Marketing SSRN-Id1992753

8/21/2019 Marketing SSRN-Id1992753

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Challenges and Strategies of Luxury Goods Marketing in Advanced

Emerging Countries: A Case Study of Chinese Luxury Consumers

Saidi Sandra, MBA

Skema Business School, France2 bis rue Emile Zola, 13130 Berre l'Etang,France France,

E-MAIL: [email protected]

Muhammad Mohiuddin, MBA, DESA, PhD (ABD)

Sessional Lecturer of International ManagementLaval University, Quebec, Canada

Email: [email protected]

Dr. Zhan Su

Professor of Strategic Management and International Business andDirector, Stephen A. Jarislowsky Chair in International Business, Laval

university, G1K 7P4, Quebec, Canada

E-mail: [email protected]&

Elie CHRYSOSTOME, Ph.D.

Professor & Director of CEDIMES Institute USADepartment of Management, Int'l Business & IS School of Business &

Economics State University of New York Campus of Plattsburgh

Citation: Saidi, S., Mohiuddin, M., Chrysostome, E., Su, Z. (forthcoming, 2013),

Challenges and strategies of luxury goods marketing in advanced emerging countries: Acase study of Chinese Market In Elie Chrysostome, Rick Molz and Li Yan (2013)

Building Businesses in Emerging and Developing Countries: Challenges andOpportunities, Routledge publication, London/NYC.


2/38Electronic copy available at: http://ssrn.com/abstract=1992753

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Abstract

Changing economic epi-centre from the West towards the East is also

accompanying the luxury goods markets. The emerging Chinese luxury market is

becoming incessantly indispensable for the luxury goods brands despite the

economic crisis of last few years. The buying process of conspicuous and hedonic

values enabled luxury goods differs from the buyers of usual consumer products.

Taste, motivations and factors of purchasing process differs for the buying

process of respective products. Adding to this already complex buying process of

luxury goods, the mode of luxury purchasing process of novice Chinese consumer

and potential aspirer further complicates the marketing and management strategist

strategy formulation process. In many count, Chinese luxury buyers, High-net-

worth-individuals (HNWIs), are different from their Western counterparts. The

Confucian background, socialist political system, frugal-value oriented collective

society and the rapid economic growth are influencing permanent changes in

societal pre-existent values. The chaotic changes make it difficult for the luxury

goods companies to understand the Chinese first timers luxury buying attributes

and formulate adequate strategies. Thus, the rapid economic growth, public policy

and cultural factors have made Chinese affluent customers different from their

peers in the west as well as in the east (i.e Japan and India). On the other hand,

subjective and complex concept of luxury is primarily built on consumer


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perceptions as the meaning of luxury is determined by personal and interpersonal

motives (Vigneron & Johnson 2004). Consumers will develop different

perceptions of luxury brands thanks to different interactions on a personal and

social level. Thus, luxury product can be considered as a multi-dimensional object

which was studied and analyzed in academic research by economist

(/management), sociologist as well as marketing experts. Marketing theories on

luxury goods consumption and marketing emphasized on the relationships among

luxury, income and culture. This study tries to focus on the distinctiveness of

Chinese consumers and how to target them effectively. Based on systematic

literature review, content analysis of academic and professional publications and

partial empirical data, luxury marketers need to include Chinese social, economic

and cultural factors while formulating marketing strategy in this rising market.

Targeting the right affluent consumers, proper Marketing tools, promoting local

content, building long term co-operations with local firms and service providers

are extremely useful for this market. Introducing programs and policies for brand

awareness and luxury taste (i.e Luxury Knowledge) among the Chinese high-net-

worth-individuals (HNWIs) are particularly beneficial for success in the long

term. Gaining experiences in luxury products retailing in an emerging market like

China can also open-up the flood gates of opportunity in the future to new

emerging countries in Asia and elsewhere.

Keywords: Luxury brands, emerging market, luxury marketing, luxury strategies


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1. Introduction

Luxury goods purchasers are different from the buyers of everyday consumer

products. In consequence, Taste, motivations and factors of luxury goods

purchasing process differs from the buying process of everyday consumer

products. Desire of possessing luxury products is ultimate envy of all consumers

in the international market and the demand of these products is ever increasing

specially in the advanced emerging markets such as Brazil, Russian, India and

China (BRIC). According to Boston Consulting Group (BCG) (2009), China will

be the biggest market for luxury products in 2015. Latest data of post-economico-

financial crises of 2008-2010 shows that Chinas share in luxury goods

consumption rose to 27% (Deloitte, 2009, Accenture, 2009) and become the

leading market since the beginning of the 2013 (Jingdaily, 2012). Together, Asian

countries are becoming the destination for 60% (Chevalier and Lu, 2010), of

world luxurious products. On the background of this scenario, it is extremely vital

for luxury goods producers to know and understand the buying behaviors of Asian

luxury goods consumers specially the affluent Chinese, new consumers of luxury

goods. Rapid economic growth, public policy and cultural factors have made

Chinese affluent customers different from their peers in the most developed

markets in the West as well as in the east (i.e Japan). Despite the ever increasing

opportunity of marketing luxury goods in China, academic research on Chinese


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affluent consumers buying process is rare or inexistent. This paper is to fill this

gap and will propose an effective business model for prospective as well as

existing luxury goods exporter to China. This paper is developed theoretically

based on systematic literature review (SLR) and content analysis of previous

academic as well as professional literatures. First of all, we will define what is a

luxury good and how the buying process of this product differs in China from

socio-economico-cultural point of view. Then we will explain our methodology

followed by propositions and discussion on challenges and strategies of marketing

luxury goods in emerging China. Concluding remarks as well as limitations of the

present article will be given at the end.

