Automotive insights: The luxe edition


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In the Year of the Horse, there is no letting up in China’s passion for luxury horsepower. Despite concerns over economic slowdowns and government regulations, the number of new manufacturers and new models competing in this sector continues to grow.

In ‘Auto insights: the luxe edition’, we’ll take you on a tour of the high-end of the auto market and the changing meaning of luxury itself, including:

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Automotive insights: The luxe edition

  1. 1. Automotive insights: The luxe edition Share this
  2. 2. 1 Contents As the luxury market in China shows no signs of stalling, we look at what motivates luxury customers – and how the automotive industry needs to respond. From the editor Mapping a new route to luxury auto success Why luxury auto brands need a precision playbook Controlled acceleration Network management in the driving seat The forum: How can auto brands drive success with luxury buyers? Luxury is mass Luxury brands in China: The cross-category view A promising road ahead: Skilled drivers needed 3 4 - 7 9 - 15 16 - 19 20 - 23 24 - 29 30 - 35 36 - 39 40 - 41 Get in touch42 Share this
  3. 3. 3 Dear fellow auto lover, In the Year of the Horse, there is no letting up in China’s passion for luxury horsepower. Despite concerns over economic slowdowns and government regulations, the number of new manufacturers and new models competing in this sector continues to swell. The 2014 Beijing auto show saw no less than 45 luxury vehicles on show, with 15 of those models making their world premiere at the event. And premium vehicles represented the undeniable centerpiece of the show for both critics and consumers. The One1 from Koenigsegg was voted the highlight with attendees, with the McLaren P1 in second place. On the floor, nobody could get near to the BMW Vision of Future Luxury whilst the Lincoln MKX was one of the event’s best-reviewed vehicles. Between them, these standouts show just what a diverse place the luxury auto grid in China has become. This is a category that offers consumers comfort, excitement and exhilaration. For manufacturers of all shapes and sizes it still appears to offer an exceptional growth opportunity, but it is an opportunity that must be navigated with increasing skill. In this report, we’ll take you on a tour of the high-end of the auto market as revealed in Beijing, fuelled by TNS’s years of observation, expert views on network management and brand differentiation, and the changing meaning of luxury itself within China. We’ve also sought out the perspectives of pioneers in other luxury sectors for additional insight on how to build relationships with a new generation of luxury consumers. Enjoy the ride – and please get in touch if you would like to discuss any aspect of the auto industry in China or beyond. Yours Faithfully, Guillaume +86 21 2310 0870 Guillaume Saint Managing Director Automotive Practice, TNS APACFrom the editor Share this
  4. 4. 54 The established markers of luxury in the premium car market comprise a ‘savant mélange’ of popularity, heritage, extravagance, quality, innovation and performance. At the same time though, our studies also identify the emergence of new differentiated needs in China. If brands can develop offerings which speak to these needs, they are likely to be able to increase their influence at the point of purchase and help seal the deal with customers. The consumers influenced by these new emerging lifestyle needs can be categorised into three groups: Connoisseurs, fascinated by engineering and the technical details of car design that promise enhancements to performance, control or driving safety. These are true believers in the capacity of advanced technology to improve the driving experience. They are discerning, seeking out innovation and comparing technical details across brands. Easy-going, self-focused customers, who prioritise comfort and personalisation. They want a car that functions as a luxury cocoon: comfortable and easy to handle. They are less constrained by others’ opinions and put their own feelings at the forefront of their decision criteria. Their car must be a convenient and enjoyable place to be. The growing importance of personalization through options, accessories, and customer service reflects brands’ responses to this group. Fashionistas are the early adopters of new trends, determinedly expressing individualism and self-assuredness. Their need is to be the focus of attention – they display their individual taste through their car choice, and they won’t compromise to fit in with public opinion. They are more influenced by Western value and small, fashionable cars - which contrast with the traditional codes of luxury - may attract them. Co-branding with fashionable apparel brands can reinforce appeal amongst this group. As Guillaume Saint explains, the emergence of new lifestyle needs is creating opportunities for challenger brands The mechanics of premium brand success for auto are inherently similar to those of the other luxury sectors like jewellery, luggage, cosmetics or apparel. Customers are most likely to consider luxury brands that convey values they identify with, make a clear promise, and project an immediately recognisable badge of success. However, the nature of the promise and values they seek may be starting to evolve. The established markers of luxury in the premium car market comprise a ‘savant mélange’ of popularity, heritage, extravagance, quality, innovation and performance. These are traditional values that bestow customers with symbolic wealth and status - belonging to a higher social class - and a self-confidence boost. And a great many premium car customers still adhere to them when making their final choices. ‘Face’ is still a critical factor for them so they take peers’ opinions into serious consideration. With many luxury customers intrinsically less knowledgeable about vehicles than their peers in other markets, choice of model is first and foremost an expression of social status. Guillaume Saint Managing Director Automotive Practice, TNS APAC success Mapping a new route to luxury auto
  5. 5. 76 These three emerging auto audiences are still relatively small, but growing in size and influence. And amid the increasingly crowded luxury auto market they offer new entrants an opportunity to compete on the basis of design, features, equipment and services, rather than relying upon existing popularity or brand heritage. We foresee that the increasing influence of these new auto buying needs will lead all manufacturers to put forward complete car experiences that move luxury vehicles from transport tool to a holistic experiential endeavour. This is a recipe for innovation and pushing boundaries – and for an exciting future for luxury auto in China.
