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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, France 2 bis rue Emile Zola, 13130 Berre l'Etang,France France, E-MAIL: Muhammad Mohiuddin, MBA, DESA, PhD (ABD) Sessional Lecturer of International Management Laval University, Quebec, Canada Email: Dr. Zhan Su Professor of Strategic Management and International Business and Director, Stephen A. Jarislowsky Chair in International Business, Laval university, G1K 7P4, Quebec, Canada E-mail: & Elie CHRYSOSTOME, Ph.D. Professor & Director of CEDIMES Institute USA Department 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: A case study of Chinese Market In Elie Chrysostome, Rick Molz and Li Yan (2013) Building Businesses in Emerging and Developing Countries: Challenges and Opportunities, Routledge publication, London/NYC.

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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-networth-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-networth-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

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-economicofinancial 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

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).

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 polysensuality; 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

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

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

distinctiveness, we propose the following conceptual framework for luxury consumption process in China.

Figure 1: Conceptual Framework


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


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.


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, Luxury consumption behavior in China, Chinese culture and luxury products, Confucianism and luxury products

ABI/PROQUEST 65 articles

Sciencedirect 74 articles

EBSCO 93 articles

Google scholar 87 articles and professional publications

319 articles & professional publications Filtering and removing 41 double articles 278 articles & Professional publications

Reading abstract and removing 156 articles and documents

122 remaining articles and professional publications Figure 2: Articles selection procedure for Systematic literature review 44 publications

Articles published between 2000-2012 were selected for review


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.

3.2 Selected articles for Systematic Literature Review (SLR) Table 1: Literature reviews on luxury goods in Chinese Markets
Author/s & Year Chen Li, 2008 David Ward & Claudia Chiari, 2008 Kwang-Soo Park & Yvette Reisinger, 2009 Yan Luo, 2009 Research aims/ objectives Chinese consumers and the foreign brands To develop analytical tools to ensure luxury firms stay in front of the pack Examines the cultural differences in the luxury shopping How culture influence buyers behavior in Chinese Market Theoretical perspective Brand culture & luxury consumption Rigorous literature analysis Theory of consumption values Theory of Planned Behavior Method Literature review Literature review Survey and regression analysis Literature review Main findings The symbolic values of prestige required by the Chinese luxury consumers. 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. Western, Asian, and Hispanic tourists-shoppers significantly differ in the perceived importance of luxury consumptions. 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. 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. Jewelry shoppers are more influenced by functional motives than non-functional motives. The dimension measures of individual luxury perception for marketing strategies to improve purchase value for different segments of consumers that span the globe. Four different consumer segments identified: Indulgence, Conformism, Snobbism & Follower/pragmatism. The influencing factors of segmentation are also pointed out.

Kuang-peng Hung, Annie Huiling Chen, Norman Peng, Chris Hackley, Rungpaka Amy Tiwsakul and Chun-lun Chou, 2011 Sanguanpiyapan, T & Jasper, C. 2010 Klaus-Peter Wiedmann, Nadine Hennigs, 2007 MO, Tingting and ROUX, Elyette. (2009).

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. Why consumers prefer to shop where they do for luxury goods.
Why consumers buy luxury & how their perception of luxury value impacts their buying behavior. To explore the values and attitudes of Chinese consumers towards luxury-brand consumption.

Possession and consumer identity

Motives for luxury shopping Capital theory

Survey conducted among Chinese luxury brand consumers Survey and regression Case study

Consumer personality research



Author/s & Year Yann Truong; Geoff Simmons, Rodd McColl, Philip J. Kitchen, 2008. Christopher M. Moore, Anne Marie Doherty, Stephen A. Doyle, 2010. Mike Thompson, 2011

Research aims/ objectives To develop a scale to measure luxury brands status and conspicuousness To investigate the role and function of flagship stores as a market entry mechanism. To explore the extent to which Chinese classical virtues act as a restraint on consumerist hedonic values. To discuss external and internal dimensions of luxury purchases behaviours. To examine Chinese consumers motives, attitudes toward luxury brands (ATLB), and the impact of ATLB on consumer behavior. Motivations for luxury consumption among Chinese middle-class consumers. Examines the diversity among Chinese consumers across seven regional markets. Examine consumer values, needs and purchase behaviors

