Luxury China: Market Opportunities and Potential

South Asian Journal of Global Business Research

ISSN: 2045-4457

Article publication date: 17 August 2012

1408

Citation

Sivakumar, S. (2012), "Luxury China: Market Opportunities and Potential", South Asian Journal of Global Business Research, Vol. 1 No. 2, pp. 314-317. https://doi.org/10.1108/20454451211252804

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited


Is China the new destination for luxury brands?

The recent rise of the BRIC countries in the world economy has caught the attention of many including economists, governments, academics and practitioners. It has also raised several questions about how to invest and succeed in these new economies. The book titled, Luxury China Market Opportunities and Potential comes at this opportune time and specifically addresses the questions of how to succeed in the fashion and luxury industries of China, an important BRIC economy. In recent years, the explosive growth in China has already placed it among the top three largest world markets for European fashion and luxury products. Within the next few years, China is expected to become the world's largest market given its large population and the purchasing power of its people (Ding, 2010). Hence it is also expected that luxury products will be developed specifically for the Chinese.

While several recent books and articles have been written about doing business in China, a vast majority of them have focussed upon marketing non‐luxury goods to China and on counterfeit luxury products manufactured in China for global consumption (e.g. Fake Stuff: China and the Rise of Counterfeit Goods; Routledge Series for Creative Teaching and Learning in Anthropology, by Yi‐Chieh Lin). Consequently, there is a dearth of research on practical and effective solutions for new luxury brands whose strategy it is to explore China as a new market opportunity. Hence, the most important contribution of this book is that it addresses issues such as: what the Chinese luxury market is like and how to successfully manage a luxury brand in various market segments there (e.g. fashion and accessories, watches).

Luxury China includes descriptions of selected Chinese markets, luxury consumer behaviors and preferences, possible market entry modes, promotion and retailing strategies and methods to combat counterfeit activities effectively. For practical reasons, it also incorporates case studies that describe diverse approaches used by luxury brands in the Chinese market in order to highlight complexity, challenges and opportunities presented by this large global market. For example, Louis Vuitton (pp. 125‐35), a leading luxury brand in China, has consolidated its premium position with effective retailing and customer response marketing. The retail‐level customer response system tracks individual Chinese customers buying Louis Vuitton products in its overseas stores in order to keep track of their needs and wants.

This book has impressed me for several reasons. First, the authors are particularly well qualified to share their rich and varied experience in luxury brand management in China. The first author has consulted for luxury brands in the fashion industry in China. The second author specializes in researching luxury consumer behaviors and luxury brand management in China and other Asian countries. Their joint expertise is clearly evident in their understanding of the complex Chinese market, with its dozens of overpopulated cities and distribution challenges. The authors have done an excellent job in identifying specific issues for global luxury retailers to consider such as the identity of the Chinese luxury customer, consumer attitudes toward luxury products, shopping patterns and typical customer profiles. For instance, data quoted by the authors (pp. 30‐1) indicate that the affluent Chinese are primarily located in three major cities (Shanghai, Beijing and Guangzhou), tend to be younger (under age 47), are university graduates (83 percent) and travel/work abroad.

Second, the book offers compelling findings based upon secondary and primary data collection. Compilation of hard‐to‐find secondary data offers readers rich comparative profiles of leading cities in China (pp. 201‐18) across micro and macro economic markers, geography, demographics, commercial areas, rental prices and retail trends. For example, rental prices in areas of the Xujiahui area of luxury stores have gone up 17 percent annually in the four years to 2007. Such information allows the readers to formulate robust hypotheses for not only successfully entering the Chinese luxury market and but also for consolidating their position through appropriate retailing, distribution and communication strategies. Qualitative in‐depth interview data analysis allows the authors to offer a customized typology of Chinese luxury consumers. This typology becomes even more important as the role of individualism/collectivism in China is constantly changing. Traditionally the behavior of the individual in China is largely guided by the expectations of the group. The authors argue that with western influences and a growing number of Chinese elite living in urban areas individualistic behaviors is becoming more prevalent and the traditional influence of collectivism is being challenged.

Authors argue that three dimensions, conspicuousness/functionality, individualism/collectivism and impulsive/analytical thinking, divide the Chinese luxury market into four groups: luxury lovers, luxury followers, luxury intellectuals and luxury laggards. Based on the scores across these dimensions, authors provide a description of the four segments. Luxury lovers and followers are both conspicuous and collectivist but they differ in the analytical/impulsive dimensions. Luxury lovers analyze the brand and are not influenced by others, while the follower is much more impulsive. Both laggards and intellectuals are individualists, but while laggards are impulsive, intellectuals are analytical. The authors’ consumer segmentation with contrasting characteristics is further strengthened by including verbatim perspectives of the Chinese consumers on various aspects of their purchase decisions. A luxury lover's comment, “wearing luxury brands can give you confidence and convince others of your success in business; so the brand should be very famous and recognized by the people around you” (p. 58) helps convince readers on the dimensions of collectivism and conspicuousness in consumption.

Third, authors strongly argue that a luxury brand that fails to have a strong Chinese presence in 2015‐2020 will no longer be a worldwide brand. Several references to the predictions of various economists and business leaders throughout the book lend credence to this claim. For instance, a comment by French business leader, Bernard Arnault, “We knew (China) would someday be the biggest market in the world. Whether it would be in 20, 30, 40 years, it was irreversible” makes a compelling argument about the inevitable significance of China in the global economy.