2. Literature Review

Luxury products have often been associated with the core competency of

creativity, exclusivity, craftsmanship, precision, high quality, innovation and

premium pricing destined for high-end consumers of the upper echelons of

society. The attributes of the luxury products offer the buyers the pleasure of not

only possessing expensive items but the extra-added psychological benefits like

esteem, prestige and a sense of a high esteem that reminds them and others that

they belong to an exclusive group of only selected few, who can afford these pricy

items. The concept of luxury is complex as it is subjective and essentially built on

consumer perceptions as the meaning of luxury is determined by personal and

interpersonal motives (Vigneron & Johnson 2004).


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The English word luxury--same as the French luxe, the Italian lusso, and

Portuguese lujoderives from the Latin word luxus and luxuria (Roux &

Floch, 1996; Dubois et al., 2005). The word luxury came from the Latin words

luxus and luxuria (Roux and Floch 1996). According to dictionaries, luxury

compares with extravagance, opulence (UBC Sunsite n.d.), and rankness

(University of Notre Dame). The word luxury should have a positive value of

splendor to it. However, it takes on the negative connotation of decadence when

used in association with private and excess, and put into a social context

(Roux and Floch 1996). Luxury is to be seen as a manire de vivre (a way of

life). It is about pleasure, refinement, perfection and rarity, as well as

appreciation, but not necessarily price (Roux and Floch, 1996). Luxury is

commonly defined through very limited supply and appreciation of gain by other

people. Dubois, Laurent and Czellar (2001) proposed a definition of the nature

and characteristics of the concept of luxury, and identified six facets; i) Excellent

quality; ii) Very high price; iii) Scarcity and uniqueness; iv) Aesthetics and poly-

sensuality; v) Ancestral heritage and personal experiences, and vi)

Superfluousness. Authors like Bourne (1957) defined luxury goods as unique

products not commonly owned or used, which are more conspicuous than

necessity products. Luxury goods are commonly branded products purchased for

emotional needs such as increase of esteem; functional needs seem to play only a

secondary role in purchase decisions (Arghavan and Zaichkowsky 2000). Luxury


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brands can be described as premium priced brands that consumers purchase for

their psychological values (symbolic and hedonic), and not predominately for

their economical and functional value (Nueno and Quelch 1998). Thus, luxury

brands can be characterized as conspicuous, unique, social, emotional, and of high

quality (Vigneron and Johnson 1999). Consumers will develop different

perceptions of luxury brands thanks to different interactions on a personal and

social level. In other words, the definition of luxury brands varies according to

combinations of motivations based on values.

The luxury product can be considered as a multi-dimensional object which

was studied and analyzed in academic research by economist (/management),

sociologist as well as marketing experts. While sociologists and economists have

been centered on the explanation and definition of luxury, marketing scholars

have mainly focused on consumer perceptions and attitudes towards luxury

brands and luxury-brand consumption (Dubois and Paternault, 1995, Kapferer,

1997-98). Roux and Floch (1996) described luxury as two facets such as anti-

economy vs. Poly-sensuality and Vigneron and Johnson (2004) described it as

personal vs. Non-personal. Marketing theories on luxury goods consumption and

marketing emphasized on the relationships among luxury, income and culture.

The applied marketing literature emphasize on cultural traits as a demand factor

that deserve more research on as the markets for luxury goods are spreading from


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the traditional markets towards the emerging markets with diverse culture

(Hofstede, G., 2001 & De Mooij, M., and Hofstede, G., 2002),. However,

according to Dubois and Duquesne (1993), the empirical measurement of culture

and its impact on luxury goods demand is not easy task. On the other hand,

Mohiuddin, M., et al., (2009) and Sultana et al., (2013) found that the appropriate

cultural diversity management leads firms to improve their marketing

effectiveness to the culturally diverse clients and creates competitive advantages

for the firms. Dubois and Duquesne (1993) in their studies on the relationship

among luxury, income and culture have found a strong relationship with culture

and the combination of income and culture explained almost 78% of the variance

in the penetration of luxury goods consumption among those surveyed in their

study. They have advised the marketers of luxury goods to explore the values

expressed by their brands and products in order to analyze their customers value

systems, and to assess their current brand strategies as to cultural affinities and

their evolution.

Theoretical discussions of luxury products from cross-cultural point of

view of luxury goods consumers with some empirical data from professional

publications of various consulting firms led us to believe the grandiose market

opportunities in China and the different mode of luxury buying process of

Chinese affluent consumers. Integrating Chinese luxury consumers


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distinctiveness, we propose the following conceptual framework for luxury

consumption process in China.