  6. 6. 9 For luxury auto brands, as for almost any other type of car maker, China is starting to resemble a gold rush. Growth of 22% between 2012 and 2013 has ensured that every possible premium brand is not only present in the market, but moving to strengthen that presence – and this despite forebodings around slowing GDP growth and regulations against conspicuous consumption. As this year’s Beijing auto show demonstrated, most are putting their faith in ever-expanding product lines to retain and grow share, and ensure entry points for the next wave of first-time luxury buyers. But in an increasingly crowded market, the time is coming to apply some precision to how they manage their portfolios, and how they manage their brands. The line-up keeps growing China’s luxury market is currently dominated by the big three German brands, with Audi, BMW and Mercedes-Benz commanding a combined share of 75% in 2013. However, the challengers are arriving. Lexus, Land Rover, Volvo and Cadillac have already launched. The revived Red Flag introduced the L5 limousine at the Shanghai Auto Show last year, and Ford is looking to launch the Lincoln brand during 2014. Anthony Lau Research Director TNS Automotive China playbook precision Why luxury auto brands need a
  7. 7. 1110 Customers are taking significantly longer to make decisions because navigating all of the options is becoming intimidatingly complex. The variety of luxury models is expanding every bit as rapidly as the variety of brands. Just 20 years ago, the luxury auto market consisted almost entirely of sedan models such as the Mercedes-Benz E-Class and BMW 5 Series. Now BMW boasts a China line up with every Series number from 1 to 7, including the recently launched 2 Series and 4 Series. And that’s before we start on X Series SUVs, Z Series sports cars or electric models from its new i sub-brand. The luxury grid becomes more crowded still when we take the increasing number of localised versions of these marques, sold alongside them in dealerships and offered to buyers as an alternative choice. Localised versions of the Mercedes-Benz GLK, BMW X1, Audi Q3 and Cadillac’s XTS and ATS are already helping their manufacturers to avoid heavy import taxes whilst potentially appealing to more price-sensitive buyers. A crowded market demands differentiation This rapid proliferation of luxury brands seems at first glance to be a sign of a market in robust health. But it is in fact creating significant challenges for both car-makers and their customers. We see the impact in the increased consideration process for luxury auto buyers. Customers are taking significantly longer to make decisions because navigating all of the options is becoming intimidatingly complex. Luxury auto dealers meanwhile are struggling to find space in showrooms for all of the models on offer. And these challenges of distribution are only just beginning. Manufacturers face another challenge that is arguably more significant still. The immense difficulty of differentiating a
  8. 8. 1312 luxury brand in an increasingly crowded marketplace – especially when Chinese auto buyers’ first experience of their brand involves such a huge variety of models. Traditionally, car manufacturers have always been successful in differentiating themselves from competitors through their products. BMW had their rear-wheel drive sedans; Audi had Quattro technology; Porsche has rear-engine sports cars. However, maintaining differentiation via the product is becoming increasingly challenging as the portfolio of each manufacturer continues to grow. Western auto brands must also recognise that their brand heritage will not translate automatically into the Chinese market. Ask a Chinese auto buyer about the type of vehicles that they associate with Porsche and they will talk about 4-seater Cayennes and Panameras rather than iconic 2-seater 911s. This is not to say that there is anything particularly inappropriate about Cayennes and Panameras in the Chinese market – but they must compete against a broad range of other powerful 4-door vehicles without the immense brand heritage advantage that comes from association with the 911. Time for precision portfolio management Increasingly, the success of luxury brands in the China marketplace will depend on their applying far more precision to the development of their portfolio. They must prioritise models based on the features that genuinely appeal to China’s luxury buyers, but also based on intelligent analysis of the models that will most effectively differentiate their brand position. At the same time, they must prioritise the distribution and the promotion of those vehicles that will deliver the greatest sales volume – and the greatest revenue. How can luxury auto brands set about refining their portfolios to drive sustainable growth and protect share through brand differentiation? ...the success of luxury brands in the China marketplace will depend on their applying far more precision to the development of their portfolio.
