Professional Documents
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10
Consumption
Affluent Chinese
Recent secondary and primary research undertaken has focused on the necessity of brands to exploit the growth in luxury brand consumption by the Chinese market. Estimates show that, currently there are 52 million middle-class families in China, which will close to double by 2015. Further, close to 2 million families are considered affluent with that number set to double by 2015. China will rank fourth in the world, behind: Japan, US, and the UK with regards to the number of well-off families. The long-range consumption potential of this group is staggering.
TRENDS
The evolution with regards to consumption behavior, disposable income and overall lifestyle gives rise to new demands in various sectors, particularly luxury goods. With this, many luxury brands are shifting their focus from western markets to an increased strategic focus on China.
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Continued Rapid Growth of Consumption
In China, luxury goods account for roughly 19% of the increase in total consumption within the past year. Further, with the implementation of Chinas urbanization strategy, the total number of wealthy consumers in second and third tiered Chinese cities will surpass those found in first tier cities. The shift in purchasing power away from Chinas established cities have forced many luxury brands to shift their focus on these expanding new markets.
10
Consumption
Affluent Chinese
TRENDS
Historically, the idea of conspicuous consumption was something not inherently valued by many Chinese consumers. We see that, especially concerning consumers under 30, this is not the reality. Now, the consumption of luxury goods/brands is a personal preference and not predicated on conditional variables. The under 30 class will become the driving force behind this rapid growth of luxury brands within China. To respond, brands that understand this reality will develop their brand offering to target this younger generation.
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1 1 2 2 3 3 Alignment with Luxury Brands 4 4 Demonstrates an Improved Quality of Life 5 5 6 6 7 7 8 8 9 9 10 10 1 1 2 2 High-End Business People Identify with the 3 3 Cultural Connotations of Luxury 4 4 5 5 6 6 7 7 8 8 9 9 10 10 1 1 2 2 Younger Luxury Consumers 3 3 Attach More Importance to Fashion 4 4 5 5 6 6 7 7 8 8 9 9 10
Despite the rise in conspicuous brand consumption, Chinese consumers still believe you should not consume beyond ones personal means. That being said, Chinese consumers still understand the value of socially aligning with luxury brands. In most cases, personal alignment with luxury brands is critical to attaining a level of social status and identity. Affluent Chinese consumers now believe that luxury brand consumption is a critical component of Chinese culture. The connotations associated with luxury purchases are critical and it becomes even more pertinent that brands are recognized by their peer group. Research indicates the importance of the following elements when consuming luxury brands: unique design, excellent quality and a feeling of difference. We see that younger Chinese consumers are truly willing to pay a premium if the brand is perceived as being of higher quality. That being said, most younger consumers do not wish to see the popularity of luxury brands grow as there is an adverse reaction to mass-market amongst the younger, affluent consumer class. We see the mass proliferation of luxury brands causing a reduction in passion towards said brands by these consumer groups.
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With the increased purchasing power of Chinese consumers, we are beginning to see that their purchasing decisions and their relationships with brands are becoming much more rational. Luxury consumers are becoming much more aware of brands and their stories and are particularly looking to align with brands with Chinese associations. Chinese consumers wish to see their domestic culture evolve and begin to integrate with brands. Local brands especially should be cognizant of this and begin to leverage local insight in the creation of powerfully relevant stories that incite consumer change and lead to an increase in market share.
Both convenience and the high level of customer service provided have led to an increase in retail store penetration in major markets within China. These touch-points are still the choice for consumers who with to purchase luxury brands. The majority of the populations, close to prefer to shop locally for luxury goods. Research indicates that it is primarily the convenience factor that has facilitated this growth. We see this trend continuing in the future.
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Despite the reality of luxury brick and mortar growth, growth with regards to online shopping of luxury goods remains low. The lure of tangibility, high service levels and personalized shopping has fuelled the growth of offline stores. Respondents reveal that luxury goods shopping is still a primary enjoyment and a process of self-satisfaction.
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What is intriguing is the overall growth of the luxury market in China. What took hundreds of years to develop in Western countries will mature in China within a decade. This profoundly affects the consumer psychology, attitudes, behaviors and consumption patterns/values of these already complex consumers.