Chapter 7:

Luxury Brand Consumption in Emerging Economies:

Review and Implications <a>

Kineta Hung

David K. Tse

Abstract

The market for luxury brands has been growing rapidly in emerging economies over the past decade; yet, there are salient gaps in our knowledge. This chapter traces the socio-institutional forces that have given rise to the current market landscape in emerging economies. It then examines the literature on luxury brand consumption and delineates the personal motivations (e.g., achievement celebration, identity affirmation), social motivations (e.g., self-expression, image enhancement) and cultural theories (e.g., face-saving, family-pride) relevant to emerging economy consumers’ motives for luxury brand consumption. Using Chinese consumers as the point of departure and supplementing the conceptualization with insights from studies on Russian and Indian consumers, the chapter identifies four distinct groups of luxury brand consumers: global materialists, millennials, nostalgic compensators, and Tuhao consumers. The four groups are purported to emphasize intrinsic versus extrinsic motivations, and carry a present-to-future versus a past-to-present temporal orientation. The research and managerial implications are discussed.

Introduction: luxury brand markets in emerging economies <b>

With their newfound wealth, consumers in emerging economies have begun providing

new growth opportunities for luxury brands over the past decade. Luxury brands, such as Louis

Vuitton, Burberry, Chanel and Gucci, have opened stores to capitalize on the rise of high-income

earners in BRIC countries, especially China. A study by Bain & Company noted that Chinese

consumers made up 30% of personal luxury goods purchases worldwide, without which the

market for personal luxury goods would have contracted (D’Arpizio et al., 2015). A survey by

Deloitte (2017) also found that 70% of emerging economy consumers, as compared to 53% of

mature market consumers, had increased their spending on luxury goods over the last five years.

This growing market momentum has led to increased research efforts to understand

luxury brand consumption in emerging economies. A number of qualitative studies have

examined the indigenous culture and socio-psychological factors in the BRIC countries (Brazil,

Russia, India and China) and have found that consumers purchase luxury brands for different

reasons. For example, the segment of suddenly-rich Chinese consumers uses luxury brands to

“show off” their wealth among relatives and friends (South China Morning Post, 2014), while

Russian consumers legitimize their indulgence in luxury brands as a way to “fight off” the

devaluation of rubles (Reuters, 2016). Belk (1999) posits that, in contrast to Maslow’s (1943)

depiction that lower-level needs must be satisfied before individuals will attend to higher-level

needs, some consumers will reprioritize their purchases, foregoing necessities (e.g., food) to buy

luxury items they cannot otherwise afford.

It is often assumed that, while the appeals of daily goods are geographically and

culturally diverse, luxury products offer unique appeals to address the shared needs of a high-

income segment interested in products that offer a strong artistic element, dedicated

craftsmanship, and a prestigious brand name (Chevalier & Mazzalovo, 2008). In contrast to this

concept of a unique global segment of luxury buyers, Godey et al. (2012) showed in a seven-

country study that consumers from different countries place different emphases on a luxury

product’s design, brand name and country of origin. Other studies reveal that the underlying

consumption values offered by luxury brands are complex and are driven by personal, social,

hedonic, performance and price factors (Wiedmann et al., 2009). Further, purchase motive

studies have shown salient diversity between luxury consumers from mature and emerging

economies. Although all luxury consumption is affected by a variety of motives involving

sociability and self-expression, intrinsic motives are more prominent among consumers in

mature (vs. emerging) economies, while social motives are more prominent among consumers in

emerging (vs. mature) economies (Dubois et al., 2005). In addition to these universal motives,

there are also lesser known indigenous motives such as face-saving (Chadha & Husband, 2006;

Danziger, 2005) and social instrumentation (e.g., a guest with a luxury car gets better treatment

in restaurants/hotels).

