39566716 ppt-class

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


Perception of luxury is also influenced by
demographics, lifestyle, habit, social, envi
ronment and of course , the purveyors of
luxuries, the marketers.


Luxury goods vs ordinary goods

What makes the difference between the
luxury and ordinary goods is the exceptional
workmanship and materials using in a design
that is enveloped by the exclusivity of the
brand name.

Classification of luxury consumers

Luxury is • These consumers tend to buy luxury products for
Functional 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

Theories used for and conceptual
framework of Luxury products

Social and Behavioral
psychology

Marketing Theories
- Maintaining the
Perception of Scarcity
- Dreams and Fantasy
The luxury
Economic Theories product can be
Qualities of luxuries
considered as a - Luxury for the Masses: A
multi- contradiction
dimensional
object - Counterfeiting of Luxury
Goods


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

Global luxury goods market before financial
crises in 2008

Source: UBS WMR, Bain & Co., 2007.


Global luxury goods market after financial
crises in 2008
2005 5.10%
2006 5.30%

2007 4.70%

2008 -6.6%

2009 -7%

Source: Datamonitor, UBS and Merrill Lynch.


Luxury market share in the world

Source: Researchinchina.com

Dilemma of luxury market

Luxury market
are working in a
Dilute their Risk losses in continuous
brand to the short- dilemma and
work term and making the
through 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


The 6P’s of Luxury marketing

People

Price Product
6P’s of
luxury
market
Purpose Passion

Pleasure

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)

Traditional 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

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.


According 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


• 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 products
Ambitious Youth but still their income is not
enough for consumption

• are looking for exclusive
High income products at the cutting edge
Youth technology

Segmentation of Chinese wealthy
luxury consumers

Source: ‘Luxury Brands in China’, KPMG, 2007


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 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

Chinese luxury consumer’s unique characteristics
Various 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

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

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 qualified
associates sales associates

- Inexperience and knowledge of - Offer slightly different luxury
Chinese wealthy consumer’s products personlized
about the western luxury brands
-Excellent sales skills, marchandise at
- Floating loyalty the right price points and compelling
displays.
- Attract non-committed
potential consumers at the point - Local managers
of sales

Targeting the right wealthy consumers

In order to better understand these potential
consumers and formulate appropriately the
winning strategy, we need to know them
very well
A better understanding of these seven groups
can lead to more effective marketing
spending:
Luxuriants, demanding, Flashy, Urbane,Climb
er, Down-to-Earth, Enthusiast.

Strategies management of luxury brands
in China
In this competitive environment, luxury firms in
China as well as new entrants needs to focus
on following managerial issues


Marketing Diffusing
Local Lines
strategies

Acquiring tools Rigorous Local
for wining at the Quantitative
Manufacturing
point of sale study

Using Local Rapid
partners expansion Store formats

Future Challenges
Intelectual
property Right
(IPR) regulations

Promoting a Longer-term
culture of luxury returns

Ineffective
Managing risks advertising and
media

Brand Staff Shortage
positionning

Propositions to be tested

Chinese luxury buyers are new, publicity and
education on luxury brands culture are needed

Marketers need to integrate the variables like
rapid economic growth, collectivist society and
confucianism in their marketing strategy

Luxury goods need to be adapted with Chinese
reality.

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.

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