There are quite a number of stories recorded in Chinese history describing how people of fortunes competed to be the wealthiest. However, during the last 50 years, Chinese people have been stereotyped as economically diligent, socially introverted, and psychologically modest. Nowadays, Chinese are dramatically reinventing themselves again both externally and internally.
A Snapshot of China "Luxury" Market
The "opening up and reform" policies in the 1980's and gradual privatisation over the decades have helped foster a group of people who got rich quite quickly. This group consists of entrepreneurs from real estate and manufacturing industries; private bosses, owners of township factories; movie stars, actors, celebrities and social elites. Those mysterious "rich" are keen on purchasing luxury goods.
The aspiration to wealth trickles down to common people and the "suddenly affluent" further creates a psychological hunger for showing off financial success as well as social achievement through luxury goods.
These newly emerging people of fortunes have transformed the stereotype of Chinese, giving the China "rich markets" some peculiar local characteristics. The group is of younger age than ever, generally between 30-45 years old. They come from diverse backgrounds, including so-called middle-class people such as marketing directors, general managers, CEO/CFO/CIO, intellectuals, ads freelancers, overseas returnees, even local white-collar members in JVs.
The growing middle-class further expands the "rich markets" and already shows significantly strong purchasing power. This group are called "mass-tige (vs. prestige)" people with monthly income ranging from RMB10,000 to RMB100,000, and the majority of them possess private cars, and high-class apartments or villas. They also know how to take good care of themselves by seeking premium lifestyles. Contrary to the traditional image of social introversion, these people are actively involved in diverse social or commercial events.
Luxury goods tap into people's life in various forms, including fine wine & liquor, tobacco, top-class cars, fashion clothing, jewellery & watches, perfume & cosmetics, overseas trips, high-executive education, golf playing, club houses, boating parties, and even private jets and antique auctions.
The per capita income of Chinese has gone beyond US$1,000, whereas the mainland market of luxury goods has already exceeded $2 billion, comprising more than 3% of the global market. More stunningly, its annual growth rate is the fastest now, falling somewhere between 20%-30%. According to some statistical prediction, the luxury population size in China could reach approximately 250 million by the year 2010. If this prediction is fulfilled, China will be ranked the 2nd in terms of market size and the 1st with regard to customer base.
Or to put it simply, if a huge luxury market is created when everybody in Hong Kong, Taiwan, and Japan possesses at least one or two luxury goods, what will be the market potential for the neighbouring China, which is among the most populated countries in the world?
Customer Analysis of China Luxury Market
Chinese consumers of luxury goods hold a somewhat contradicting feeling. On one hand, they enjoy the pride brought by luxury goods. But one the other hand, they experience a sense of "guilt" over luxury expenses. There is a deep-rooted desire of self-fulfilment that can be gratified by having luxury goods. "Glorifying the face", as it is put in Chinese expression, is what drives them to break the bondages of traditional social codes and decide to spend on fancy goodies.
Here are a few real examples, offering us a better understanding of various types of consumers in China market of luxury goods.
He came from Wenzhou, Zhejiang Province, and started up a small businesses back to early 80's. When his business in real estate development suddenly boomed in Shanghai, the whole family moved there. He was further encouraged by the constitutional amendment at the 16th People's Congress that all private properties will be legally protected. Already buying himself a Bentley (which was purchased without any kind of loan arrangement), he is now considering getting a BMW 5 for his wife and a sports Benz for his daughter who will go abroad for higher education.
She is one of the baby boomers in the 1970's and narrowly escaped the one-child policy. She was brought up strictly by her parents to study hard for her own good. She succeeded in getting into Fudan University and majoring in English & American Literature. She felt a bit hesitant to work as a secretary with a sweet English name in a foreign marketing research firm. But soon she got excited about the bonuses and professional skills she acquired in the job. She decided to run her own research company, bridging the information gap between multinational clients and local contexts.
He was born in the 1950's and was proud to grow up under the "red flag". But then he got disillusioned during the campaign of "Re-education in Countryside" in the 1970's. He struggled to climb up to the position of General Manager in a state-owned enterprise in Xi'an. He was prompted by various motives when deciding to have further education in a business school. He carries around a PDA, which updates him about news of MBO (Management Buy Out).
An Expansion Strategy
It is observed that China luxury market demonstrates some unique characteristics:
The current China luxury consumption is still at an early stage of evolution, despite the fact that Chinese consumers are keen on identifying themselves with those well-recognised international brands, even the top grades within that brand, sometimes at the cost of using up several-month's salary.