Figure 1: Conceptual Framework

3. METHODOLOGY

This exploratory research approach is based on previous published academic

and professional literature on luxury goods marketing in the emerging countries

including China. From the beginning, it shows that few scholarly articles were

written on Challenges and Strategies of Luxury goods marketing to China. This

is very understandable as the history of the luxury market in China is relatively


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recent. Though many articles were written on luxury consumption behavior from

the matured markets point of view, few or rare were written on the purchasing

behavior of Chinese high-net-worth-individuals (HNWIs) for luxury goods. On

this background, during the selection process of previous literature, we have

included not only academic publications from academic journals but also the

publications from leading consulting firms. There is considerable study of many

well reputed consulting firms such as Abrams Research, Accenture, BCG,

Deloitte consulting, KPMG, TNS, Global industry Analysts, UBS etc. which have

done the study on luxury goods marketing in the emerging countries. The

methodology used for this work was based on critical literature review and

content analysis of the published academic and professional articles. First of all,

we have developed the research questions based on the topic Strategies of luxury

goods marketing in China. From this research question, we have developed key

words such as Luxury products in China, Luxury market in China, Luxury

consumption in China, Luxury consumption behavior in China, Chinese culture

and luxury products, Confucianism and luxury products. With these key words,

we have searched documents in databases like google scholar, Sciencedirect,

EBSCO, ABI/proquest and found many links. We searched till 15th pages of each

database and selected the most appropriate articles based on the title. Details steps

of the selection process are given in the following figure.


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3.1 Article extraction method

Academic articles and professional publications (management consulting

firms) on Challenges and strategies of luxury goods marketing in China were

extracted from the leading data bases in international business & management.

Key Words : Luxury products in China, Luxury market in China, Luxury consumption in China, Luxuryconsumption behavior in China, Chinese culture and luxury products, Confucianism and luxury products

ABI/PROQUEST65 articles

Sciencedirect74 articles

EBSCO93 articles

Google scholar 87 articles andprofessional publications

319 articles &professional publications

278 articles &Professional

Filtering and removing41 double articles

Reading abstract andremoving 156 articles anddocuments

44 publications

122 remaining articles androfessional ublications

Articles published

between 2000-2012 wereselected for review

Figure 2: Articles selection procedure

for S stematic literature review


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The extensive literature review enabled us to better understand the topics,

research gap and fit in the wider research field of luxury goods firms strategy in a

new market targeting the first time luxury consumers nouveau riches. This

critical literature review is a summary of research that uses explicit methods to

perform a thorough literature search and critical appraisal of individual studies to

identify the valid and applicable evidence. Through the content analysis of the

articles and professional publications, we tried to develop the back ground of

luxury products, theoretical aspects of the luxury consumptions, luxury goods

markets. From this critical literature review, we tried to make a conceptual

framework of luxury products. Based on the content analysis of articles, we have

developed few propositions on Chinese luxury goods buying behavior,

consumption patterns and distinctive characteristics of Chinese wealthy first time

luxury product consumers and strategies for luxury firms in Chinese market.

These propositions are going to be tested with the empirical data which are still

being in the collection and analysis stages.


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3.2 Selected articles for Systematic Literature Review (SLR)

Table 1: Literature reviews on luxury goods in Chinese Markets

Author/s

& Year

Research aims/

objectives

Theoretical

perspective

Method Main findings

Chen Li,

2008

Chinese consumers and the

foreign brands

Brand culture &

luxury consumption

Literature

review

The symbolic values of prestige required by the Chinese

luxury consumers.David Ward &

Claudia Chiari, 2008

To develop analytical tools to

ensure luxury firms stay in

front of the pack

Rigorous literature

analysis

Literature

review

Luxury product can indeed migrate towards intermediate

and mass luxuries when its traits become tangible, and when

rarity turns into abundance and luxury becomes accessible.

Kwang-Soo Park &

Yvette Reisinger,

2009

Examines the cultural

differences in the luxury

shopping

Theory of

consumption values

Survey and

regression

analysis

Western, Asian, and Hispanic tourists-shoppers significantly

differ in the perceived importance of luxury consumptions.

Yan Luo,

2009

How culture influence buyers

behavior in Chinese Market

Theory of Planned

Behavior

Literature

review

Chinese are more collectivism, pay much more attention on

the relationship with others and how others think about

them, and focus more on familys value, comparing with

western Countries.

Kuang-peng Hung,

Annie Huiling Chen,

Norman Peng, Chris

Hackley, Rungpaka

Amy Tiwsakul and

Chun-lun Chou, 2011

Aims to explore roles of social

context, individual perception,

and vanity, and to set these

relationships within a broader

theoretical context of possession

and consumer identity.

Possession and

consumer identity

Survey

conducted

among

Chinese

luxury brand

consumers

There was weaker support for the role of perception. The

experiential and functional aspects of luxury brand purchase

were positively correlated with purchase intention, but

symbolic value was not. Physical and achievement vanity

had a positive impact on purchase intention while only

achievement vanity had a moderating effect on perception.

Sanguanpiyapan, T

& Jasper, C. 2010

Why consumers prefer to shop

where they do for luxury goods.

Motives for luxury

shopping

Survey and

regression

Jewelry shoppers are more influenced by functional motives

than non-functional motives.

Klaus-Peter

Wiedmann, Nadine

Hennigs, 2007

Why consumers buy luxury & how

their perception of luxury value

impacts their buying behavior.

Capital theory Case study The dimensionmeasures of individual luxury perception for

marketing strategies to improve purchase value for different

segments of consumers that span the globe.

MO, Tingting and

ROUX, Elyette.

(2009).

To explore the values and attitudes

of Chinese consumers towards

luxury-brand consumption.