The divide between mature and emerging economy luxury consumers is also reflected in

their demographic profiles, with the latter being younger. Compared to the average age of luxury

consumers in mature markets (Japan: 49; Europe/U.S.: 46), their counterparts in China are

younger at an average age of 33, with 80% between age 25 and 44 (Roll, 2017). A similar pattern

is reported in Brazil, where 33% of luxury consumers are aged 26 to 35 (Ipsos, 2013). Also,

given the strong economic growth in their respective countries, emerging economy consumers

acquired their wealth within a relatively short time. In sum, the extant literature highlights

demographic, cultural, psychological and social factors that have given rise to diverse motives,

product appeals, and purchase priorities among luxury consumers in mature and emerging

economies. Collectively, these studies help to build the architecture of understanding luxury

brand consumption in emerging economies while also providing managerial implications.

There are, nevertheless, salient gaps in our knowledge of marketing luxury brands to

emerging economy consumers. For example, what factors give rise to the market landscape in

emerging economies? Will features of this terrain persist, or will they dissipate as emerging

economies approach the free market system? With a humble past, how do emerging economy

consumers perceive and legitimize luxury brand purchases? How do consumers rate local and

global luxury brands (in light of the fact that, in some markets, local luxury brands are faring

better than global luxury brands)? What individual and social goals can luxury brands serve for

emerging market consumers? Finally, to the extent that selected consumer segments can afford

luxury brands, how can firms reach and market to these segments effectively?

To answer these and other related questions, this chapter takes Chinese consumers as a

starting point to investigate the factors that may affect luxury brand consumption in emerging

economies. As the first and largest emerging market to embrace luxury brands, China has

received the most attention in the literature, which thus offers a rich base for us to build on. We

are aware of the potential bias in generalizing insights from a single country, and thus we will

supplement our conceptualization with findings on studies in Russia, India and other emerging

markets.

This chapter has five parts. First, it traces the socio-institutional forces that have given

rise to the current market landscape in emerging economies. Next, it examines the literature on

luxury brand consumption in emerging economies. Third, it draws insights from motivational

theories and delineates the personal and social goals underlying luxury brand consumption. This

discussion covers theories on personal motivations (e.g., achievement celebration, identity

affirmation) and social motivations (e.g., self-expression, image enhancement) in addition to

cultural theories (e.g., face-saving and family-pride) relevant to emerging economy consumers’

motives. Fourth, the chapter describes four distinct groups of luxury brand consumers, including

how they desire and “use” luxury brands to fulfill their personal goals. Fifth, the final part of the

chapter focuses on implications, including both research implications to help structure future

studies and managerial implications to help market luxurious brands in emerging economies.

Market landscape of luxury brands in emerging economies <b>

An emerging economy is one that has some but not yet all characteristics of a rich and

mature economy. In general, these economies are high-growth and dynamic and have some but

not all of the mechanisms of a free market. They include certain Asian, European and Latin

American countries such as the BRIC countries.

While some emerging economies, such as Russia, adopted a “big bang” approach and

removed the planned hierarchy all at one time (Child & Tse, 2001), others such as China have

adopted a more gradual mode of change. Over the past four decades, China has continually

reformed its social institutions through overlapping phases to move towards a free-market

economy. It started by breaking the planned quotas (production quotas and prices) and

recognizing ownership rights (e.g., private ownership). This was followed by decades of firm

reforms (state-owned enterprises) and industry reforms (financial and banking sectors). More

recently, the reforms have targeted the healthcare system (Law et al., 2003).

The reforms jolted the economic environment of the nation as a whole. As a result,

uncertainties, challenges and transitional opportunities are rampant (Chow, 2015). This situation

has given rise to gainers (the suddenly-rich or progressively-rich) and losers (relatively fewer,

but still a sizable and significant group), as people have adapted (or failed to adapt) to the drastic

changes taking place in the economy and the country (Gustafsson & Shi, 2003). In particular, the

different groups of gainers have become the prime targets for luxury brands.