  9. 9. 1514 Now the real luxury brand battle starts In all of these areas, the manufacturers behind luxury auto brands must identify the gap between their intended global positioning and local realities. They must set clear guidelines for delivering differentiation on the ground that can generate the local positioning that they seek, and ensure that this is delivered consistently across all touch points and over time. However, these guidelines also need to be flexible enough to allow for local interpretation and adaptation. As brands battle to build new, relevant positions for the Chinese market, we are about to witness one of the most exciting phases in one of the most dynamic auto markets in history. 1 3 2 Base product differentiation strategy around a full understanding of functional and emotional needs Catering to the tastes and preferences of Chinese customers Prioritise on multiple levels Brands must interrogate how the emotional needs of auto buyers align with the social image and functional benefits of their brand, and they should prioritise vehicles and product features that reinforce this connection. Chinese car owners have different driving habits formed in a different driving environment and on different road conditions to those experienced in many other markets. For the most part, they also have significantly less experience of owning and driving vehicles. As a result, they have very different expectations and priorities when it comes to the features of a luxury car, and a different level of willingness when it comes to paying for them. Many luxury auto brands are already establishing design centers in China to understand and cater to the tastes and preferences of Chinese car buyers for both exterior and interior features. Brands such as Audi, BMW, Volvo and Land Rover have already launched long wheelbase versions of classic marques in order to appeal to Chinese drivers’ preferences. To maximise resources efficiently, brands must determine which models will most effectively create brand differentiation and support the overall communications strategy, and which models will need to be present at the dealership as display or test-drive vehicles to support on-the-ground sales activities. This may involve vehicles for different roles: high-profile models to attract premium car buyers, as well as entry-level vehicles that may prove the strongest source of sales amongst China’s high proportion of first-time buyers. Three steps for sustainable growth:
  10. 10. 1716 Ferrari’s Edwin Fenech has been evolving the brand’s age-old scarcity strategy for China Enzo Ferrari famously stated that his company would “always sell one car less than what the market requires” As Edwin Fenech, Greater China President and CEO of Ferrari explains, 50 years on, it’s this philosophy that steers the brand’s strategy for China. “We are not here to sell volumes – if we sell a car, we have to sell it in the proper way and make people understand what they are buying: our heritage, our values and the technology that we have in our cars,” he says. While Fenech acknowledges that China is likely to be the company’s largest market further down the road (it is currently second only to the US), his focus isn’t on racing to get there. Brand guardianship is key: nurturing an “evolution of the mindset of people”, and keeping the brand true to the DNA of Ferrari. Exclusivity is crucial to Ferrari’s global strategy. After 2012, its best ever year, the company actually decided to reduce the number of cars that it sold in order to maintain exclusivity and brand value. The number of cars delivered to the network dropped to 6,922 (down 5.4 per cent) in 2013, yet Ferrari was able to leverage brand value to increase revenues by 5 per cent, eventually reaching an unprecedented €2.3 billion. At the same time though, Ferrari has focused on maintaining distribution in markets such as China, which are experiencing extremely strong demand. Ferrari’s exclusivity-focused business model may seem like a hard sell in a country where status buyers are unaccustomed to waiting for luxury items – but Fenech is confident that an emerging category of auto buyer is very much in-tune with the Ferrari philosophy. “People want to differentiate themselves in different ways,” he says. “The most wealthy want unique products. That’s why I think a lot of brands in China are making limited editions.” Ferrari has shown its respect for Chinese culture. During 2012, the Year of the Dragon coincided with the 20th anniversary of its first sale in the country. The brand marked the occasion with twenty 458 Italia China models, each incorporating traditional Chinese ‘long-ma’ (dragon- horse) elements and craftsmanship such as calligraphy in the interior and golden dragon insignia adorning the bonnet. Now, to mark the Year of the Horse, the brand has created a ‘Year of Prancing Horse’ logo, aligning its historic pursuit of excellence with the Chinese zodiac’s symbol for persistence and success. The logo itself incorporates Chinese traditions in text and calligraphy with the nobility and heritage of the Ferrari brand, echoing the Imperial Jade Seal of Chinese dynasties. At the same time as maintaining exclusivity and aligning its brand with Chinese culture, Ferrari has focused on driving up service quality. The brand has opened an employee and dealer training centre in Shanghai (the brand’s first outside Italy). And it has invested in building multi-channel Edwin Fenech Greater China President and CEO Ferrari acceleration Controlled The most wealthy want unique products. That’s why I think a lot of brands in China are making limited editions.
