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Luxury Goods marketing in emerging Chinese Market: Challenges and Strategies Sandra Saidi, MBA Fashion and luxury Management, Skema Business School, France
Introduction• Luxury goods creates dreams, desires and have conpicuous utility than the functional utility or economic value.• The french luxury brands dominate the market• We are studying particulary the emerging markets like China which is highly promising but different from mature markets.• What are the marketing strategies of luxury industries if they want to develop a real business in China?
Background of luxury sector Presentation of luxury product: What is luxury?• According to dictionaries, luxury compares with extravagances, opulence and rankness• Luxury is « manière de vivre », it is about pleasure, refinement perfection and rarity, as well as appreciation but not necessarily price (Roux and Floch, 1996)• Dubois, Laurent and Czellar (2001) identified six facets of luxury product: Excellent quality, Very high price, Scarity and uniqueness, Aesthetics and poli- sensuality, Ancestral heritage and personnal history, and finally Superflousness
Background of luxury sectorPerception of luxury is also influenced by demographics, lifestyle, habit, social, envi ronment and of course , the purveyors of luxuries, the marketers.
Background of luxury sector Luxury goods vs ordinary goodsWhat makes the difference between theluxury and ordinary goods is the exceptionalworkmanship and materials using in a designthat is enveloped by the exclusivity of thebrand name.
Background of luxury sector Classification of luxury consumers Luxury is • These consumers tend to buy luxury products forFunctional their superior functionality and quality. • Consumers use luxury goods as a status symbol to Luxury is say “I did it!” They are motivated by their desire to be successful and demonstrate this to others Reward •They enjoy luxury for the way it makes them Luxury is feel, therefore have a more emotional approach to purchases.Indulgence
Background of luxury sector Theories used for and conceptual framework of Luxury products Social and Behavioral psychology Marketing Theories - Maintaining the Perception of Scarcity - Dreams and Fantasy The luxuryEconomic Theories product can be Qualities of luxuries considered as a - Luxury for the Masses: A multi- contradiction dimensional object - Counterfeiting of Luxury Goods
Background of luxury sector Source: Author’s own
The background of luxury sector Luxury industry The luxury goods industry is unique because it is an industry that depends strongly on marketing and promotion capacity of the firm to sell their products to a specified group of people such as high-net-wealthy-individuals (HNWI). This is also an industry that is historically well guarded and difficult to find valuable information in details
Background of luxury sectorGlobal luxury goods market before financial crises in 2008 Source: UBS WMR, Bain & Co., 2007.
Background of luxury sectorGlobal luxury goods market after financial crises in 20082005 5.10%2006 5.30%2007 4.70%2008 -6.6%2009 -7% Source: Datamonitor, UBS and Merrill Lynch.
Background of luxury sectorLuxury market share in the world Source: Researchinchina.com
Background of luxury sector Dilemma of luxury market Luxury market are working in aDilute their Risk losses in continuous brand to the short- dilemma and work term and making thethrough the maintain an perfect balance crisis? elite image? among the multi- dimensional factors
SWOT of luxury market STRENGTH OPPORTUNITIES -Strong pricing power -High entry barriers - Strong revenue growth Frequent design cycles are part of the business - High margins and cash flow generation - Heathly balance sheet - Macroeconomic downturn- Diverging wealth distribution - Declining consumer - Continuous rise in tourism confidence/spending - Demographic trend - Decreasing travelling flows - Changing lifestyle - Fashion risk - Diminishing brand value WEAKNESSES THREATS Source: UBS 2007
Background of luxury sector The 6P’s of Luxury marketing People Price Product 6P’s of luxury market Purpose Passion Pleasure
Background of luxury sector Trends towards emerging countries- Role of BRIC countries in the world economy and growth- China, the second largest economy (New York Times, 16th August, 2010)- Brazil , the Middle East, India and China will expected to grow its luxury market share by as much as 7%
China and luxury Market Chinese culture and luxury good consumption- Growing numbers of high-net-wealthy- individuals (HNWI) more than 16% per year in China- Chinese consumers= Amalgame of modernity and traditional belief- Differences between consumers in collectivist culture (China) and consumers in individualist culture (USA, EU)
China and luxury MarketTraditional Chinese culture and consumption of foreign brands Chinese traditional culture Buddism Confucianism Taoism
Four Chinese cultural traits have lots of impact on Chinese customers Collectivism and Hierarchy and Guan-xi (Social Face (Self esteem° luxury good luxury buying interaction) process consumption• Chinese luxury • The behaviors of • . It is important • Chinese society is consumers try to Chinese to keep a positive considered highly create distinction consumers are image of one’s hierarchical. from one group to very easily personality Every individual another through influenced by the reflecting specially the buying luxury existing trust through his high-net- goods between people role, his status wealthy- who have a good and traits individuals personal respecting his or (HNWI) or luxury relationship her own group goods consumers are very attentive to their status within the group, institution or society as a whole
China and luxury Market Modernity and Chinese Luxury consumption patterns- Tastes of Chinese luxury consumers are different from western luxury consumers- Quality of products is important for Chinese consumers- Chinese consumers prefer to spend more on a known brand name- The traits like age, sex, education level and the standard of living and place of residence influence the perception and buying process of luxury goods.
