Luxury in China: The imperative of cultural intelligence


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Demand for luxury goods in China continues to soar, driven by a number of positive factors such as the growing number of affluent and middle class, rising household disposable income, higher luxury spending, and increasing number of travelling Chinese.
However, the Chinese market is definitely the most complex one. A complex market which needs cultural intelligence.

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Luxury in China: The imperative of cultural intelligence

  1. 1. The imperative of cultural intelligence NATHAN HELLARD Luxury and the Conquest of China
  3. 3. Chinese customers just began to be attracted and get used to luxury goods about 30 years ago. According to the research that World Luxury Association conducted, China is the world’s largest luxury goods market with 27 percent of the population by at the end of 2012. While China had 27 percent country’s share of luxury market in 2012, Europe’s share is only 18 per cent while the US share rests at 14 percent. McKinsey estimated that by 2015 total luxury good consumption will increase to 175 billion dollar and 34 percent of this consumption will be done by Chinese consumers. According to the Boston Consulting Group China will be the world’s largest online retail market by 2015 and sales expected to hit 360 billion dollar which is currently in sharp incline with value generated about 212 billion dollar. The Chinese online retail market has almost 200 million online consumers and by 2015 it is expected that Chinese consumers will spend 1000 dollar per year for online shopping. EXECUTIVE SUMMARY Demand for luxury goods in China continues to soar, driven by a number of positive factors such as the growing number of affluent and middle class, rising household disposable income, higher luxury spending, and increasing number of travelling Chinese. China-dorado
  4. 4. About Confucianism and Western values There is a huge opportunity for any type of luxury company that might establish but not without a cultural awareness. New rich class of Chinese consumers associate luxury with success. They see themselves as superior to the rest of the society when they are equipped with. As China has seen a wide variety of changes in the last one or two decades, new generation tend to become more and more different from the gigantic, old and traditional Chinese society. Since these young upper-mid class consumers are highly integrated to the modern life and modern society, they are highly friendly to appropriate the western codes with still a Confucian touch. Chinese culture associates directly luxury with hierarchy. The importance of face through the social eyes makes China a breeding ground for the industry... At the expense of the sector’s standards: quality VS. quantity, hedonism VS. functionality, mysterious symbols/places of worship/rites and scarcity. The Chinese luxury market can be defined as “mass rich”. Chinese discovered the consumption society by jumping over the steps and demanding the best. In China, luxury is to integrate, not to differentiate. To integrate to a planetary “us”… luxury codes change. A NECESSARY CULTURAL ANTICIPATION What will be the consequences of Chinese vision on luxury: What impacts on luxury House in terms of identity, positioning,produc and service? How to prepare to this culture?
  5. 5. Customers  Chinese luxury consumers are relatively younger. Chines women and the “post-80s and 90s” generation are the major groups driving the industry.  There are some signs of shifting preferences: with rising level of sophistication, consumers in tier 1 and tier 2 cities now prefer low-key but unique luxury products.  Brand recognition continues to rise as Chinese consumers become more sophisticated. Many luxury consumers in China are beginning to appreciate the brand’s heritage but social exposure still prevails. Demand for luxury goods in China continues to soar, driven by a number of positive factors such as the growing number of affluent and middle class, rising household disposable income and higher luxury spending, and increasing number of travelling Chinese. LANDSCAPE AND MARKETING SPECIFITIES Evolving Strategies  Foreign players continue to dominate. However, further fragmentation of consumer demand will open new doors for domestic brands in the near future.  Some global luxury retailers are curtailing their expansion due to slower growth in the luxury sector. They shift from scale expansion to improving existing store productivity.  Social media has become an increasingly important marketing tool for luxury players in China.  Luxury brands rely a lot on repeat purchase. Loyalty is crucial. It is common to offer special discounts or exclusivity for VIPs.
  6. 6. Social media has become an increasingly important marketing tool for luxury players in China.
  7. 7. ADVICES FOR SUCCESSFUL IMPLANTATION & TRM Those advices relies on the difficulties faced by E.Leclerc (Mass Distribution) to penetrate the Chinese market in the 80’s. New entrants in luxury can deal with the same issues even today. Advices for new comers  An autonomous strategy of development makes no sense in China. On the contrary, it is necessary to quickly integrate networks and to rely on local suppliers and distributors.  Negotiations management, sense of time and communication means may represent important obstacles. Chinese sense of time is cyclical and silence and gestures are integral part of the commercial relation.  The relationship must be considered as a long term process possibly reversible. In fact, nothing is written in advance.  Price is secondary compared to confidence, mutual gain, satisfaction of the parties and services rendered. The Tactical Reasoning Method (TRM)  My military training at the French Cadet Officer Academy taught me one thing: the field do commands.  The TRM has been designed to answer any situation. By using this canvas and pre- answered non-conforming cases, leaders are able to take the quickest, the most accurate and suitable responses. The point is not to find the best answer; but the least worst.  As for military operations, still keep in mind that only preparation and clever adaptation win the day when you move to the unknown.
  8. 8. The Tactical Reasoning Method: a starting point for your move to China
  9. 9. CHINA OVERSEAS The imperative of thoses advices are not limited to China-oriented strategies. The importance of the « bamboo network » and the travelling chinese consumers require to apply them throughout Asia. Bamboo Network & Overseas Chinese  The bamboo network first referred to the conglomerates propelling Southeast Asian economies which started as small family businesses run by overseas Chinese. The businesses are managed by the family of the founder, and are run with strong Confucian values. Overseas Chinese are people of Chinese birth or descent living outside PRC. Travelling Chinese Consumers  Chinese consumers have strong preference for shopping luxury overseas. Bain & Company estimated that overseas consumption accounted for 60% of the total Chinese luxury spending in 2012.  The rising tendency is due in part to the growing ease of travelling abroad, as well as the price difference with luxury goods sold abroad:
  10. 10. Opportunities and risks make China a very challenging market to penetrate. Luxury houses benefit from a huge advantage with their glamour in the country. But it would be a mistake to reproduce our western habits. Chinese are ever moving, ever evolving and their fulgurant success make them more and more demanding. Luxury houses have not just to cope with this cultural difference. They will also compete with local luxury brands and they already deal with copy. It must be noted that it is an art in China. Far from illegal, what might be called counterfeiting is in this country a way of expressing respect to the original brand and demonstrating know-how. Misunderstandings and impromptus are common place but with preparation, adaptation and open mindedness, China is definitely worth the fight. CONCLUSION
  11. 11. Nathan Hellard Double degree ESSEC/ESM ST CYR
  12. 12. • Luxe Oblige, Vincent Bastien & Jean-Noël Kapferer, Eyrolles, 2013 • Le Guide du Stagiaire en Chine, Pascal Faucon, FORTUNA, 2013 • Intercultural Management, Olivier Meier, DUNOD, 2013 • Memento For platoon leader in Logistics, French Military, Logistics 2011 • Doing Business in China, Rick Yan, Harvard Business Review Paperback Series • “New Buying Behavior of Chinese Consumers”, Nick Zhou, China Internet Watch, 2013 • “China Online Clothing Sales”, Steven Millward, TECHINASIA, March 22nd 2013 • “Chinese and Luxury Market”, Earth Payment Solutions • “Don’t underestimate China’s luxury market”, Michael Silverstein, Harvard Business School, 2012 • Ministry of Commerce People’s Republic Of China BIBLIOGRAPHY