  11. 11. 1918 experiences around its brand: a Ferrari Myth exhibition in the former Shanghai Expo Italian pavilion, the Ferrari challenge series, which enables owners to race on an F1 circuit, extended warranties and virtually unlimited customisation options. “These are all things that are quite unique to Ferrari,” says Mr. Fenech. “We sell the cars, but being present for the after-sale services is absolutely the key.” There are challenges to building an infrastructure around a brand with such high standards. Finding centrally located dealership locations is difficult given space requirements, technological needs and competition among luxury brands. Mr. Fenech adds that “the right location today is not necessarily the right location of tomorrow” and that assessing the evolution of each city in China is important. Retaining high-quality employees is another challenge. “In this booming situation in China, talented people are solicited by every other company – especially because Ferrari is a benchmark,” says Fenech. Social media is a key element in this luxury brand experience. Ferrari has focused on Weibo, attracting 385,334 followers in China by May 2014. “Especially now in China, social media has become a must,” says Fenech, though here as elsewhere careful management of the brand is essential. Yet for this contender in the luxury auto sector, the quest for brand differentiation makes all such challenges worthwhile. Many consumers have yet to differentiate between the various high-end sports car manufacturers – and this gives a valuable advantage to the first brands to demonstrate values in practice. “That’s why we are working on branding in order to create a difference,” says Fenech. “It’s to put Ferrari in its deserved position, which is leadership.” He plans to get there at Ferrari’s own pace – always one car less than the market demands.
  12. 12. 2120 Lou Tao of Sinotrust explains how effective network management will be vitally important in phase two of China’s super luxury auto market Economic headwinds and government regulation may have slowed growth for super luxury auto brands in China recently, but those brands haven’t taken their foot off the accelerator when it comes to building their distribution networks. By the end of 2013, Porsche, Bentley and Maserati had built 57, 36 and 45 dealerships respectively in mainland China. driving Network management in the seat Lou Tao Automotive Marketing Solutions Sinotrust 57 3645 Porsche Bentley Maserati
  13. 13. 2322 Amid the fast network expansion and sales growth, service quality has become a problem that threatens to hinder the development of these brands. To rectify this and drive growth, they must prioritise rational and effective network management. The network management challenges for super luxury auto brands can be summarised as follows: Imperfect management system: Most super luxury auto brands haven’t built a perfect network management system suitable for the Chinese market so they cannot effectively control the dealers within their networks. Huge variations in the level of management experience and the limits of the current network management systems have largely held back their efforts to improve services. Lopsided management: Most super luxury auto brands are focused on driving sales, but they have not been able to enforce standards in after-sales management and are therefore weak in this area. Super luxury car owners who have paid a hefty sum for their cars have very high requirements and expectations on product and service quality. When experience fails to meet these expectations, it undermines satisfaction with the product and the brand. Unsophisticated management measures: As their networks grow, many super luxury auto brands rely on mystery shopping and customer satisfaction surveys to evaluate management standards and service compliance. But this kind of evaluation stays at the level of customer experience, and cannot offer a comprehensive picture of how dealers are implementing the automakers’ standards and requirements. Brands need to introduce dealer audits to check performance, and then use the results to help their dealers improve. We believe that network management standardisation is inevitable for super luxury auto brands in China. But to meet the individualised needs of picky super luxury car owners, standardised network management is not enough. Super luxury auto brands should also create distinctive management control systems based on their own brand character. Amid the fast network expansion and sales growth, service quality has become a problem that threatens to hinder the development of these brands.