Consumer

personality research

Interviews Four different consumer segments identified: Indulgence,

Conformism, Snobbism & Follower/pragmatism. Theinfluencing factors of segmentation are also pointed out.


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Author/s

& Year

Research aims/

objectives

Theoretical

perspective


Yann Truong; Geoff

Simmons, Rodd

McColl, Philip J.

Kitchen, 2008.

To develop a scale to measure

luxury brands status and

conspicuousness

Theory of the

leisure class

Survey and

regression

analysis

First empirical study to use actual consumers in order to

explore the difference between status and conspicuousness

in assessing luxury brands.

Christopher M.

Moore, Anne MarieDoherty, Stephen A.

Doyle, 2010.

To investigate the role and

function of flagship stores as amarket entry mechanism.

Eclectic theory of

internationalentry mode

Semistructure

d interviewswith elite

informants.

Luxury flagship stores represent a strategic approach to

market entry that is employed to support, enhance anddevelop distribution activities within a foreign market.

Mike Thompson,

2011

To explore the extent to which

Chinese classical virtues act as a

restraint on consumerist hedonic

values.

NA Literature

review and

reflective

analysis

The Junzi (gentleman-leader) archetype and the virtues of

Ren-Yi-Li are offered as exemplary features of

management seeking to balance social responsibility with

profitability.

Cesare Amatulli

and Gianluigi Guido,

2012

To discuss external and internal

dimensions of luxury purchases

behaviours.

Luxury as a social

statement and

individual style.

Conceptual An adaptation of luxury retail strategies and operations to

consumers luxury goods approach: considering their

internalised or externalised luxury orientation

Ying Wang Shaojing

Sun And Yiping

Song, 2011

To examine Chinese consumers

motives, attitudes toward luxury

brands (ATLB), and the impact

of ATLB on consumer behavior.

Chinese luxury

consumers: the

elitist, the distant,

and the democratic

Survey and

regression

analysis

The elitist on average bought more pieces of luxury

products than the distant and the democratic type of Chinese

luxury buyers.

Lingjing Zhan &

Yanqun He,2012

Motivations for luxury

consumption among Chinesemiddle-class consumers.

Relationships

betweenpsychological traits

& attitudes

Online Survey

and regressionanalysis

Consumers evaluate the best-known brands more favorably

as they become more value conscious, indicating that luxuryproducts are not necessarily extravagant purchases in China.

Geng Cui & Qiming

Liu, 2000

Examines the diversity among

Chinese consumers across seven

regional markets.

Regional disparities Survey and

Regression

analysis

Consumers from various regions are significantly different

from one another in terms of purchasing power, attitudes,

lifestyles, media use, and consumption patterns.Jai-OK Kim, Sandra

Forsythe, QingLiang

Gu, Sook Jae Moon,2002

Examine consumer values,

needs and purchase behaviors

Cross-national

consumer behavior

Survey and

regression

analysis

Brand loyal Chinese consumers experiential image was the

most important aspect of the branded apparel appeal to

female consumers.


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Author/s

& Year

Research aims/

objectives

Theoretical

perspective


Francis Piron, 2006 Exploring what Chinese

consumers value most among

their possessions.

NA Qualitative

and a snowball

sampling

Chinese peoples uniqueness, and inappropriateness of

using non-Chinese instruments, such as collectivism and

individualism, to measure Chinese phenomena.

Jian Wang and

Zhiying Wang, 2007

Consumer nationalism and its

implications for corporate

reputation management in China.

National identity

into the public

discourse.

Multiple Case

studies

The emotional power of nationalism is a critical component

of the marketplace in China & at times becomes central to

Chinese consumers Relationship with global brands.Aron OCass

& Eric Choy, 2008

Chinese generation Y

consumers view on brand

status, brand attitude and

willingness to pay a premium

Consumer

behaviour related

to brands.

Survey and

regression

analysis.

A consumers level of involvement was found to have a

positive effect on brand related responses such as perception

of brand status and brand attitude

Yong Jian Wang,

Samuel K. Doss

Nathan M. Chiquan

Guo and Wenjing Li,

2010

Chinese consumers

international out shopping

motives from a culture

perspective

Hofstadters four

cultural dimensions

Survey and

regression

analysis

Chinese consumers perceived expressiveness of using

foreign products, perceived reliability of foreign retail

service, and perceived enjoyment of shopping abroad

has positive and significant impacts on their propensity of

shopping abroad.

Maria Eugenia Perez,

Raquel Castano and

Claudia Quintanilla,

2010

To explore the relationship

between the consumption of

counterfeit luxury goods and

identity construction.

Identity

construction

through

consumption.

Face-to-face

Interviews

Inner benefits that consumers attain are being efficient by

optimizing their resources; having fun by experiencing

adventure, enjoyment, and risk; and fooling others expecting

not to be caught. They construct an identity in which they

perceive themselves as savvy individuals.

Joseph A. Giacalone,

2006

To explain the characteristics of

Luxury products buying process

NA Literature

review

Particularities of Chinese luxury buyers.