In most cases, people in emerging economies are not geographically mobile. Should they

move, they may need to give up the social benefits of their hometowns without being entitled to

the social benefits of their new homes (Gustafsson & Shi, 2003). For example, without proper

residential registration, a Chinese migrant is denied subsidized health, housing and schooling for

children (Solinger, 1999). This restriction sometimes spills over to individual rights, such as

buying apartments or getting jobs with the local government. Thus, while income is much higher

in the major cities, many reluctantly choose to stay in their hometowns as the government aims

to reduce the income gaps between urban and rural areas (Walder, 1989).

The robust economic growth and continuous institutional reforms, combined with

regulated internal mobility, have molded a regionally diverse luxury brand market in emerging

economies. The purchasing power for luxury brands remains in the prosperous cities in China,

Russia and India. This situation is further fueled by global firms and expatriates being attracted

to the metropolitan hubs, enhancing the local demand for luxury brands. By now, the top 10 most

prosperous cities in China have a combined population of about 300-400 million consumers

(Chan, 2010).

As emerging economies continue to develop towards the free-market system, the demand

for luxury brands will likely become more evenly distributed across regions. However,

technological advances, trade frictions, and developmental issues (e.g., the mid-income trap)

remain salient challenges (Eichengreen et al., 2013) that may hamper the growth and continuous

reforms in emerging economies (China Hand EIU, 2018). Thus, it is safe to say that regional

diversity in purchasing power will likely remain a characteristic of emerging economies for some

time. At the individual consumer level, the developmental, social, and economic forces are likely

to give rise to diverse purchase motivations, product tastes and purchase priorities in these

markets.

There are other interesting market characteristics as well. Intellectual property rights

violations are rampant in emerging economies. With weak or ineffective legal systems,

counterfeits and copycat brands are readily available (Bian & Veloutsou, 2007). Thus, the

concern for authenticity is real for serious buyers, such that some only shop at official outlets in

major cities (Bian & Moutinho, 2011). For example, the Cartier diamond company has set up

stores in minor cities, but these generally do not do well in sales (Financial Times, 2017). In

addition, the import tax for luxury brands is generally high (40% to 100%) in emerging

economies. Some consumers will travel overseas (Russians to other European cities, Mainland

Chinese to Hong Kong and Indians to Singapore) (Jing Daily, 2015; Singhi et al., 2017) to

purchase authentic products at a better price, making “local shopping and global sourcing” a

common phenomenon.

Luxury consumption in emerging economies <b>

Luxury connotes high levels of quality, exclusivity, excess, fantasy and desire (Dubois &

Czellar, 2002; Dubois et al., 2005; Phau & Prendergast, 2000; Tartaglia & Marinozzi, 2007);

however, what is deemed luxurious is also subject to one’s perceptions. Some brands are

considered luxurious in emerging economies (e.g., Starbucks in India) but are perceived merely

as “major brands” in mature economies. Similar challenges exist in defining a luxury product

when well-to-do consumers consider expensive homes, cars, vacations and jewelry merely high-

quality “necessities”. Meanwhile, mid-income consumers buy “everyday luxury” goods such as

Swatch watches, imported beers and wines to satisfy their craving for luxury (Rambourg, 2014;

Vickers & Renand, 2003).

In spite of the elusiveness in defining a luxury brand or product, the concept of “luxury”

remains salient. Luxury is an accepted mindset (Kapferer, 2012), with luxury brands being a

central driver of consumer preference and usage (Dubois & Duquesne, 1993). Aside from

attributes such as quality, design and craftsmanship, luxury brands are associated with

psychological, symbolic and hedonic values (vs. economical or functional values; Nueno &

Quelch, 1998; Tartaglia & Marinozzi, 2007; Vigneron & Johnson, 1999). Thus, brands (LVMH,

Channel, BMW) that offer both superior product performance and the “feeling” of luxury appeal

to consumers worldwide. Some super-luxury brands such as Patek Philippe and Van Cleef &

Arpels emphasize exclusivity in ownership, allowing consumers to derive positive feelings,

confidence, satisfaction and pride from these luxury brands.