China and luxury MarketAccording to the Accenture study which shows that “to attract Chinese consumers increasingly sensitive to foreign luxury brands, firms need to adjust their marketing strategies to the preferences of three categories of clientele”: - Golden Youth - Ambitious youth - High income youth
China and luxury Market • have a high standard of living and significant interest in luxury Golden Youth brands, are the first potential category of the future luxury clientele • are sensitive to brands and desire the latest luxury productsAmbitious Youth but still their income is not enough for consumption • are looking for exclusive High income products at the cutting edge Youth technology
China and luxury MarketSegmentation of Chinese wealthy luxury consumers Source: ‘Luxury Brands in China’, KPMG, 2007
China and luxury Market Different from other Chinese consumers- There are also differences between Chinese wealthy high-net-wealthy- individuals (HNWI) and the mainstream Chinese consumers- Differences in attitudes and behaviour between wealthy and mass affluent- The wealthy people differ also in way of spending leizure time
China and luxury MarketChina luxury consumers vs Mature Markets luxury consumers • Youthness of luxury consumers, 80% under 45 China years old • Appreciate the functional benefits of any particular purchase • Only 20-30% under 45 years old • Looking for pleasure Mature Markets
China and luxury Market Chinese luxury consumer’s unique characteristicsVarious socio-economic-cultural traits suggest that China is an unique market with distinctive criterias Brand Awerness Motivations: Perception of Aspirations and beauty self reward Shopping for Counterfeit pleasure goods
China and luxury Market Chinese Luxury Market- Chinese luxury market is not a homogenous market- Two most important needs that guide the evolution of luxury are the need for individuality and the need for a rich and indulgent experience
China and luxury Market Challenges and Strategies for luxury- Firms in China CHALLENGES STRATEGIES-Brand cognition -Creation of franchises- Lack of experiences of the sales - Attract, train and retain qualifiedassociates sales associates- Inexperience and knowledge of - Offer slightly different luxuryChinese wealthy consumer’s products personlizedabout the western luxury brands -Excellent sales skills, marchandise at- Floating loyalty the right price points and compelling displays.- Attract non-committedpotential consumers at the point - Local managersof sales
China and luxury Market Targeting the right wealthy consumersIn order to better understand these potential consumers and formulate appropriately the winning strategy, we need to know them very wellA better understanding of these seven groups can lead to more effective marketing spending: Luxuriants, demanding, Flashy, Urbane,Climb er, Down-to-Earth, Enthusiast.
China and luxury MarketStrategies management of luxury brands in ChinaIn this competitive environment, luxury firms in China as well as new entrants needs to focus on following managerial issues
China and luxury Market Marketing Diffusing Local Lines strategies Acquiring tools Rigorous Localfor wining at the Quantitative Manufacturing point of sale study Using Local Rapid partners expansion Store formats
China and luxury Market Future Challenges Intelectual property Right (IPR) regulations Promoting a Longer-term culture of luxury returns IneffectiveManaging risks advertising and media Brand Staff Shortage positionning
Propositions to be testedChinese luxury buyers are new, publicity andeducation on luxury brands culture are neededMarketers need to integrate the variables likerapid economic growth, collectivist society andconfucianism in their marketing strategyLuxury goods need to be adapted with Chinesereality.
Conclusion- Luxury market development in China has attracted many luxury firms and management consultants.- Doing business in China does not follow the same way like a matured market (Economic and cultural differences)- Marketing professionals need to understand this differences to have success in this promising market- Great potential of middle and small cities- Cooperation with local firms to enter in the Chinese second and third tier markets.