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Luxury Goods marketing in emerging Chinese Market: Challenges and Strategies

Sandra Saidi, MBAFashion and luxury Management, Skema Business School, France

Introduction

• Luxury goods creates dreams, desires and have conpicuous utility than the functional utility or economic value.

• The french luxury brands dominate the market • We are studying particulary the emerging

markets like China which is highly promising but different from mature markets.

• What are the marketing strategies of luxury industries if they want to develop a real business in China?

Background of luxury sector

Presentation of luxury product:What is luxury?

• According to dictionaries, luxury compares with extravagances, opulence and rankness

• Luxury is « manière de vivre », it is about pleasure, refinement perfection and rarity, as well as appreciation but not necessarily price (Roux and Floch, 1996)

• Dubois, Laurent and Czellar (2001) identified six facets of luxury product: Excellent quality, Very high price, Scarity and uniqueness, Aesthetics and poli-sensuality, Ancestral heritage and personnal history, and finally Superflousness


Perception of luxury is also influenced by demographics, lifestyle, habit, social, environment and of course , the purveyors of luxuries, the marketers.


Luxury goods vs ordinary goods

What makes the difference between the luxury and ordinary goods is the exceptional workmanship and materials using in a design that is enveloped by the exclusivity of the brand name.

Background of luxury sectorClassification of luxury consumers

•These consumers tend to buy luxury products for their superior functionality and quality.

Luxury is Functional

•Consumers use luxury goods as a status symbol to say “I did it!” They are motivated by their desire to be successful and demonstrate this to others

Luxury is Reward

•They enjoy luxury for the way it makes them feel, therefore have a more emotional approach to purchases.

Luxury is Indulgence

Background of luxury sector Theories used for and conceptual

framework of Luxury products

The luxury product can be considered as a multi-dimensional

object

Economic Theories

Social and Behavioral psychology

Marketing Theories- Maintaining the Perception

of Scarcity- Dreams and Fantasy Qualities of luxuries

- Luxury for the Masses: A contradiction

- Counterfeiting of Luxury Goods


Source: Author’s own

The background of luxury sector

Luxury industry

The luxury goods industry is unique because it is an industry that depends strongly on marketing and promotion capacity of the firm to sell their products to a specified group of people such as high-net-wealthy-individuals (HNWI). This is also an industry that is historically well guarded and difficult to find valuable information in details


Global luxury goods market before financial crises in 2008

Source: UBS WMR, Bain & Co., 2007.


Global luxury goods market after financial crises in 2008

2005 5.10%2006 5.30%

2007 4.70%

2008 -6.6%

2009 -7%

Source: Datamonitor, UBS and Merrill Lynch.


Luxury market share in the world

Source: Researchinchina.com


Dilemma of luxury market

Dilute their brand to

work through the

crisis?

Risk losses in the short-term and

maintain an elite image?

Luxury market are working in a continuous dilemma and making the perfect balance among the multi-dimensional factors

SWOT of luxury market

-Strong pricing power-High entry barriers

- Strong revenue growth- High margins and cash flow

generation- Heathly balance sheet

Frequent design cycles are part of the business

- Diverging wealth distribution- Continuous rise in tourism

- Demographic trend- Changing lifestyle

- Macroeconomic downturn- Declining consumer confidence/spending

- Decreasing travelling flows- Fashion risk

- Diminishing brand value

STRENGTH

WEAKNESSES

OPPORTUNITIES

THREATSSource: UBS 2007


The 6P’s of Luxury marketing

6P’s of luxury market

People

Product

Passion

Pleasure

Purpose

Price

Background of luxury sector Trends towards emerging countries

- Role of BRIC countries in the world economy and growth

- China, the second largest economy (New York Times, 16th August, 2010)

- Brazil , the Middle East, India and China will expected to grow its luxury market share by as much as 7%

China and luxury Market

Chinese culture and luxury good consumption

- Growing numbers of high-net-wealthy-individuals (HNWI) more than 16% per year in China

- Chinese consumers= Amalgame of modernity and traditional belief

- Differences between consumers in collectivist culture (China) and consumers in individualist culture (USA, EU)

China and luxury MarketTraditional Chinese culture and consumption of

foreign brands

Chinese traditional culture

Taoism

Confucianism

Buddism

Four Chinese cultural traits have lots of impact on Chinese customers

Collectivism and luxury buying

process

• Chinese luxury consumers try to create distinction from one group to another through buying luxury goods