Theoretical perspective Theory of the leisure class

Method Survey and regression analysis Semistructure d interviews with elite informants. Literature review and reflective analysis Conceptual

Main findings First empirical study to use actual consumers in order to explore the difference between status and conspicuousness in assessing luxury brands. Luxury flagship stores represent a strategic approach to market entry that is employed to support, enhance and develop distribution activities within a foreign market. 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. An adaptation of luxury retail strategies and operations to consumers luxury goods approach: considering their internalised or externalised luxury orientation The elitist on average bought more pieces of luxury products than the distant and the democratic type of Chinese luxury buyers. Consumers evaluate the best-known brands more favorably as they become more value conscious, indicating that luxury products are not necessarily extravagant purchases in China. Consumers from various regions are significantly different from one another in terms of purchasing power, attitudes, lifestyles, media use, and consumption patterns. Brand loyal Chinese consumers experiential image was the most important aspect of the branded apparel appeal to female consumers.

Eclectic theory of international entry mode NA

Cesare Amatulli and Gianluigi Guido, 2012 Ying Wang Shaojing Sun And Yiping Song, 2011 Lingjing Zhan & Yanqun He,2012

Luxury as a social statement and individual style.

Geng Cui & Qiming Liu, 2000

Jai-OK Kim, Sandra Forsythe, QingLiang Gu, Sook Jae Moon, 2002

Chinese luxury consumers: the elitist, the distant, and the democratic Relationships between psychological traits & attitudes Regional disparities

Survey and regression analysis Online Survey and regression analysis Survey and Regression analysis Survey and regression analysis

Cross-national consumer behavior


Author/s & Year Francis Piron, 2006

Research aims/ objectives Exploring what Chinese consumers value most among their possessions.
Consumer nationalism and its implications for corporate reputation management in China.

Theoretical perspective NA

Method Qualitative and a snowball sampling Multiple Case studies Survey and regression analysis. Survey and regression analysis

Main findings Chinese peoples uniqueness, and inappropriateness of using non-Chinese instruments, such as collectivism and individualism, to measure Chinese phenomena. 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. 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 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. 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. Particularities of Chinese luxury buyers. The Chinese extravagance argument is aimed at equalising wealth. Lu Chi merely affirmed that the rich spent on enjoyment goods. Hence, luxury spending did not involve the power and protection consideration Integrating two distinct traditions in the study of culture and consumer behavior: the anthropological approach and the cross-cultural psychology tradition. Money attitudes were found to significantly affect young Chinese consumers compulsive buying behaviour.

Jian Wang and Zhiying Wang, 2007 Aron OCass & Eric Choy, 2008

Yong Jian Wang, Samuel K. Doss Nathan M. Chiquan Guo and Wenjing Li, 2010 Maria Eugenia Perez, Raquel Castano and Claudia Quintanilla, 2010 Joseph A. Giacalone, 2006 Hsiao Ping Peng & Ming Chung Chang (2012) David Luna & Susan Forquer Gupta, 2001
Dongjin Li, Ying Jiang, Shenghui An, Zhe Shen & Wenji Jin, 2009

Chinese generation Y consumers view on brand status, brand attitude and willingness to pay a premium Chinese consumers international out shopping motives from a culture perspective To explore the relationship between the consumption of counterfeit luxury goods and identity construction. To explain the characteristics of Luxury products buying process To show that extravagance argument does not necessarily contradict Confucianism An understanding of how culture influences consumer behavior How young Chinese consumers money attitudes influence their compulsive buying behavior.

National identity into the public discourse. Consumer behaviour related to brands. Hofstadters four cultural dimensions

Identity construction through consumption. NA Chinese attitudes towards advocating luxury spending Theoretical analysis

Face-to-face Interviews

Literature review Conceptual

Money attitudes to compulsive buying behaviour.

