WPIC Made for China Insights
Published on: January 9, 2024
China’s digital shoppers love a good discount. With China boasting the world’s most advanced digital commerce ecosystem, Chinese consumers have unparalleled choices in terms of e-commerce platforms, brands, and products. That’s led to price competition in recent years, with platforms and many brands pushing aggressive discounts.
But don’t be misled by the discounting tactics of some brands and resellers. Chinese consumers also value high-quality brands. They’ve taken to sophisticated luxury and authentic lifestyle brands that seldom offer discounts, as well as high-quality, product-focused brands that rely on premium pricing and a base of loyal, satisfied customers.
Brands that respect and invest in their customer relationships in China have been rewarded with increased market shares and profits. In contrast, aggressive discounting without a sound pricing and branding strategy has undermined numerous international brands in China.
WPIC’s take is that discounting in the Chinese market should be a well-researched investment, not a quick solution for achieving revenue targets. While discounts can boost traffic and improve influencer relationships, they shouldn’t be the primary method of introducing your brand and products to China’s savvy digital shoppers. In the Chinese market, brand value, status, and reputation are paramount for success—and discounting can work against these variables.
Discount-friendly Douyin (owned by ByteDance) and PDD, as well as major sales events like 11.11 and Chinese New Year, are integral to Chinese consumer culture. The significant traffic these platforms and events generate is undeniable. However, brands should integrate them into long-term business strategies that include distinct brand differentiation and pricing tactics.
For over 15 years, WPIC has been guiding its clients to balance brand value, revenue growth, and return on investment in China. This review of pricing strategy successes and failures aims to help brand owners navigate the complexities of discounting and seize the outstanding profit-generating opportunities in China.
Let’s explore some brands in China that WPIC recognizes as having achieved an ideal balance between brand strength, pricing, influencer engagement, and product quality.
In 2023, brands like HUGO BOSS, L’Oréal, Hermès, Lululemon, and Apple witnessed leading revenue and market share growth without resorting to heavy discounts or over-reliance on influencers. Unfortunately, H&M, Zara, Burberry, Estee Lauder, Gucci, and Adidas have been much less effective.
HUGO BOSS, under its ‘CLAIM 5’ development strategy, achieved record growth in 2023. Global sales in Q2 increased by over 20% year-on-year, surpassing €1 billion, with a remarkable 56% growth in China.
The brand has expanded its market share in China, particularly among young consumers through digital channels, including its successful Douyin flagship store, which opened in 2022. This store holds a 32% market share in Douyin’s luxury category and ranks first in luxury GMV.
Hugo Boss has effectively tailored its brand image to resonate with the aesthetic and emotional preferences of affluent Chinese men. The slogan “BE YOUR OWN BOSS 做你自己的老板” aligns well with Chinese perceptions of work and family hierarchies. The brand’s pricing strategy on Douyin shuns deep discounting, favouring occasional 30% discounts instead.
A significant 90% of their revenue is derived from the flagship store’s self-livestreaming, with only 10% coming from KOL collaborations. Hugo Boss has established a strong, relevant brand presence in China, focused on uniquely stylish branded content, without the need for deep discounts. This approach distinguishes Boss from other luxury brands on Douyin and ensures higher cash flows.
L’Oréal had experienced slowing growth in China until it discovered the growth engine Douyin. In 2022, their Douyin revenue exceeded US$173 million, a 172% year-on-year increase.
The brand rarely offers discounts on Douyin, instead opting for giveaways to provide consumers with a sense of value. Aesop, acquired by L’Oréal in 2023, also avoids significant discounts on Tmall and even shuns gifts, focusing on a premium market approach. This strategy led to a 20%+ year-on-year growth, earning Aesop US$31 million in revenue up to November 2023.
L’Oréal’s success in China exemplifies the effectiveness of intelligent brand strategies, compelling product narratives, and engaging content over reliance on discounts.
International fast fashion brands such as H&M and Zara initially invested heavily in major shopping malls in prime locations when entering China. However, as these malls declined, so did the brands, hindered by poor brand communication, delayed digital commerce investments, and excessive discounts.
The phrase “fast fashion is dead” echoes among Chinese consumers. Since 2021, H&M’s market share in China has plummeted, leading to the closure of numerous stores, including the flagship on Huaihai Zhong Road in Shanghai. In July 2022, Inditex, Zara’s parent company, shut down Tmall flagship stores for Bershka, Pull&Bear, and Stradivarius. Zara and H&M’s failures to innovate in market-leading brand messaging, fashion lifestyle campaigns, and social commerce opportunities have been noticeable.