Guan-xi (Social interaction)

• The behaviors of Chinese consumers are very easily influenced by the existing trust between people who have a good personal relationship

Face (Self esteem°

• . It is important to keep a positive image of one’s personality reflecting through his role, his status and traits respecting his or her own group

Hierarchy and luxury good

consumption

• Chinese society is considered highly hierarchical. Every individual specially the high-net-wealthy-individuals (HNWI) or luxury goods consumers are very attentive to their status within the group, institution or society as a whole

China and luxury MarketModernity and Chinese Luxury consumption patterns

- Tastes of Chinese luxury consumers are different from western luxury consumers

- Quality of products is important for Chinese consumers

- Chinese consumers prefer to spend more on a known brand name

- The traits like age, sex, education level and the standard of living and place of residence influence the perception and buying process of luxury goods.


According to the Accenture study which shows that “to attract Chinese consumers increasingly sensitive to foreign luxury brands, firms need to adjust their marketing strategies to the preferences of three categories of clientele”:

- Golden Youth - Ambitious youth - High income youth


Golden Youth• have a high standard of living

and significant interest in luxury brands, are the first potential category of the future luxury clientele

Ambitious Youth• are sensitive to brands and

desire the latest luxury products but still their income is not enough for consumption

High income Youth

• are looking for exclusive products at the cutting edge technology


Segmentation of Chinese wealthy luxury consumers

Source: ‘Luxury Brands in China’, KPMG, 2007


Different from other Chinese consumers

- There are also differences between Chinese wealthy high-net-wealthy-individuals (HNWI) and the mainstream Chinese consumers

- Differences in attitudes and behaviour between wealthy and mass affluent

- The wealthy people differ also in way of spending leizure time

China and luxury MarketChina luxury consumers vs Mature Markets

luxury consumers

China

• Youthness of luxury consumers, 80% under 45 years old

• Appreciate the functional benefits of any particular purchase

Mature Markets• Only 20-30% under 45 years old• Looking for pleasure


Chinese luxury consumer’s unique characteristicsVarious socio-economic-cultural traits suggest that China is an unique

market with distinctive criterias

Brand Awerness

Perception of beauty

Counterfeit goods

Shopping for pleasure

Motivations: Aspirations

and self reward


- Chinese luxury market is not a homogenous market

- Two most important needs that guide the evolution of luxury are the need for individuality and the need for a rich and indulgent experience

Chinese Luxury Market


Challenges and Strategies for luxury Firms in China

-

-Creation of franchises

- Attract, train and retain qualified sales associates

- Offer slightly different luxury products personlized

-Excellent sales skills, marchandise at the right price points and compelling displays.

- Local managers

-

-Brand cognition

- Lack of experiences of the sales associates

- Inexperience and knowledge of Chinese wealthy consumer’s about the western luxury brands

- Floating loyalty

- Attract non-committed potential consumers at the point of sales

CHALLENGES STRATEGIES


Targeting the right wealthy consumers

In order to better understand these potential consumers and formulate appropriately the winning strategy, we need to know them very well

A better understanding of these seven groups can lead to more effective marketing spending: Luxuriants, demanding, Flashy, Urbane,Climber, Down-to-Earth, Enthusiast.

China and luxury MarketStrategies management of luxury brands

in ChinaIn this competitive environment, luxury firms in

China as well as new entrants needs to focus on following managerial issues


Marketing


Future Challenges

Intelectual property Right

(IPR) regulations Longer-

term returns

Ineffective advertising and media

Staff Shortage

Brand positionnin

g

Managing risks

Promoting a culture of

luxury

Propositions to be testedChinese luxury buyers are new, publicity and education on luxury brands culture are needed

Marketers need to integrate the variables like rapid economic growth, collectivist society and confucianism in their marketing strategy

Luxury goods need to be adapted with Chinese reality.

Conclusion

- Luxury market development in China has attracted many luxury firms and management consultants.

- Doing business in China does not follow the same way like a matured market (Economic and cultural differences)

- Marketing professionals need to understand this differences to have success in this promising market

- Great potential of middle and small cities- Cooperation with local firms to enter in the

Chinese second and third tier markets.

谢谢 (Thank you)

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