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Adapting to Chinese consumer preferences: global and local brands are configuring their products to appeal to Chinese consumers.

Prestige brand managers are already closely watching the Chinese consumer, who has become the number-one luxury spender in the world, representing 27% of global luxury purchases (compared to 20% by American consumers) in 2012. This trend is only expected to deepen, with Bain Consulting predicting that Chinese consumers will account for 33% of global luxury purchases by 2015.

Emerging markets are already primary drivers of company value and growth prospects for global cosmetics companies. Estee Lauder posted $500 million of its $10 billion in revenue from China, making it the third largest market for the giant prestige beauty manufacturer and marketer, behind the U.S. and the UK.

However, Chinese consumers are not only spending within China's borders. On the contrary, Chinese consumers make more than 60% of their luxury purchases while traveling overseas, representing more than $28.3. billion in sales. This number is expected to grow by 31%--four times the rate of growth in China's domestic market (a more modest 7%).

The Travel Retail division is also a key revenue driver for Estee Lauder and other global cosmetics companies, which is largely driven by Asian customers who are expected to account for 50% of all airport retail sales in the next five years.

It is not surprising, therefore, that global luxury brand managers have suddenly started paying closer attention to the "spendy" Chinese travelers not just in China, but also those hitting their retail doors in Europe, America and around the world.

Chinese Customer Preferences

Beauty companies around the world are paying close attention to this valuable customer and many are adapting not just their packaging and marketing, practices. to Chinese customer preferences, but also their products.

Here, we take a look at how one global company and one local Chinese company are tailoring their products to meet Chinese customer nuances and preferences.

Global Going Local

In 2012, Estee Lauder launched a brand to specifically target Chinese customer preferences--Osiao, which is partially derived from Chinese herbs. As the product marketing material states: "featuring scientifically advanced Western formulas and precious Chinese medicinal ingredients, the collection of complementary topical and oral products recaptures radiance to reveal luminous, lifted and lit-from-within skin in just four weeks."

In addition to adding Chinese herbal medicinal components to the product, Osiao has signed up award-winning actress and singer Miriam Yeung to promote the brand in China. As the brand spokesperson, Miriam will be featured prominently throughout advertising and ad-vertorials, PR, in-store and on the Osiao website. Estee Lauder is not only focused on launching localized products like Osiao, but is evaluating their entire portfolio to understand how to best adapt their products and marketing to Chinese preferences. They have created an internal group called "China 2020" whose job is to ensure the company has the same level of management, local customer intelligence and operations in China as it does in the United States.

Estee Lauder is not the only global company to utilize Chinese and Asian ingredients in their products. Other global brands such as Korea's Sulwhasoo and AmorePacific, and China's Shang-hai VIVE and BYKL, also feature Asian herbal products.

Local for Local

Chinese cosmetics brand Herborist built its entire brand, packaging and product portfolio around the concept of Traditional Chinese Medicine. Chinese medicine is associated with safety, natural remedies and a cure for the root of the problem, not just the surface. In China, Western skin care theory is associated with advanced technology and chemical components. Proponents of traditional Chinese medicine view the Western approach as a temporary solution that does not solve the root problem.

To differentiate itself from traditional herbal products of other Asian brands such as Kose and Shiseido, Herborist created the concept of natural nourishment, comprehensive conditioning." To support this concept, it introduced the unique Chinese medicine theory of balance and integration. Her-borist created its chief selling point: "restore body and mind, radiant beauty comes from nature, personality and health." It's medical theories set it apart from other brands and gained quick approval from nature-conscious female consumers. As a result, many women who used foreign skin care brands have shifted allegiance to Herborist.

Examples of some of Herborist's products include:

* In its anti-aging series, Herborist uses the snow lotus to balance yin and yang.

* In its whitening series, Herborist features "New Seven White" products that are made from seven herbs with the word "white" in their Chinese names. The "white" in their names creates an association with whitening effects in consumers' minds.

* In its moisturizing series, Herborist utilizes the Chinese medical theory of "nourishingYin and promoting the production of body fluid," which is quite different than. most global brands' concepts of external replenishment.

Today Herborist has more than 1,200 stores in China and is rapidly expanding outside of China with a number of stores in Europe and plans to open in the United States soon.

Global brands should take notice of the inroads that both Osiao and Herborist are making with Chinese consumers by aligning themselves with Chinese herbal medicine and tapping into ongoing trends in the China market for natural and organic products.

Written by Renee Hartman, China Luxury Advisors

About the Author

Renee Hartmann is a co-founder of China Luxury Advisors, a boutique consultancy advising brands and retailers on serving Chinese consumers.
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Title Annotation:ChineseCUSTOMERS
Author:Hartman, Renee
Publication:Beauty Packaging
Geographic Code:9CHIN
Date:Jan 1, 2014
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