  14. 14. 2524 What luxury strategies will deliver success for auto brands in the Year of the Horse? We asked three of the industry’s key players for their predictions. Allen Lu (AL) Managing Director, Asia and Oceania Operations Infiniti Motor Company Ltd. Simon Chen (SC) Deputy General Manager, Acura Business Division of Honda Motor (China) Investment Co, Ltd. Dong Fang (DF) Interactive Marketing Director Audi Sales Division, FAW-VW TNS: How would you define luxury for auto brands? Expression of identity “Luxury is about social identity, status and recognition. It is a reflection of individual opinion, taste, and value.” Convenience and time-saving “Luxury saves your time. For example, a good quality car has less chance to break and better quality service, which saves you waiting time.” Future-facing “Luxury for me is a mixture of future-orientation, high-technology and product innovation.” AL: SC: DF: luxury The Forum: How can auto brands drive success with buyers?
  15. 15. 2726 TNS: How can auto brands grow the luxury market? TNS: What will be the keys to customer loyalty and retention? The right product line-up has a key role to play “A wide-ranging product line-up is vital. Brands need a combination of entry level, mass and high-end products. They also need to pay proper attention to customer relationship management. Finally, luxury brands must acknowledge the impact of Corporate Social Responsibility (CSR) on brand value. This is a valid source of intangible competitive advantage, and can help to establish recognition amongst consumers.” Interest and convenience “The keys will be: launching new products, high-quality service, and reliable and convenient dealerships.” Luxury service levels “You’ve got to offer customers an exclusive high-end service and effective relationship management services.” Address rational and emotional needs “Most Chinese consumers are still motivated to demonstrate social status and success by consuming premium brands. The pricing of luxury goods must therefore reflect the brand’s luxury perception and feeling. Brands must also establish their position and status with the market – perhaps through recruiting well-known celebrities or opinion leaders. And finally, the product itself must serve multiple functions. It must satisfy consumers’ rational and emotional needs.” Be unique and high-end, but also competitive “The keys to attracting more high-end customers are: having a unique brand image, competitive pricing, and high-end technology.” Deliver premium innovation “Product innovation is of course important: you’ve got to have a market- leading product. Then you need to have a prestigious brand and offer customers a premium experience.” AL: SC: DF: AL: SC: DF:
  16. 16. 2928 TNS: What are the luxury brands with a DNA closest to your own? LV and Apple “LV, because it’s the root of premium and luxury goods from Europe. LV combines genuine products, legacy and fashion in their brand. Apple, because of the iPhone, their cutting-edge technology, and their new product concepts. They have left competitors behind with their new lifestyle products.” IWC, Zegna, Rimowa “IWC for its unique and leading technology. Their watches are low-key yet full of substance. Zegna for its sporty luxury feeling in menswear – it’s a kind of celebrity athletic. And finally, Rimowa suitcases for their renowned workmanship, and trendy design. All three brands reflect Acura characteristics: leading technology, unaggressive, sporty, dynamic, old money.” Apple, Park Hyatt, Prada “Firstly, I’d have to say Apple, for consistently offering customers user-friendly technology, outstanding design and interactive experiences. The lesson to learn from Apple is never to stop innovating and to remain future-focused. These values are quite similar to Audi’s Vorsprung Durch Technic. Then I’d have to say the Park Hyatt for its level of personalised service and focus on progress. In these respects they are streets ahead of the competition. What’s more, their version of luxury feels especially contemporary due to design by famous architects and interior designers. Finally, I’d choose Prada, which has similarly cutting-edge styling and is capable of setting new trends with sophisticated design, production techniques and quality.” AL: SC: DF:
  17. 17. 3130 Michael Griffiths Global Expert, Cultural Insight & Strategy, TNS China Luxury is TNS’s Michael B. Griffiths explains evolving attitudes to luxury in China Luxury brands have become mass in China. Once upon a time everyone wanted to own a Hugo Boss product. Then it was Rolex, Burberry, LV and the rest. Today, China’s shopping malls are saturated with luxury brand advertising and the average Zhou can fluently discuss the relative attributes of different label offerings. Today, merely recognising a luxury brand is enough to partake in its narrative and luxury consumption has become commonplace. As a result, luxury can no longer be defined simply by exclusivity. Consumers are demanding an innovative, new approach to social distinction. Luxury in China is no longer simply about the logic of possession and status but about what the consumer stands for. China