trends. For instance, the streetwear market is very luxury-oriented and trendy at the moment, and the influence of the Chinese consumers (understand, the fact that Chinese ladies don’t enjoy wearing heels) is largely responsible for that.
In fact, a recent study by Bain & Company noted that while “global personal luxury goods market expected to grow by 6-8 percent to €276-281b in 2018 […] Mainland China is expected to account for the lion’s share of growth in 2018” with a 20-22 percent growth forecast. THE market.
On the other hand, from where I stand the customer is the Chinese customer from a very broad perspective. I am not talking about China as a country here. I am talking about China as a community, wherever it is based.
For instance, people watch one particular series on TV (like the Story of Yanxi Palace), wherever they are. This has become an enormous marketing stake because it means that being seen one way or another in one of those series gives you an edge with the Chinese community as a whole. We satisfy a lot of very demanding clients in Canada and everywhere in the world, and most of them are Chinese. If that’s not a pattern…
Jewelry will be increasingly tailor-made.
The other thing is that in the medium to long-term, jewelry will increasingly be tailor-made, on demand, whilst stocks of already made pieces will reduce.
The reason for that is, again, that the Chinese consumers function as communities in which members have a very high purchasing power and buy products when someone around them buys that product too.
Think in terms of circles here. Family first, then friends and people in your close environment. Except that you don’t want to have exactly the same piece as your friend. So the future of jewelry will depend on one’s ability to adapt and create uniqueness.
Thinking differently. Really.
Before you get anywhere, you therefore need to change the way you look at things. Your ability to do business in Asia or China will depend on your ability to adapt to the local circumstances. Call it a mindset, a skill or a challenge. Any of these terms will do. But you need to start thinking differently. This is the number one priority because if you don’t, you simply won’t make any business around here.
>> Related reading: Eurasia requires a special Mindset.
Never underestimate the culture.
The culture is very important in Asia because doing business depends on your ability to fit in the mold.
Look at Europe or the United States. We try to create common identities for ourselves but we have different countries and states, and that makes it nearly impossible for us to live together. We see each other as competitors and defiance is part of our mindset.
In contrast, the Chinese are excellent at getting together and at operating together. They have a huge country with different regions and dialects, but they are a group unified with a strong culture and that helps them in their everyday life.
Life generally starts around a table. You eat and drink with people to see how they behave and who they are. And then, only then, you start talking because you step inside people’s circle. They begin to trust you because you adapt to them.
This mechanism works for family and leisure purposes, but it is also the basis for creating business landscapes. The circles are the key, so you need to join their circle. Like it or not, but this is the way the Chinese consumers live and consume.
Creating value for the circles.
Westerners tend to think that China is a massive market and that creating value for the masses is the only approach. That is wrong. The best thing you can do is to create value for the circles.
The difficult thing with a close circle is that it is closed, by definition. But the good thing with a close circle is that the members tend to scrutinize each other very carefully so that whoever comes up with something no-one has become the center of interest.
So? The major challenge is to be the outsider and propose the unique product that some will want to wear to become a magnet. Said differently, offering rarity, exclusivity, and uniqueness would typically be a match.
The Chinese usually love products that come from abroad, which explains why the demand for Japanese products is enormous despite historical tensions, and why they love Apple products when they could buy the Huawei equivalent. The goal is to find a happy medium between uniqueness, foreign identity, and domestic tastes.
Building an ‘Asian’ strategy.
This means that building a precise strategy is very important. You need to focus, identify, and leverage as soon as you can.
Focus and identify.
Those who consider Asia as a potential market often see the region as a single entity. We are going to conquer Asia, as they say.
In reality, though, Asia is one huge continent built on many different systems and cultures. And we, Westerners, have no idea until we actually step foot in the region.
Doing business in Asia is a great ambition, but to actually do it you need to narrow things down a little. Or a lot, as a matter of fact. In reality, you really need to identify where in Asia you want to do business. You need to define what culture you are about to deal with. You need to understand how that culture works.
And you need to know which circles you want to work with before you can think about doing business out there. Putting the cart before the horse makes no sense whatsoever, and here in China, the horse is the circle.
What this means is that you have no choice but to focus and identify. In my case – the luxury industry – the largest potential is not Asia, it is the Chinese. Targetting the largest market made more sense than investing in multiple small markets, if only because consumption habits in the region are varied and require very specific approaches. When focusing on the largest potential, we however manage to concentrate and optimize our efforts.
Saying that my target is the Chinese market does not mean that I am ignoring the rest of the region. It means that my strategy focuses on the Chinese consumer, wherever he is, and it also means that the rest of Asia is a formidable playground to reach my goal.
There is no big surprise here, but Asia is big enough to have different focus points in different countries. For example, Hong Kong is a very stable financial place where it is easy to run a business, whereas mainland China provides in terms of manufacturing and in terms of clientèle, especially in Shanghai were fashion trends develop very fast. Japan is a great place for design and manufacturing as well, and it gives a taste of uniqueness and sophistication that the Chinese clients love.
