Advertising Restrictions as a Double Edged Sword

Just recently the Chinese Government has announced that TV ads for luxury watches, rare stamps and gold watches are now banned from TV and Radio. The ban is about moral issues in the Chinese society, but the interesting part of this change are the consequences for the Swiss luxury watch industry. This news has already hit the biggest wristwatch retailers in China hard and their stocks went down last Wednesday. This is the logical conclusion, if one takes into account the obvious drawbacks of such a ban. For the famous Swiss luxury watch industry, the same could be assumed, but on closer look, it might be an opportunity for them.

Swiss luxury watches remain popular in Mainland China
Swiss luxury watches remain popular in Mainland China

Opportunity for Swiss luxury brands

It is very likely that retailers will feel cuts in revenues, but for the luxury wristwatch brands itself, this might not be true. Brands like Rolex, Patek Phillipe or Omega are well known in China. The purpose of TV or Radio ads is mainly to raise brand awareness. For a company like Rolex or Swatch a general ban for luxury wristwatches might not be a threat in the long run, it will be an opportunity. Companies with big market shares and already high brand awareness do not rely heavily on TV and Radio ads anymore. But a ban will be a problem for new market entrants, it will be very difficult to reach a high level of brand awareness, without the advertising impact of TV commercials.  Just keeping a famous brand's awareness high doesn't require TV commercials. Therefore a ban of broadcasted ads will not have an heavy impact on the Swiss luxury watch industry. From the point of view of Swiss luxury watch brands, the ban can have an strategic defensive effect to keep new entrants away from the market.

Beyond classic advertising: Social Media in China

 Chinese consumers spend more time online than in front of the TV (source: marketer.com)

Chinese consumers spend more time online than in front of the TV (source: marketer.com)

Wristwatch billboard advertisings or print ads in lifestyle magazines are well known in the west. But especially in China, additionally Social Media is of utmost importance. The the general shift from desktop to mobile devices will even more increase the importance of social media. Strategically the famous Swiss luxury brands are already all well represented on Weibo or even Douban, a platform for online reviews. If TV or radio ads are not an option anymore,  online platforms and social media will become the focus of advertising and marketing activities. TV commercials for example can be placed on Youku (the Chinese Youtube) and directly promoted over other online channels. Big brands like Rolex are already present on all important Chinese Social Media platforms. Additionally, the modern Chinese first tier city citizens spend more time online than watching TV. This trend is even more prominent in 2nd and 3rd tier cities. In general this is an opportunity for luxury brands. They can create a whole brand experience with the interactivity of Social Media and directly interact with their potential customers. Furthermore it is easier to track potential clients in the online environment. 

Luxury Watches and the Internet

 Top 3 of online search inquiries in China are Swiss brands (source: Digital Luxury Group)

Top 3 of online search inquiries in China are Swiss brands (source: Digital Luxury Group)

As mentioned above, online activities will become more and more important in the future. A recent report showed a 40% increase in online search activities in China for luxury watches in 2012 compared with the year before. The top 3 most searched luxury watch brands are all Swiss: Omega, Rolex and Longines. Basically Chinese consumer inform themselves over Baidu or Google before they travel abroad. The number of Chinese tourists traveling to Switzerland will increase in the future and so will also the sales of luxury watches. Furthermore China will soon be the biggest online market place in the world. Chinese people still prefer to buy their luxury watch in Switzerland, because then they know they won't buy an imitation. Big online market places like Taobao (a Chinese online market place for everybody) tackle this trust issue with a certification system for sellers. 

Swiss luxury watch brands are well prepared

All in all it can be concluded, that Swiss luxury brands will not be affected by this ban. First of all they already have a high brand awareness and don't rely heavily on broadcasted ads. It can even be an advantage in the future, to keep new market entrants away. Secondly, social media and the Internet will be the future in China and Swiss luxury watch brands are already well represented there. The stock markets did not show a strong reaction after the news (between -1.9 and -3.3 percent). The future will show, if Swiss companies can keep their number one position in China