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French luxury brand Louis Vuitton is seeking to sue three counterfeiters who sold fake Louis Vuitton products on Taobao, Alibaba's e-commerce marketplace, between 2011 and 2014, according to information released by Beijing's Haidian District Court earlier this month. One of the counterfeiters made a profit of 1 million yuan ($152,367) from selling fake goods online, according to the court information. Louis Vuitton is demanding damages of 250,000 yuan, and as this is a relatively small amount, it seems the brand's main interest is to deter counterfeiters.
Luxury goods consumption in China has undoubtedly shrunk, due to the overall economic slowdown, the government's campaign against austerity and extravagance, and Chinese buyers' increasing preference to buy overseas in order to benefit from lower prices. Another recent issue has been the depreciation of the yuan. In response, leading brands such as Prada and Burberry are limiting the opening of brick-and-mortar stores and even closing some existing ones. More and more labels are also shifting their strategic focus to e-commerce sales. There may still be a problem with sales of counterfeit goods, but online platforms in China could offer new hope for luxury brands.
There are several factors in favor of global luxury companies' digital efforts. The majority of luxury goods consumers in China are younger than 45, which roughly coincides with the age of active Internet users and frequent Internet buyers.
In terms of brand communications and operations, online channels can be a cost-efficient way of narrowing cultural barriers and cultivating consumer loyalty. Off-line advertising campaigns and publicity events are generally time-consuming and require a substantial amount of human resources and capital investment.
But international luxury brands need to pay attention to several aspects in order for their e-tailing pain to achieve better traction. First, they need to offer more reasonable prices. The fact that prices are currently higher in China than overseas is a big part of the reason why Chinese consumers are less eager to buy luxury goods in the domestic market.
Second, they need to pay attention to the social comparison factor that influences Chinese consumers' decisions on buying luxury goods. Unlike the US and Japan, luxury consumption is not simply individual behavior in China. It is prompted by social causes, and buyers pay attention to what products people in their age group or professional category are buying. Desire for status symbols and self-reward are two important psychological motives for Chinese consumers' willingness to purchase luxury goods. Companies can tap into this by designing more appealing and even personalized interactive interfaces when cooperating with e-commerce platforms in China. For example, Burberry has teamed up with WeChat to launch an interactive messaging service that allows users to "unwrap" the brand's products via tapping, swiping and shaking. It also enables users to create a personalized digital Lunar New Year envelope to send to friends and family, a move that potentially enhances the role of social influence in Chinese luxury consumption.
There are some things that Chinese online retailers need to do as well. First is getting rid of vendors that sell knock-off products. Even though this may take time, a platform that can build a transparent ecosystem with zero tolerance of counterfeit goods will be the one that international luxury brands are most eager to cooperate with.
As the online luxury market in China is being reshaped, 2016 is expected to be an eventful year. It may see the disappearance of small-scale online retailers known for selling fake goods, and the emergence of new partnerships between international luxury brands and Chinese e-commerce giants. And Chinese consumers will be the true beneficiaries.