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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: sandra.saidi@skema.edu
Muhammad Mohiuddin, MBA, DESA, PhD (ABD)
Sessional Lecturer of International ManagementLaval University, Quebec, Canada
Email: Muhammad.mohiuddin.1@ulaval.ca
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: Zhan.su@fsa.ulaval.ca&
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.
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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
Method Main findings
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
Method Main findings
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
Method Main findings
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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