However, luxury purchase is only occasional, partial, and gradual in China. Local consumers learn to sample and taste those luxury goods, far from a full adoption.
It is interesting to note that there is an increasing demand for services, communications, socialisation and other forms of enjoyment such as value experiences, emotional fulfilment and cultural appreciation, which all go far beyond physical properties of luxury products.
These characteristics of China luxury market determines that we shall make a comprehensive marketing initiative, which we name as "China Expansion Strategy". The table below (Table 1) illustrates the idea:
As we can see, there are many dimensions in the marketing mix shown above. These dimensions can work either independently of or collaboratively with each other. The following diagram (Diagram 1) shows the inter-relationship among the marketing mix. I will give further explanation of how they work.
The inner circle of expansion is based on a matrix growth further comprised of four quadrants: Service Privilege is a more niche approach for those heavy purchasers, while E-Touch is more for the masses and is able to cater to those diverse segmentations; Club Bond has a more exclusive nature, tailored for social elites, while Mass-tige offers a more inclusive approach for the ready-to-be population; On the left side of the diagram, customers relate to luxury brands more physically and more personally. Nevertheless, on the right side, customers relate to luxury brands more virtually and more collectively; Of course, there should be an optimal balance between different dimensions!
The outer circle of expansion pulls the inner ones into two opposite yet complementary directions.
It is a common phenomenon that the more western or Occidental means being more international, while, the more eastern or Oriental means being more local. Nowadays, Chinese people are willing to associate themselves more with foreign brands rather than local Chinese brands. Foreign luxury brands, especially those with European, American origins, are the essential building blocks of their upscale lifestyle. However, we shall not neglect the intensifying sense of Chinese identification. When expanding foreign luxury brands, we should be able to manoeuvre harmoniously and swiftly along this cultural spectrum!
I will spend the following pages elaborating on these marketing mix dimensions.
Service Privilege = Service personnel should adopt the roles of "both media and message" of the brand and make this dimension as an essential part of "luxury consumption"!
WHAT to MAKE
To capture your customers right on the spot via effective sales & service forces; to project brand image and transmit product knowledge via personal experiences; to enhance customers' loyalty, encouraging more frequent patronage by pervasive consultancy; to nurture a discernible brand differentiation from competitors through "just feel good".
HOW to DO
Service personnel are of symbolic values of brand in the eyes of customers in addition to clean, bright and elegant retailing environment. Therefore, their physical appearance, work uniform, disposition, attitudes, words & deeds all have an impact upon customer perceptions, and consequently, customer behaviours. Service personnel should also function as a smart adviser. They are good at identifying customers' needs accurately and clearly. They are quite knowledgeable about market trends, usage tips, product functionalities, brand history and competitive situation; Service personnel needs to demonstrate a genuine passion for the brand. They feel proud about introducing this brand to customers and are cheerful about customers' decision of choosing the brand. They are to convince customers that buying the products of this brand is an emotionally rewarding process.
E-Touch = E-Touch is a lot more than "luxury website"!
WHAT to MAKE
To add modern touch into "classically isolated" image of luxury brands; to strengthen constant communications with customers in addition to their "pleasant yet transient in-store experiences"; to personalise your messages to unique customer needs as well as their preferences; to keep track of the exact purchase patterns of your loyal customers.
HOW to DO
We can make a full e-profile of customers, including demographic distribution, contact details, lifestyles, and current states of consumption of luxury products or brands. Furthermore, we can put into our database those information of when, where, what, how and why customers make their purchases of our brand.
We can send e-greetings on their birthdays, send thank-you letters, deliver invitations to exhibitions, among many other communication means such as posting wrapped gifts, making phone follow-ups, offering store visits, providing warm receptions, etc.
We can keep an electronic record of cumulative consumption mileage based on the individual customer's regional or even international purchase.
We can inform customers of the latest articles, seasonal discounts and unique collection items. We can also recommend to our customers related BBS or other e-communities so that they can be actively involved in sharing experiences, comments, and suggestions.
Club Bond = Club is expected to be a social home for those who desire to be identified with "luxury" brands!
WHAT to MAKE
To recruit core customers, enhance brand loyalty and then develop into brand advocators; to create more occasions and deeper needs for consuming luxury goods.