Hsiao Ping Peng &Ming Chung Chang

(2012)

To show that extravaganceargument does not necessarily

contradict Confucianism

Chinese attitudestowards advocating

luxury spending

Conceptual The Chinese extravagance argument is aimed at equalisingwealth. Lu Chi merely affirmed that the rich spent on

enjoyment goods. Hence, luxury spending did not involve

the power and protection consideration

David Luna & Susan

Forquer Gupta, 2001

An understanding of how

culture influences consumer

behavior

Theoretical analysis An

Interpretative

approach

Integrating two distinct traditions in the study of culture and

consumer behavior: the anthropological approach and the

cross-cultural psychology tradition.

Dongjin Li, Ying Jiang,

Shenghui An, Zhe Shen

& Wenji Jin, 2009

How young Chinese consumers

money attitudes influence their

compulsive buying behavior.

Money attitudes to

compulsive

buying behaviour.

Survey and

regression

analysis

Money attitudes were found to significantly affect young

Chinese consumers compulsive buying behaviour.


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Author/s

& Year

Research aims/

objectives

Theoretical

perspective


Sang-Eun Byun

And Brenda

Sternquist, 2010

Examining the impact of price

mavenism on shopping

hedonism among the Chinese.

Price mavenism Structural

equation

modeling

Prestige sensitivity, price consciousness and value

consciousness shaped price mavenism among the Chinese,

supporting the idea that price mavenism arises from both

positive and negative perceptions of price.

Xiaohua Lin and

Cheng Lu Wang,2010

Exploring inconsistent and often

contradictory consumer valuesand consumption behaviours in

contemporary China.

Dual structure

theory of consumervalue system.

Literature

review and in-depth analysis

Chinese value system contains inconsistent elements that are

the seeds of conflict, confusion, and change. Thosecontradictory values have coexisted and interacted with each

other from a historical perspective.

Yanqun He, Deqiang

Zou and Liyin Jin,

2010

Investigating the lifestyles of

contemporary Chinese affluent

consumers and their influences

on consumption variables

Lifestyle studies

focused on the Asia

Pacific region

Multiple

regression

analyses

Affluent Chinese consumers, through apparently similar in

terms of wealth possession, exhibited very different patterns

in their purchase and consumption behaviors.

Lilly Ye,

Mousumi Bose

and Lou Pelton, 2012

To understand the joint impact

of Chinese consumers self- and

gender consciousness on their

ensuing brand exceptions.

Self-congruity

theory

Survey and

structural

equation

modelling

Contrary to expectations, the study finds that self-

consciousness has a negative direct impact on brand

consciousness while gender consciousness does not have a

direct impact on brand consciousness.

Consulting firms reportsName of author and

Consulting firm

Title of the project Type of the study Finding

Deloitte, 2009 Chinas consumer market:

What next?

In-depth analysis Companys culture to a new environment by integrating local

managers into that culture for success.KPMG, 2007 Luxury Brands in China Survey and analysis Luxury consumption is product driven rather than the personal taste

driven like in the matured market and success factors in China.

Albatross Global

Solutions and Ruder Finn

Asia, 2009

China Luxury Forecast In-depth analysis of

luxury purchase

behaviors and Trends.

Luxury goods are first and foremost about dreams. Brands need to be

innovative in building an image associated with positive values and

fulfilling consumers dreams and appealing to their imagination.

KPMG 2008 Chinas Luxury Consumers:

Moving up the curve

Survey and in-depth

analysis

Chinas luxury market grows in sophistication, differences in tastes and

preferences are becoming more discernible between cities and

demographic segments.


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Name of author and

Consulting firm

Title of the project Type of the study Finding

BCG, 2009 Chinas Luxury Market

in a Post-Land-Rush Era

Survey Chinese consumers present a tremendous opportunity for innovative

luxury companies that have well-positioned brands both inside and

outside mainland China.

ACCENTURE, 2011

By Tom Jacobson, Ray

Florio, and Tiago Salvador

The Premium of Value:

Pricing and Promoting

Luxury to the NewConsumer

Survey and analysis There are five key areas luxury retailers must manage: Embrace the

online channel, Gain deeper insights into competitive pricing, Develop

enhanced and coordinated channel strategies, Understand pricesensitivity for each product in each channel, Launch highly targeted,

carefully measured pricing and promotion strategies

Luxury Institute, 2008 Luxury Shopping CenterExperience: Wealthy Consumerusage & preferences

Luxury Institute Wealth

Survey

The most common element of an enjoyable shopping experience

mentioned by wealthy consumers is the type of stores available at the

shopping center

Ohio Northern University:

2010

China in Focus: Luxury

Goods Market

Interview Providing U.S. businesspeople with a valuable How To fact file

focusing on the luxury goods markets in in China

KPMG, TNS, 2009 Refined strategies: Luxuryextends its reach across china.

Survey and analysis Impact of the financial crisis on luxury goods market in China.

Mckinsey Quarterly, 2006 Understanding Chinese teen

consumers

Survey analysis Teens represent a significant luxury buyer segment and companies

need to articulate their strategies by addressing younger generationsvalues and appropriate channels to reach out to them.

LI & FUNG Research

Centre, 2009

Revisiting the luxury market

in China

In-depth analysis and

survey.

China will continue to be one of the fastest-growing luxury markets in

the world with distinctive features of its own.

Paul F. Nunes, Carolyn J.

Polka and Larry Thomas,

Accenture, 2009,

How to make the most of the

Great Consumer Trade

Down

Survey of cross-industry

consumer sentiment

Companies must look across the spectrum of their marketing efforts,

making adjustments in product mix, pricing, promotion and channel

strategy to deliver the innovation todays customers value.Rachel Sklar, Abrams

Research , 2009

Luxury Brands Survey Survey responses of over

100luxury industry

leaders and experts

surveyed in 2009.