will still have enough newly rich consumers to fuel luxury as we know it for some time, but there is already evidence that, in the future, beautiful will always win out over big. A powerful display of discretion Luxury in China today is increasingly about the ability to differentiate within categories, to mix styles and blend collections, and to fashion personalised statements from the range of available materials. Of course this has led to some dubious experiments – like the black Lamborghini with the Batman figurine stuck on its bonnet down by the Bund – but in the future, personal statements will be increasingly understated. Less will be more. We are already seeing luxury brands downplay the iconography that made them successful, with discreet patterns and small logos have become vogue. The success of independent luxury brands and handcrafted products are further evidence that consumers want luxury to return to what it was always supposed to be – niche, special. In other ways too, luxury has become about the person so much as the product or brand. The hotel industry has discovered luxury as experience – about the journey so much as the destination. The same will be true of automotive, which will become less about the car than the drive. Increasing numbers of luxury customers say they buy luxury goods as a way to reward themselves, rather than for ostentatious reasons. Of course, consumers have always taken great pains to deflect any suggestion of ostentation by claiming that this form of consumption was appropriate or even necessary for their position or title. Their mass
  18. 18. 3332 need has been to avoid being judged crass, uncultured, venal or corrupt, yet within these parameters, ostentation has been proudly on display. Such is the nature of consumerism though, that as soon as ostentation has ceased being a taboo- transgression, it has also ceased to be desirable. Luxury in China today, is increasingly about vision: not just about the recognition of prestigious marks but the right to appraise objects and vistas as worthy. It is not about seeing so much as being seen to see, with a gaze which demonstrates that you have a total mastery of your environment. The explosive rise in high-end camera purchase and photography is a case in point: the apparatus functions primarily to frame subjectivity. Details are another case in point: the demise of the luxury overstatement is paralleled by a new appreciation for intricate design and striking, artistic simplicity. In luxury auto, consumers now find perfect stitching and body-work lines as appealing as big engines and over-sized chassis. The tuhao generation Clues to the overall macro-trends driving luxury in China can be found in everyday speech and culture. One of the most popular terms to emerge into the mainstream during 2013 was ‘土豪tu3hao2’. Coined for the gold version of the iPhone 5s smartphone, ’tuhao’ is comprised of two characters: ’土tu3’ meaning soil or earth, ’ 豪hao2’ meaning grandeur. The term has become a parody for fusions of rustic roots with crass ambitions and gaudy expressions. It was a predictable irony that brands would release ‘tuhao’ versions of their existing products and that these would perform well as consumers rushed to buy into the latest craze. More significant, however, is everything else ’tuhao’ demonstrates about the evolution of luxury in China. The Chinese have always had derogatory terms for the rich and unsophisticated. ‘Tuhao’, however, evinces a new capacity for Chinese to laugh at themselves – to not take themselves so seriously – because the term parodies not only shamelessly extravagant luxury but also the social discourse which made those forms of luxury desirable in the first place. For consumers in China’s higher-tier cities at least, ’tuhao’ represents a tongue-in-cheek satire of China’s breakneck pursuit of material affluence in the get-rich-quick era. Usage of the term doubtless involves disdain for lower-tier city nouveau-riche types, yet there is also an element of fond nostalgia for the days when big bars of gold were also all that higher-tier city consumers aspired to. The emergence of ’tuhao’ as a popular meme represents the morphing of the prototypical Confucian ego from status- oriented functionalism towards new post- or counter-materialist ideals. It heralds a future where face-driven materialism will be less obviously paramount in consumption. Related trends can be seen in voluntarism, charity and philanthropy, in CSR and environmentalism, in the pursuit of natural ideals through ’authentic’ rural tourism, in press stories of Chinese families concerned that the next generation doesn’t have the appropriate ’spirit’ regarding wealth, and in online scorn for the way that gross inequalities of wealth have loaded China’s already imbalanced gender-ratio dynamics in favour of ’gold-digging’ young women who date big-spending ‘sugar-daddies’ twice their age. Here are three things brands can do to stake a claim in this evolving, complex future for luxury in China: In luxury auto, consumers now find perfect stitching and body-work lines as appealing as big engines and over-sized chassis.