HOW to DO
Club Houses can be built or sponsored with a holistic approach. For instance, we can have a brand gallery, product zone, taste sample, and/or a business centre. The customers may find a kind of tangible evidence for emotional belonging and enjoy within a personal space the sense of being rewarded, full release from work or life stresses and temporary escapism. Furthermore, Club Houses can be used as socialisation catalyst to entertain clients, to build business networking, to produce commercial opportunities, or to just have fun. Of course, club annual membership fees should be imposed to raise threshold. Or we may alternatively charge on event basis. Parties are the highlighted part in customers' club experiences. Party themes centre around brand messages, enabling members to feel a lively atmosphere and a vivid brand world. Clubs can serve as educational platforms. In clubs, customers may share brand stories such as country of origin, historical heritage, interesting events, special craftsmanship, and consumption manner. The transmission of product knowledge can be done via a kind of mild contest. We may also invite domestic or international celebrities to the club. By showing up at the party, those celebrities will lend full support to the brand. We should give full attention to critical details such as coffee shops, Deluxe rooms, formal written invitations plus phone confirmations, car parking arrangement and premium refreshments.
Mass-tige = Mass-tige can make "luxury" more prestigiously!
WHAT to MAKE
To guide those newly emerging consumers through an authentic brand journey; to cater to the desires of massive middle-class population; to turn "luxury appreciation" into "luxury fashion".
HOW to DO
Window shopping is insufficient. Those entry level products of luxury brands are necessary to retain customers' interest. Otherwise, they will get frustrated very soon. An alternative way they often choose to take is to find "participating pleasure" in chatting "luxury stories" exposed by the media reports. We can make use of mass media, either TVC or portal website, to enhance brand visibility. BMW is already a household name in China, even a child has the knowledge that BMW stands for ultimate status and success.
Those who cannot afford to buy "set" products of luxury brands are usually keen on seasonal discounts, on-sales promotion of tiny luxury accessories such as neckties and purse. We should offer more products signifying social status. Some young girls are obsessed with buying luxury handbags for the simple reason that those goods are much more visible and therefore earns some sort of social recognition for them. Some Chinese households have small wine bureau to store and display imported spirits in their meeting rooms for the same purpose.
Lifestyle Symbol = Fit "luxury" into the world of brands!
WHAT to MAKE
To leverage the synergy of luxury brands; to develop "luxury culture" into a way of life.
HOW to DO
Chinese buyers use luxury brands to market themselves. Some executives or company owners capitalise on luxury products to promote themselves. But their educational backgrounds in general and product knowledge in particular are far from being adequate. In the past, they were simply satisfied with possessing luxury goods. Now they seek a luxury lifestyle, for achieving it requires investment of both time and material. We shall design individual marketing kit tailored to their personal features. It will help to win the trust of their business partners. It is called "image investment".
At present, luxury consumption is mainly based on "individual" clothing, perfume, wine, watches and other tangible possessions. To modify the image of "shallow, simplistic and showing off" of luxury consumption, we can design series of "cultural"Ħħ programmes or sponsor premium social events. For instance, we may organise car exhibitions, concerts in Shanghai Grand Theatre, factory visits, company tours, overseas Luxury One-week Trips and Deluxe visits to Monaco Show of Luxury Brands & Products & Services.
Chinese Flavours = Chinese luxury products might serve to complement their western counterparts!
WHAT to MAKE
To show respect towards local culture and values; to have a local touch in addition to exotic appeals.
HOW to DO
Though foreign brands snatch more than 80% of total sales in the China luxury market, Chinese luxury products, brands and services have already emerged. For example, Chinese liquor manufacturers progressively put into the market products in deluxe gift packaging or business packaging, which are saturated with Chinese traditional aspirations to wealth, fortune, status, and power. For instance, "Maotai King" is sold above RMB 1,000 while "National Well-1573" ranges from RMB 1,700 to RMB 2,000. Spiritual consumption can be a luxury too. A Psychological Clinic Centre in affiliation with Beijing University charges RMB 1,200 each hour for consultancy therapy. Therefore, association with Chinese luxury brands is no longer producing negative impacts. On the contrary, we can benefit from the richness of Chinese culture. It will be much appreciated by Chinese customers if western luxury brands are more sensitive to "big events" in Chinese society, such as traditional Spring Festival, 2008 Beijing Olympic Games & 2010 Shanghai World Expo.
(Matthew Wang is EMBA04 student at CEIBS. This article is adapted from an essay he authors which wins "Special Commendation" in the 2005 Financial Times/ Moët Hennessy Essay Prize. He works as Qualitative Research Director in Marketing Analysis Partner).