The growing primacy of online e-tailers as destination sites, and the

possibilities of social media and online innovation in reaching new

demographics and maximizing customer base are all factors at play in

this changing luxury landscape.SPARXOO, 2010, Luxury Trends In-depth Analysis Chinese cultural identity and promising luxury market.

Interbrand, 2008 Luxury brands : How to

maneuver through this

moment of austerity

Changing luxury concept and democratising the luxury market.

Consumers now seek creating their own unique stamp on the world

around them through a meaningfully rich, full, positive life.


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4. PROPOSITIONS

Luxury market in China is relatively a recent phenomena and recognition of

the emergence of the middle-kingdom as an economic powerhouse. Rapid

economic development and phenomenal accumulation of wealth have created the

vast Chinese market for luxury goods and become the most prominent luxury

market since the end of 2012 (Jingdaily, 2012). However, Chinese luxury buyers

are still novice in terms of luxury Connaissance and lack understanding of luxury

goods comparing with the matured market. Further Chinese luxury buyers differ

from their counterpart in the matured market in terms of age, sex and gift buyers.

Growing numbers of women in business become new luxury buyers in China.

According to Berger (2011), 55% of Chinese luxury buyers are women comparing

51% in Western Europe and 43% of luxury consumers do not buy a particular

brand because of inadequate knowledge of that brand. The market is shifting from

the emerging market for luxury goods towards emerging consumers for luxury

goods. The emerging consumers rely on social networks for information on brand/

luxury products. They usually make their selection before visiting the luxury

channels. Brand popularity is more valuable than design or style for these

consumers. The first timers put also importance on utility value along with the

hedonic value of their newly acquired luxury products. From the above

discussion, we make our; First proposition: Chinese luxury buyers are the first

timers and few have knowledge about the luxury goods image and luxury values.


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They do look for the mix of functional utility with luxury aspirations. Hence, the

role of publicity and education of luxury brands in China are immensely

important.

Perception on luxury products is subjective and depends on consumers

social, functional and experiential needs. These needs largely depend on the

cultural values of the consumer. That is why same luxury goods perceived

differently depending on the profile of the consumers. National culture has a vital

role on the perception and value someone attach to a particular luxury product.

There are differences between the luxury buying process of Asian including

Chinese and Europeans. While Taiwanese buys expensive alcoholic beverages,

arts and crafts and silk/leather products (Mak, Tsang, & Cheung, 1999), Hispanics

buy the large appliances and computer equipment (Dimanche, 2003). China

possessed a pervasive, well-articulated culture composed of a set of

institutionalized values emanating from the great tradition of Confucianism (Lin

&Wang, 2010). With rapid economic development, China is becoming increasing

a consumer society and undergone many changes of traditional Chinese cultural

values and life-styles. According to Stout (1994), utilitarian values are decreasing

and hedonic value is increasing in China. The hedonic values have a positive

impact on Chinese consumers choice and consumption of luxury goods and

brand consciousness (Wang et al., 2000). Lin and Wang (2010) asserted that

Chinese culture is heterogeneous, contains elements that are contradictory or


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distinct to each other but remain together side by side. The paradox is well

explained by the dual structure hypothesis of Chinese culture (Pan, 1990; Lin

&Wang, 2010). This phenomena have the effect on Chinese consumption to the

extent that there existed Chinese tendencies of self-restraint and thriftiness and

also self-expression and extravagance. Thus, we make our;Second proposition:

Rapid economic growth, collectivist society and Confucianism believe made

Chinese affluent luxury consumers as a mix of east and western tastes and

aspirations. Hence, marketers need to include these dimensions in their marketing

strategy.

With the rapid economic growth and purchasing power, luxury products

market in China is developing in a big scale during the last decade. Seventy

percent of Chinese luxury consumers are the first-time luxury buyer (start2asia,

2012). The luxury needs of this first time consumer is different from the consumer

of the mature market. The former look for status symbols and social

acknowledgement and the latter for both product and service quality. Luxury

buyers in China are relatively younger, and wealth creation has been mostly

concentrated in this group due to various socio-cultural reasons since the

economic reform. Thus, Chinese luxury buyers are from the top class of the

society rather than the across the class luxury buyer in the mature markets. Apart

from the upper-class Chinese who are already the luxury buyers, are proudly

named high-net-worth-individuals (HNWI) who possess one million dollars or


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more, there are more than 170 millions more Chinese rich who are frequent

luxury buyers. The next 300 millions Chinese middle class who are destined to

become upper-middle class soon are also the Luxury aspires and entering the

luxury market with their rising household steady income. The fiercest competition

for existing luxury brands in Chinese market and those who are planning to enter

to this vast market is to attract this 300 million aspiring buyers. Existing luxury

companies or those who are planning to enter to this markets need to adopt and

adapt to attract this nouveau riches clientele. These clients are not always

concentrated first or second tier cities, they can be found in third or fourth tier

cities which count 40% of total luxury sales in China (statrt2asia, 2012).