Another feature that has been attributed to a luxury good is its international reputation

(Kapferer, 2002). However, in the case of emerging markets, this pre-condition is being called

into question. The jewelry market provides a case in point. Among the top luxury brands by sales

volume in China, both Chow Tai Fook (#9) and Lao Feng Xiang (#13) are ahead of international

brands Tiffany (#16), Swarovski (#22) and Pandora (#24), while Chow Sang Sang (#25) and Luk

Fook (#28) follow close behind (Deloitte, 2017). The high ratings of Chinese jewelry brands

suggest that local brands can attain luxury status when they satisfy the consumer need for the

type of heritage design required for important occasions (e.g., a traditional wedding ceremony).

Some global brands attempt to bridge the local/foreign divide. An example of this can be found

in Hermès’ creation of a Chinese fashion/design brand, Shang Xia, whose products embed strong

local heritage and tastes. Similarly, LVMH acquired a Chinese beauty brand, Marubi, in 2016.

With a younger clientele and specific local heritage in emerging economies, the definition of a

luxury brand is increasingly context-based.

There are also country-specific studies reporting on the indigenous consumption of

luxury brands. In a three-economy study that involves 1,000 advertisements over time, Tse and

colleagues (1989) identified six key types of brand appeals Chinese consumers look for when

they evaluate their purchases. They include performance attributes (function and performance),

technology attributes (material and technological content), aesthetics attributes (color and style),

social attributes (social acceptance), modernity attributes (in fashion or not) and price-value

attribute (price, quality, etc.) With the continuous rise in income and purchasing power, Chinese

consumers are upgrading their consumption habits and their quality of life. Furthermore, they are

learning from consumers in other economies when they upgrade their consumption habits.

This discussion suggests that luxury brand consumption is context-based. An

examination of luxury consumption in emerging economies cannot be meaningful without

considering the underlying motivations of consumers in these countries. Building on seminal

works in the field (Mason, 1981; Leibenstein, 1950; Veblen, 1899), Vigneron and Johnson

(1999) successfully established a conceptual framework that links luxury values with consumer

motivations. In the following sections, we use this framework as a basis to outline the appeals of

luxury brands and the purchase motives of consumers in emerging economies.

Purchase motives <c>

Consistent with Vigneron and Johnson’s (1999) framework, consumers’ motivations for

luxury brands can be classified into four categories: performance-related (quality), personal

(inner satisfaction), interpersonal (attention-getting) and social (status). Regarding performance-

related attributes, consumers may go to extremes when they evaluate luxury brands, emphasizing

unique technical/design elements and exceptional craftsmanship (Chevalier & Mazzalovo, 2008).

While brands that exhibit exceptional performance-related qualities would likely be deemed

prestigious to a perfectionist consumer, consumers who hold stronger interpersonal and social

motives may think otherwise. Given the challenges of counterfeit and copycat brands, Asian

consumers tend to value authenticity over a brand’s quality and craftsmanship (Chacharkar,

2013). They may refer to the product’s country of origin (e.g., leather goods made in Italy) to

ensure its authenticity while rejecting original equipment manufacturer (OEM) products that

display a similar level of quality and craftsmanship.

Since luxury brands are expensive, some consumers acquire them as self-rewards or for

hedonic enjoyment. It is of particular interest to researchers that consumers often rank social

motives over personal motives. This may seem irrational when one considers the exceptional

quality of a luxury brand and the high price one pays to acquire it. While logic may suggest self-

indulgence as the prime motive, in real life consumers often look to social endorsement for the

brand owner to derive personal satisfaction. Some label this tendency “vanity”, as it emphasizes

the excessive admiration one draws socially as the prime motive for the purchase.