The game, if I can say so, is to explore and figure out who wants something, who can produce it, and to make things happen as soon as possible by leveraging the various opportunities you can find around the place when you know where to look.
Investing in being unique.
To get results, the best option is to invest in uniqueness. Rarity is the key to creating a demand for your own products, therefore having a super niche will give you an edge more than anywhere else. Especially if you find a way to create the standards.
Rarity is the key to creating a demand for your own product.
Rarity is a magic word around here, which means that you should always work on creating a demand for the product(s) you have.
When I inherited my conch pearl business, conch pearls did not have a luxury image. At all. Conches are a seafood product that people eat in the Carribean islands and, for long, their pearls were simply thrown away because people would hurt their teeth when chewing them.
Yet the product was natural, rare and exotic. So we (with my wife and partner in crime Lin) worked on building a story around them. We produced serious scientific research and worked on building a unique and rare branding around these exceptional products so that people would see their hidden value. And because they are very different from the usual pearls, they rapidly caught the interest of very demanding customers seeking rarity and uniqueness.
Having a niche is more important here than anywhere else.
In addition to rarity and uniqueness, the best way to adapt to the local client is to aim for a super-narrow niche.
My personal entrepreneurial story is very much based on this mindset. I only undertake a new business if I see a niche and if there is no competitor. The necessity to have a niche is common to every business, but it is even more important in this region where production costs are inherently low. The equation is very simple, to succeed around here, you need to find an opportunity that you can explore and exploit without worrying about copycats.
In my case, the niche strategy meant that nobody was able to provide a replacement for my products. In fact, while I often say that we created tremendous value for our consumers by giving them a quality level that they could not find anywhere, the reality is more importantly that investing in a super-niche allowed us to secure our supply chain, so that we now have a near monopoly on the sourcing of these beautiful pearls. That makes them – and us – even more unique.
Setting your own standards.
Setting your own standards would be another very important piece of advice. If you ask me.
As far as luxury goods are concerned, the reality is that demand follows a very precise set of standards which people follow blindly. Standards are the rule, and matching the standards creates value. What that means is very simple: to succeed in the luxury industry, you have two solutions: match the standards or create them. The luxury industry is very peculiar but the model is adaptable.
Our product – the conch pearl – was originally a side-product, so no standards applied and we had no benchmark to target. The pearls were stunningly beautiful, but there were no value standards in place. So our main challenge has been to create those standards, based on rarity and on the taste of the buyers.
Progressively, we managed to identify which types of pearl were the most unique and which ones had the most demand, and we evolved from there. Now we set the standards and provide the clientèle with the rare pieces they want.
Communication means adaptation.
Being visible is extremely important these days, but communication needs to be adapted to the expectations of your specific niche market.
Despite what people think, digital formats are not the only way. Not in our industry anyway.
Yes, digital marketing and digital transformation are big topics these days. Especially in China where things move extremely fast and tend to create trends faster than anywhere else.
>> Related reading: Ashley Galina Dudarenok – China is the future of digital technology.
However, in the luxury industry, online formats do not really deliver. Believe it or not, a perfect conch necklace will not have the same effect on someone if they see it on a phone or if they see it on the cover of a beautiful book on a coffee table at home or in a hotel lobby. At this stage, considering our market, high-quality paper communication is therefore our privileged channel.
In fact, setting the standards is so important that paper communication in the form of a book is a very strategic investment for us. Writing a reference book on the topic is a way to demonstrate leadership in the field and a way to keep setting industry standards.
Doing things right, the first time.
Last but not least, I would say that doing things right the first time is particularly important around here.
Things move very fast in Asia, and others can react much faster than you do. This means that building a strong strategy is key.
Find a super-niche. See a tremendous value-creation potential. Make sure there are no competitors. And secure the first cashflows. Then create a monopoly on sourcing and satisfy the demand. When you see how fast competitors can adapt to your offer in the region, there isn’t really any other option. You have to be absolutely unique if you want to succeed.
Bertrand Ternat | CEO, Conchpearls.com.
CEO of ConchPearls, Bertrand Ternat is a natural pearl expert, whose great passion is to discover the most beautiful gems created by the “Conch”, for the high-jewelers from all around the world to create unique pieces.
Setting up in Asia, Bertrand first engaged himself in Asia’s luxury market and has partaken of numerous business planning, market research and customer relationship management projects for international luxury brands. This experience enabled him to become a luxury market expert in Asia. Becoming an entrepreneur, he then decided to continue the family tradition and engaged himself fully into the family business, becoming one of the most respected experts of Conch Pearls in the industry.
His education background includes a master in management, an MBA with a luxury concentration and a GIA diploma.
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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