Prospective luxury goods companies need to integrate the multi-dimensional

factors such as younger luxury consumers, aspiring luxury buyers and third or

fourth tier cities that can enhance market development. Thus, we can make our :

Third proposition: Chinese luxury consumers are the first generation affluent

consumers and their number and purchasing power is rising with the phenomenal

Chinese economic growth. Many are not yet in an affluent class as par western

standard, but they feel themselves as the nouveaux riches in Chinese standard.

Hence, marketers need to offer the mid-level luxury brands instead of the high-

end brands like in the matured market.


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5. STRATEGIC MANAGEMENT OF LUXURY BRANDS IN CHINA

Chinese luxury market is diverse in terms of value systems, economic and

geographic differences and requires a multi-dimensional response in order to

succeed in this market. In today's Chinese luxury, consumers value systems are

comprised of at least three elements: the traditional Chinese value system persists,

the socialist Chinese value system (dominant), and the Western value system

which is often regarded like a trend (Xiao LU, 2010). The emergence of China as

a leading luxury market has attracted many luxury firms to open their shops there

and in consequence, it has created fierce competition especially in Shanghai and

Beijing. The countrys busiest streets, such as Nanjing Road in Shanghai, are

witnessing fierce competition among the worlds luxury brands. In this

competitive environment, luxury firms in China as well as new entrants needs to

focus on following managerial issues:

5.1 Targeting the right wealthy consumers

Luxury consumers are the main focus point for any eventual strategy of

targeting luxury consumers and sell to them the luxury products. These wealthy

consumers, however, is not the single group which can be influenced by some

policies of One size fit all doctrine. In order to better understand these potential


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consumers and formulate appropriately the winning strategy, we need to know

them very well. According to the Mckinsey global institute (2009), the Chinese

consumers can be divided into 6 groups: Luxuriant, Demanding, flashy, urbane,

climber, down to earth, Enthusiast. While formulating strategy for one of this

group of wealthy consumers, marketers must first decide their target group and

formulate appropriate strategy taking into consideration of their particularities. A

better understanding of these seven groups can lead to more effective marketing

spending. Advertising, for instance, can be targeted at a number of relatively

similar segments. Consumers in the Enthusiast and Flashy segments both tend to

be willing to pay for the best and enjoy showing off what they buy. Brands are

very valuable for them, logos and marketing generally ought to be bold. They are

intensely attached to their favorite labels and insist on latest products and styles

and expect sales people to reflect the brand image in appearance and behavior.

Consumers from Luxuriant and Urbane group are far less interested in

showing off. They put more importance on the attributes of a product or service

than on the glamour of brands. Firms that serve these clients need to offer a strong

product line and excellent service. VIP programs and special marketing events for

selected customer instead of mass marketing can be more effective. The seven

segments mentioned here give guidance on which consumers to target as well as

how to target them in terms of the product, price, marketing and media strategy.


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Most successful marketers need to understand the differences among these

segments of potential wealthy consumers and prepare their strategy accordingly.

5.2 Targeted Marketing

Low level of awareness of luxury brands in China means clients needs to talk

to the sales staff and purchasing depends largely on this staff. Well trained sales

staffs can play an pivotal role in luxury marketing in China. Luxury brands need

to invest in advertising not only to promote their brands but also to inform

Chinese consumers about Luxury and why they should pay a premium for

products offered by luxury brands. Frequent luxury events are needed for reaching

both aspirational and dedicated luxury purchasers. On the top of that

psychographic segmentation of the Chinese consumers such as the luxury lovers,

luxury followers, luxury intellectuals and luxury laggards needed to be understood

by the luxury strategist along with the geographic segmentation. According to

Pierre Xiao LU (2010), one of the leading luxury goods expert in China market,

Chinese luxury consumers show following dimensions in their decision on luxury

buying process:


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Table 2: Psychographic Segmentation of Chinese Luxury Consumers

Geographically, Chinese luxury consumers are dispersed in different cities

and follow some different patterns based on socio-economico-cultural varieties.

According to the same author, Pierre Xiao LU (2010), these consumers are

dispersed as follows:

Table 3: Chinese Luxury Consumer Segmentation Geographical Distribution in China


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Marketing executives need to understand these dimensions in order to

formulate appropriate strategies in this emerging luxury market.

5.3 Diffusing strategies

Successful diffusion strategies in the matured market are brought to China by

some luxury brands. One of such strategies is product diffusion lines which are

destined for less affluent clients and raise brand recognition among the aspiring

young clients. This strategy may not successful for the moment as China is still

developing market, but as the market becomes more mature and competitive;

more luxury brands in China may consider this approach.

5.4 Local contents

In a collectivist society such as China, even wealthy consumers are sometimes

nationalistic and have a preference for brands with local flavour. Some luxury

brands in China are seeking local relevance, creating products for Chinese market.

For example, Louis Vuitton offered a range of Lantern Charm accessories based

on the traditional Chinese lantern got a warm welcome from the luxury

consumers. Other existing or potential luxury firms can use such strategy. Luxury

car makers use this policy in China.


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5.5 Local Manufacturing

Many luxury brands are shifting part of their production value chain to China

in order to profit out of Chinese low-cost-high-value innovations. This policy can

lower a bit the price of luxury goods destined for the first time buyers in China.

This can be a good strategy for, at least, those products which are destined for

Chinese market. Successful luxury firms like Herms, Zegna, Coach, Paul Smith,

and Armani have adopted this strategy in China.