An Interpretative approach Survey and regression analysis


Author/s & Year Sang-Eun Byun And Brenda Sternquist, 2010 Xiaohua Lin and Cheng Lu Wang, 2010 Yanqun He, Deqiang Zou and Liyin Jin, 2010 Lilly Ye, Mousumi Bose and Lou Pelton, 2012

Research aims/ objectives Examining the impact of price mavenism on shopping hedonism among the Chinese. Exploring inconsistent and often contradictory consumer values and consumption behaviours in contemporary China. Investigating the lifestyles of contemporary Chinese affluent consumers and their influences on consumption variables To understand the joint impact of Chinese consumers self- and gender consciousness on their ensuing brand exceptions.

Theoretical perspective Price mavenism

Method Structural equation modeling Literature review and indepth analysis Multiple regression analyses Survey and structural equation modelling

Main findings 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. Chinese value system contains inconsistent elements that are the seeds of conflict, confusion, and change. Those contradictory values have coexisted and interacted with each other from a historical perspective. Affluent Chinese consumers, through apparently similar in terms of wealth possession, exhibited very different patterns in their purchase and consumption behaviors. Contrary to expectations, the study finds that selfconsciousness has a negative direct impact on brand consciousness while gender consciousness does not have a direct impact on brand consciousness.

Dual structure theory of consumer value system. Lifestyle studies focused on the Asia Pacific region Self-congruity theory

Consulting firms reports

Name of author and Consulting firm Deloitte, 2009 KPMG, 2007 Albatross Global Solutions and Ruder Finn Asia, 2009 KPMG 2008 Title of the project Chinas consumer market: What next? Luxury Brands in China China Luxury Forecast Type of the study In-depth analysis Survey and analysis In-depth analysis of luxury purchase behaviors and Trends. Survey and in-depth analysis Finding Companys culture to a new environment by integrating local managers into that culture for success. Luxury consumption is product driven rather than the personal taste driven like in the matured market and success factors in China. 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. Chinas luxury market grows in sophistication, differences in tastes and preferences are becoming more discernible between cities and demographic segments.

Chinas Luxury Consumers: Moving up the curve


Name of author and Consulting firm BCG, 2009

Title of the project Chinas Luxury Market in a Post-Land-Rush Era The Premium of Value: Pricing and Promoting Luxury to the New Consumer
Luxury Shopping Center Experience: Wealthy Consumer usage & preferences

Type of the study Survey

Finding Chinese consumers present a tremendous opportunity for innovative luxury companies that have well-positioned brands both inside and outside mainland China. 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 price sensitivity for each product in each channel, Launch highly targeted, carefully measured pricing and promotion strategies The most common element of an enjoyable shopping experience mentioned by wealthy consumers is the type of stores available at the shopping center Providing U.S. businesspeople with a valuable How To fact file focusing on the luxury goods markets in in China Impact of the financial crisis on luxury goods market in China. Teens represent a significant luxury buyer segment and companies need to articulate their strategies by addressing younger generations values and appropriate channels to reach out to them. China will continue to be one of the fastest-growing luxury markets in the world with distinctive features of its own. 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. 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. Chinese cultural identity and promising luxury market. 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.

ACCENTURE, 2011 By Tom Jacobson, Ray Florio, and Tiago Salvador

Survey and analysis

Luxury Institute, 2008

Luxury Institute Wealth Survey Interview Survey and analysis Survey analysis

Ohio Northern University: 2010 KPMG, TNS, 2009 Mckinsey Quarterly, 2006

China in Focus: Luxury Goods Market

Refined strategies: Luxury extends its reach across china.

Understanding Chinese teen consumers Revisiting the luxury market in China How to make the most of the Great Consumer Trade Down Luxury Brands Survey

LI & FUNG Research Centre, 2009 Paul F. Nunes, Carolyn J. Polka and Larry Thomas, Accenture, 2009, Rachel Sklar, Abrams Research , 2009

In-depth analysis and survey. Survey of cross-industry consumer sentiment Survey responses of over 100luxury industry leaders and experts surveyed in 2009. In-depth Analysis

SPARXOO, 2010,

Interbrand, 2008

Luxury Trends Luxury brands : How to maneuver through this moment of austerity

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.


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


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


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 highend brands like in the matured market.



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


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.


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:


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


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.


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,


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


needs to include also the data on competitors, number of customers at each point of sale, retail environment and available partners.


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.


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


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


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


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 highnet-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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