  19. 19. 3534 Give it a story In the future, meaningfulness will matter more than the size of the statement. Consumers will crave a story to ground their personal appreciation of the brand in its source. This means that authenticity, heritage, provenance and uniqueness will be absolutely key – but they are not only defined against counterfeits. Brands should find ways to bring consumers into the brand narrative, since authenticity is ultimately a discourse of authorship. Digital forums are amongst the most obvious channels for achieving this, but it could equally be about group membership and shared activities around the brand. In Beijing, we found consumers who had set up a BMW driver’s association. Membership wasn’t just about VIP ownership but about car sharing and weekend drives to Inner Mongolia. The group would visit orphanages and retirement houses, and even drove to the earthquake site in Sichuan to visit victims who are still rebuilding their lives, since this gave their lives significance. The association wasn’t about BMW as we know it: consumers had written themselves and their ideals into the brand and fashioned the brand meaning anew. Give it an ethos In the future, luxury will say more about what you do with your money than how much you have. The difference between ’big’ and ’great is one of social and moral ideals, and ethics are back in vogue in China in a way that plays well with the state’s latest crackdown on excessive gifting and banqueting. Luxury brands can stay ahead of these evolving consumer sensibilities by emphasising morality and sacrifice as much as elitism. Brands that can weave an ethical story into their production, perhaps by employing impoverished groups, and demonstrate real social feedback from their profits, stand to be particularly successful. Give consumers a chance to do good at the same time as making luxury purchases, and sales should rocket since this resolves any residual moral tensions regarding self-seeking behaviour. The purchase is legitimate due to its contribution to society. Make it Chinese Consumers overwhelmingly seem to believe luxury is European in origin and have very specific ideas about luxury provenance: Switzerland for watches, Germany for cars, Italy for shoes. China’s romance with its ‘Occidental Other’ is evolving, however, and in the future China will not necessarily think of its own products and designs as cheap or inferior. China pride has been a factor in luxury consumption for a while now and consumers of the future will appreciate overseas players who find ways to pay homage to Chinese cultural status. Shanghai Tang is a great example of a luxury brand that has harnessed traditional Chinese aesthetics to forge a delicate balance between mythical past and modern, globalising future. Overseas brands seeking an edge in the China market can do likewise by making use of Chinese cultural resources in design and marketing, perhaps not as part of their core brand identity but tactically, for specialised product lines or during important seasons. As the success of Shanghai Tang demonstrates, branding with Chinese characteristics increasingly appeals to consumers in overseas Western markets too. Conclusion In the final analysis, Chinese consumers’ expectations of luxury are evolving. Luxury was a category with its roots in the rigid structure of power in the Confucian family, in anxieties about China’s role in the world during the “Open Door” era, and in the status-seeking behaviour that new money brings. Now that a certain extent of material affluence has been sustained over time, the conception of luxury is expanding to include all manner of more “spiritual” pursuits. As we usher in the year of the horse, the logic of possession, display and covetousness increasingly appears vulgar and common. Luxury market watchers can therefore expect to see the main areas of growth come in high-end, experience- oriented products that provide consumers greater scope for personal choice and expression; and just as significantly, brands which offer consumers the opportunity to indulge the pursuit of ’higher’ moral virtues.