5.6 Store formats

Most of the luxury brands had made the choice of not changing their formats

when operating in China as they believed that even minor change will damage

their parent companys image and global positioning. In China, this has been

working as Chinese luxury consumers are embracing international retail concepts.

Luxury brands are operating mega-store formats with large ranges that have been

shown to educate new wealthy consumers about a brand and fuel an appetite for

spending.

5.7 Rapid expansion

Most of the worlds leading luxury brands are expanding brands in second or

third tier of cities. Initially, Luxury brands used to target the Mega-metropolitans,


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but since sometimes they are targeting second or third tier cities and some study

shows the eagerness of clients from second tier cities are approaching the same

level of first tier cities. With rapid economic development, expanding to the

second tier and even third tier cities can escape some firms from fierce

competition in the mega-Metropolitans.

5.8 Using Local partners

To enter in a huge market like China, firms need enormous financial and

human resource investments in China. Big luxury firms like Louis Vuitton can

afford it as their parent company, LVHM, helped them to establish in China

operations. However, for others, getting a local partner can be appealing for their

knowledge on local consumer behaviors and other cultural issues.

5.9 Rigorous Quantitative study on China market

The emergence of the huge market and promising green signals from second

and even third tier cities across China attracted to many firms to do their

expansion to these cities without any rigorous market research. Quantitative

research with data on current demographics and the expected evolution of wealth

are needed for better management of expansion decision making process. Study


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needs to include also the data on competitors, number of customers at each point

of sale, retail environment and available partners.

5.10 Acquiring tools for wining at the point of sale

As Chinese luxury consumers are not well versed with luxury brands, the role

of sales associates is crucial to attract these clients and to close a sale to them.

Sales associate needs to have high training so that they can tell what qualities

consumers in different segments look for luxury products and should be able to

distinguish the brands features from those of competitors. Having analysing

capacity of customer preferences and purchases and introducing the strategies

accordingly are crucial to increase the number of loyal customers.

6. CONCLUSION

Spectacular luxury market development in China has attracted my luxury firms

and management consultants from all over the world including from Europe and

France. This vital sector has lots of opportunities to reap profit out of the

emerging luxury market development in China in an era when the demand and

prospect of luxury products markets are diminishing in the traditional matured

markets in the Western developed countries. On the other hand, this new market


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does not always follow the same way of doing business like in matured market.

Not only economical differences but also the cultural and heritagical factors play

pivotal roles. While in matured market, keeping the rarity and exclusivity are

particularly important, in emerging market like China is not fit for this type of

strategy even though it's in luxury sectors. Nouveau riches and aspirational riches

in China are buying luxury products sometimes what we called Trading up from

their perspective and what can be considered in a mature market as trading

down. While mature markets are particularly inclined towards conspicuous,

Clients in emerging countries love a mix of conspicuous and functionality and

utilitarian value from their luxury purchases. Marketing professionals from the

luxury sectors need to understand these differences if they want to succeed to this

highly promising market. Strategies of location inside China can also play pivotal

roles in success or failure of any luxury company. While mega-metropolitans like

Beijing and Shanghai have about similar number of high-net-worth-individuals

(HNWI) like cities in the west, but these mega-cities in China are also crowded

already by many luxury firms. There are also sign of domestic luxury brands

which are emerging slowly specially in fashion, clothing and jewellery sectors.

The high-net-worth-individuals (HNWI) of these cities are highly mobile, and

they do an significant portion of their luxury shopping from abroad. Second or

third cities are promising, but they lack skilled professionals and other service

providers for luxury sectors. Foreign Luxury firms while formulating their


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strategy for China need to concentrate to all of these particularities of this market.

Professionals having experience in China can contribute to the policy and

practices for the aspiring luxury firms to enter to Chinese market or for expansion

in second or third tier cities. Building long term cooperation with local firms and

service providers are particularly beneficial for this market. Introducing programs

and policies for brand awareness and luxury taste (i.e Luxury Knowledge) among

the Chinese high-net-worth-individuals (HNWIs) are extremely important for

success in the long term in this market. Further, transiting towards the luxury 2.0

marketing for the tech-savvy young Chinese luxury consumers is highly

recommended for the luxury firms in China and abroad. Gaining experiences in

luxury products retailing in an emerging market like China will in future be

helpful while these luxury brands will enter to new emerging countries in Asia

and elsewhere. Though study on Chinese market is gaining momentum, there are

some other regional markets such as South-east Asia, India and Gulf cooperation

countries can also be an interesting destination for luxury products.

This study was mainly based on previous academic and professional

publications and data. The data and the context of these publications are a little bit

outdated as the economic scenarios are changing extremely fast, shifting centre of

gravity from West to east. Some of the conclusions or ideas of the publications

may not any more valuable for the current and coming future. There is also short


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coming of empirical data of this study. The quality of this study could be

enhanced manifold with the use of questionnaire survey among the Chinese high-

net-worth-individuals (HNWIs), existing luxury firms in China as well as aspiring

firms likely to enter to Chinese market along with the rigorous statistical analysis.

This paper sheds light on distinctive characteristics of Chinese affluent

consumers and will help managers of luxury goods exporter to prepare their

strategies and adapt the existing theories and application from other luxury

markets and customers integrating Chinese rapid economic growth, demographic

factors such as little emperor and relatively young age of Chinese affluent

consumers as well as cultural factors such as Confucianism believe mixing with

modern Chinese market values.

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