Fourth, the insights provided in the book are not only useful in business education but are also likely to assist practitioners globally in strategically managing the product life cycles of their luxury products in Asia. Traditional models in western contexts have depicted the adoption and diffusion cycle as a normal shaped curve. The authors cite research by Schütte and Ciarlante (1998) and describe their original findings in a simple language for their readers. For example, instead of the normal shaped curve in the west, in Asian markets, the curve has a steeper distribution reflecting initial hesitation by Asian customers in trying new products and the readiness by the same consumers to switch brands once the norms and standards of their reference group change.

Fifth, authors (in providing an authentic account of retailing luxury business products) identify a number of elements that marketers have to consider when retailing in China. Their description of the geo‐demographic distribution of the population clearly illustrates the need to consider market entry strategies from different angles and vantage points. Independent research (KPMG, pp. 105‐9) has supplemented their work and the descriptions provided suggest that there is a sizeable, actionable and profitable market for luxury goods in China. Authors also include a chapter that provides teaching points to practitioners in selecting licensee partners for limited product categories. Given the nature of the licensing climate and attitudes in China, readers can discern that licensing in China is fraught with challenges and there is need for improvement in developing safer master licenses (pp. 121‐4).

Unlike much of the western world, communication models to promote luxury brands in China are more effective if geographically localized (instead of standardized). Authors have suggested three models of advertising luxury brands and strategies to use in the Chinese political environment of strict censorship and heavy regulation: the means‐ends chain model, incorporating consumers’ knowledge of product characteristics and their own needs in the decision‐making process; the meaning movement and the use of celebrities with personalities that match the product/company image; and advertising planning model and the advertising strategies tapping into varying levels of consumer involvement and emotional appeals. For example, for luxury cars and villas, consumers have to learn technical aspects before involving their emotions and feeling in the decision‐making process. Thus communication that logically focusses on some technical aspects supporting the exclusivity of the product would be the most appropriate strategy.

Finally, the case studies embedded in the chapters in the book reveal the current experiences of western retailers in China. For instance, Alfred Dunhill's neoclassical villa in the busy Huai Hai shopping area has successfully combined their London‐like “home” stores with the opulence of Shanghai's decadent past in order to tap into Chinese male indulgence for luxury leather goods (p. 21). On the other hand, Rolex is described as having a difficult time in China as it is often associated with conspicuous consumption and the flashy lifestyles of the newly rich in China. It is in the top ten counterfeited luxury products in the world with the majority of the fakes being produced in China. Thus the brand has been diluted and faces an uphill task in establishing itself as a luxury brand with the Chinese young and elite.

This book is relevant not just to China but also to its nearest neighbors in South Asia, especially India, which has seen tremendous growth in its upper middle class and its share of the world's millionaires. Luxury consumers in India have a profile (39 years old, 75 percent married with kids) similar to that of the Chinese elite. While the luxury goods market in India grew 20 percent in 2010, it is however, expected to only grow at the rate of 15 percent in 2012 (DeMarco, 2011). This downward trend in a $6 billion market is the result of many luxury brands failing. Leading experts in India attribute these failures partly to poor location planning and to not strategizing market entry correctly (Fibre2Fashion, 2012). Lessons from the successful experiences that luxury brands have had in China could be transplanted in India to unleash the full potential of the Indian luxury goods market.

Despite its many strengths identified above, the book is not without limitations. While the data provided on page 31 indicates that 76 percent of the affluent customers in China are men, the profiles of the four segments on pages 56‐62 suggest that the majority are women (75 percent). Further, the typology of the Chinese luxury customer is based on data collected from the middle class (p. 55), while the spending patterns of the high‐net‐worth individuals (p. 30) suggest that the data set should have sampled from millionaires as well. Thus questions remain about the representativeness of the data provided.

Further, although the book adequately describes the serious and brand‐diluting problem of counterfeit activities in China (80 percent of fake luxury products come from Asia, especially from China, p. 175), the future as painted by the book does not look promising. The Chinese have a history of copying (legally) and the State has owned all intellectual property until very recently. The authors acknowledge that to the Chinese, learning and copying are synonymous and therefore the legal consequences to counterfeiters are so mild that they fail to deter the proliferation of fake luxury goods in China. What then should the western trained luxury retailer do? The suggestions offered by the authors for brand protection (registration, civil litigation) fall short of being a magic bullet to curb the counterfeit challenges. Instead the authors suggest that the problem of counterfeiting cannot be solved by China alone. Responding to a global demand for fake goods, the counterfeiters are abusing the low‐cost labor and production in China to manufacture counterfeits. The book instead recommends a multi‐pronged attack including changing intellectual property laws, reduction of corruption amongst local enforcement agencies and legal measures of protecting brand interests. Only time will tell if these measures will be successful in China.

Soumya Sivakumar

About the reviewer

Soumya Sivakumar is Assistant Professor of Marketing and the Director of the BBA Program at Marymount University in Virginia. Her research interests include marketing ethics, sustainable marketing, and international marketing. She received her PhD in Marketing from Case Western Reserve University, Ohio. Soumya Sivakumar can be contacted at: ssivakum@marymount.edu

References

Ding, L. (2010), “China's path to the world's largest economy: limits of extrapolations”, East Asian Policy, Vol. 2 No. 4, pp. 7185.

DeMarco, A. (2011), “India's luxury market up in 2010”, October, available at: www.forbes.com/sites/anthonydemarco/2011/10/17/indias‐luxury‐market‐up‐20‐in‐2010/ (accessed April 2, 2012)

Fibre2Fashion (2012), “India's luxury market to grow three‐fold by 2015”, April, available at: www.fibre2fashion.com/news/fashion‐news/newsdetails.aspx?news_id=109880 (accessed April 29, 2012)

Schütte, H. and Ciarlante, D. (1998), Consumer Behavior in Asia, New York University Press, New York, NY.

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