The rise of ultra-fast fashion brand SHEIN highlights the shortcomings of H&M and Zara. Despite not operating in China, this digital ultra-fast fashion brand has seen explosive growth in Europe and the USA. With a direct selling model that targets digital natives with an evolving product catalogue that matches their fashion tastes, SHEIN boasts over US$20 billion in annual revenues, with projections exceeding US$50 billion by 2025. Outshining established fast fashion leaders, SHEIN excels in digital marketing, predictive analytics, and forging deep ties with Western consumers and Chinese manufacturers. Its prowess in digital campaign execution, influencer partnerships, and fashion innovation surpasses Zara and H&M’s traditional strategies.
Once, Zara, H&M, and their subsidiary brands captivated consumers with vibrant retail experiences and high-quality campaigns, featuring top photographers and international supermodels. Yet, they’ve struggled to transition this appeal into the realms of digital marketing, streaming media, influencer collaborations, and social commerce in China. Additionally, their focus on Western social and environmental trends often misses the mark with their Chinese audience.
The surge in Chinese e-commerce post-2010 saw a hesitant response from these international fast fashion brands, who continued to prioritize traditional retail. Zara and H&M were slow to engage with platforms like Tmall, JD, Douyin, and Little Red Book, leading to an overdependence on discounts as their brand value and market presence in China dwindled.
In 2022, Zara’s revenue on Douyin was less than US$1 million, and although it increased to US$8 million in 2023, it appears to be a case of too little, too late. Despite closing several stores in China, Zara did open a 6,400m² live-streaming center, pivoting towards bolstering their social commerce. With the Zara Douyin flagship now producing quality live-streaming content, there is potential for the brand to regain its foothold in the Chinese market.
On Douyin, content has become the central hub connecting consumers and products, and more and more consumers spend money on products while consuming content. The continuous progress of social commerce technology has contributed to the magnification of content value and the value chain that promotes brand potential via product interactions and sales.
Branded content on Douyin typically originates from the brands themselves or the KOLs they engage to promote specific products. The platform generally charges brands 3-4% of their GMV as a technical service fee. In addition, KOLs collaborating with brands on streaming content usually earn a 30-70% commission on the brand’s GMV. From this, Douyin extracts a 30-40% fee from the KOL’s revenue.
To remain profitable while utilising Douyin, brands must effectively manage their revenue share with KOLs and continuously enhance their capabilities in creating compelling branded content on the platform.
Douyin Social Commerce Journey
Step 1: Content
Step 2: Interest
Step 3: Purchase
Traditional e-commerce depends on search-based journeys that support customers in finding products that meet their style, design, and brand expectations. Consumers are often overwhelmed by the plethora of choices across various platforms, different price offerings, and the influence of search engine marketing and cross-media campaigns. In response, there’s been a significant shift towards direct-to-consumer sales through fashion brand-owned e-shops, driven by a need for more streamlined and direct digital engagements.
In contrast to the traditional model, Douyin’s social commerce approach is preference-based. It leverages algorithms to present individual products and styles through intuitive short videos and live-streaming formats. This approach tags and tracks consumer engagement, nudging them towards quick, emotionally-driven purchasing decisions. Douyin stimulates consumption demand by smartly recommending short videos and influencer-led live streams that mirror the consumer’s media tastes and purchasing preferences.
As traditional e-commerce and retail experiences have become less enjoyable and relevant, Douyin has risen in popularity by offering a more engaging and entertaining shopping experience.
The landscape of consumer behaviour in China has undergone a significant shift. Consumers enjoy a good discount, but ultimately they have a greater preference for high-quality products and reputable brands. Discounting can hurt brands efforts to built sustainable, profitable businesses in China. In this evolving consumption era, it is key to understand the preferences of specific target groups and engage them with sophisticated, brand-aligned social content.
The year 2023 fell short of expectations in terms of economic growth, disposable income, and personal wealth accumulation in China. In response to heightened competition and macro pressures on consumer spending, how should brands adapt? A strategic approach is to manage brand value meticulously and focus on achieving profitable market share growth. This tactic often proves more effective in challenging market conditions than resorting to excessive discounting.
WPIC hopes to discuss with you your pricing strategy, brand development, and social commerce plans to ensure that you and your brand have a happy and successful 2024.
Get content like this in your inbox.