  20. 20. 3736 Christina Leung (CL) Marketing Director, Champagne, wine and other spirits, LVMH Paul Pairet (PP) Founder, Partner and Chef de Cuisine Mr & Mrs Bund, Ultraviolet Sandra Cheng (SC) Marketing Director, Benefit cosmetics TNS: How do you capture the attention of high-end consumers in China? The price tag matters “Be the most expensive, obviously. This goes a long way by itself. But there are other factors, such as design by leading designers, production with rare materials, or quality built up over time by artisans etc. All this works. And then you’ve got endorsement by the celebrities that high-end customers look up to, such as Jack Ma (Founder of Alibaba) and Eric Li (CEO of Baidu).” Be specialist and creative “You’ve got to have a product with a story to tell, and not just a marketing story built to dress-up a product. Your creativity must be genuinely original, as opposed to just drifting along with other people’s ideas. And you’ve got to be niche, because the real high-end is really specialist.” Enlist advocates “For me, peer group recommendation is key. Great PR and advertising is the start but then it’s about consumers’ word-of-mouth.” When asking ourselves what role luxury plays for Chinese auto buyers, it’s worth asking how those consumers express themselves through luxury brands in other areas of life. We brought together three of the country’s top luxury marketers for a unique perspective on what motivates high-net worth consumers – and how auto brands can align themselves with these needs. CL: PP: SC: Luxury brands in China: view cross- category The
  21. 21. 3938 TNS: What’s the key to brand loyalty amongst luxury consumers? TNS: Can you define what luxury means to you? “Luxury is at hand, but difficult to catch and impossible to retain. It passes, it moves, it lives, it is a feeling, an emotion: An exclusive experience that shall imprint the memory. Emotion is the quintessence of luxury and Memory its barometer.” “Luxury to me is a complex fusion of top quality, trendy design, premium cost, and overall rarity.” Haute Couture service “Haute couture is tailor made only for you. From fashion, to travel, to home design and cars, there is only one piece in the world for you, the only you. The same principle applies to service and customers relationships. One-to-one service can forge tangible and intangible bonds between the brand and the customer.” Make brand memories “Quality of product and service is of course paramount. Being the best at something marks you out above all-rounders. And you’ve got to create lasting impressions. Memory is the best measure of value.” Maintain momentum “To retain high-end customers we need to maintain our share-of-voice in the market, release exciting news every year, and deliver unique shopping and/or after-sales services” “Berluti, Ferrari and Bvlgari vs Hennessy. All these brands have heritage, savoir faire, artistic qualities, and a timeless nature.” “The brands I want mine to share their DNA with are Hermes, for its atemporality; Fred and Fari (FF) for their unconventional futuristic creative spin on communication; and Aston Martin for its understated sexiness.” “Diesel; smart; Apple.” * These are the views of the interviewees and do not necessarily reflect those of their employer. ** Image of Chef Paul Pairet by Ball Chen of SOB TNS: What luxury brands share the same DNA as your own? CL: PP: SC: CL: PP: SC: “Timelessness, a piece of art, the ultimate savoir faire. Let time penetrate what the present cannot.” CL: PP: SC:
  22. 22. 4140 I hope you have enjoyed reading our report on China’s luxury auto market. With our many different perspectives and areas of expertise, I hope that we’ve helped to reveal the secrets of a sector that is becoming increasingly challenging but remains undeniably exciting. Despite the recent sales drop following the state’s crackdown on excessive gifting, the trend ‘Luxury for All’ continues. With the accumulation of wealth, more and more Chinese consumers, younger ones in particular, can afford to make statements through luxury products, and auto is no exception. The luxury market will become fragmented down the road, since more buyers will choose vehicles based on their lifestyle preferences, instead of merely on business needs. Brands have responded with broader product offerings including SUVs and Cross-overs that meet their varied needs and a retail network better aligned to their target customers. Gary WU Head of Automotive, TNS China skilled A promising road ahead: drivers needed Luxury buyers are able to evolve faster than most. They travel and shop frequently outside China; they can access information more freely, and have become increasingly mature and sophisticated. We have observed many consumers move from overt to smart luxury, and even to experiential luxury, shifting their emphases from flashy designs and logos to finer details and services. Customisation and personalisation are increasingly popular. Brands might find the prospect of enlarging their customer base and expanding their product portfolio irresistible, yet careful planning is increasingly required to address the threat of brand dilution. “Always sell one car less than what the market requires” is certainly a smart strategy. Consumers are emotional, luxury buyers included; but they are also rational. As a matter of fact, consumers are quite predictable, provided we understand the driving forces that shape their behavior. We at TNS are here to help you gain the insights to steer your growth in this promising yet challenging market.
  23. 23. 4342 TNS is the world's leading provider of automotive marketing information and insights. Our 800 dedicated consultants around the world are uniquely placed to provide precise strategic direction: deepening customer relationships, developing new products, targeting new markets and illuminating the road to growth through the entire customer-brand relationship journey. You can read more of our thinking on our blog at: Get in touch: If you would like to discuss any aspect of the automotive industry, please do get in touch with our experts: Gary Wu Head of Automotive, TNS China +86 21 2310 0905 Guillaume Saint Managing Director Automotive Practice APAC +86 21 2310 0870 Subhashish Dasgupta Director - South East Asia, Automotive +65 6597 7371 Remy Pothet Automotive Global Sector Head +33 1 40 92 28 02 Share this
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