Indeed, it is common to find consumers using luxury brands to identify themselves,

attract attention, enhance their image, signify their status, and gain respect from their peers. As

China represents a collectivist culture, Chinese consumers use luxury products to create and

assert their status and improve the family’s “face” (Chadha & Husband, 2006; Danziger, 2005).

Beyond fulfilling their hunger for pride and social distinction, some leverage their ownership of

luxury brands to gain advantages in their daily lives. In this way, luxury products and brands are

used as tools to show off the owner’s good taste and improve his or her appearance (Heinemann,

2008; Thomas, 2007).

Among the relevant motivations, the “snob” and “bandwagon” types are especially

interesting (Mason, 1981; see also Dubois et al., 2005). These are non-functional motivations

that draw their utility from external effects (Leibenstein, 1950; Vigneron & Johnson, 1999).

“Snobs” are motivated to buy luxury products because of their high price and relative rarity. As a

result, luxury products allow them to get attention and to feel superior and unique, as these

products are inaccessible to the average consumer. “Bandwagons”, on the other hand, are

followers of “snobs”. They buy luxury products to be accepted and belong to a coveted social

group. Emerging economy consumers are often “bandwagons”, relying on luxury brands (and

specific lines and models) that are well-known and popular. They often have limited

understanding of the history and culture of specific brands (Chadha & Husband, 2006; Danziger,

2005).

Interestingly, the “snobs”, as trendsetters, may abandon trends that have since become

mass-adopted by “bandwagons”, in order to retain their originality and uniqueness (Mason,

1981; 1995; Leibenstein, 1950; Heinemann, 2008). Thus, “snob” and “bandwagon” tendencies

reveal an interesting interplay of the social motivations underlying luxury consumption. Other

motivations examined by Vigneron and Johnson (1999) include “hedonic” (i.e., positive

emotions) and “perfectionist” (i.e., product quality and design), both of which are individual

motivations underlying a consumer’s urge to purchase a luxury product.

Country-specific findings <c>

In India, a collectivist culture, luxury brand consumption is highly motivated by social

conformity, ostentation and signaling (Chaudhuri & Majumdar, 2006). As India is at the “start of

money” stage in Chadha and Husband’s (2006) Evolution of Luxe Model, the elites are strongly

motivated to use luxury to display their position in society. As a result, luxury products play a

strong status-signaling role, communicating the owner’s position and identity, though not

necessarily his or her worth, as inequality in wealth is well accepted in the country (Chadha &

Husband, 2006; Heinemann, 2008). Meanwhile, India’s religious system emphasizes eternal

virtue. Though it does not encourage materialism, it does not condemn luxury consumption

either (Brammer et al., 2007). Also of interest is the desire of Indian consumers to mimic the

lifestyle of Bollywood movie stars, in terms of both their film and real-life personas (Kripalani,

2007). Thus, the celebrity is an important role model for Indian consumers to learn how to

consume luxury products.

Russian consumers have a unique view towards what constitutes luxury products. A

study conducted by the Russian Academy of Science shows that among “luxury addicts”, the

main indicator of luxury is a bodyguard (77%), followed by a country house (76%), prestigious

apartments (76%), and luxury cars (71%). Beyond these are deposits in international banks, a

helicopter or an airplane. Only one third considered apparel to be a luxury item category

(Kaufmann et al., 2012), in contrast to Chinese and Indian luxury consumers, who value personal

luxury items highly. In addition to their unique view of luxury products, Russian consumers

differ from Chinese and Indian consumers in that they do not have a habit of saving – a tendency

that is driven partly by Russia’s tumultuous history over the past century. Some of them buy

luxury products as a means to hedge the devaluation of the Russian ruble (Deloitte, 2014).

Beyond these notable differences, which can be attributed to Russia’s economic and

cultural institutions (Kaufmann et al., 2012), their desire for luxury is similar to Chinese and

Indian consumers. First and foremost, status escalation is the primary motive, as luxury products

allow one to attain a certain social class and the chance to show off; thus, “snobs” and

“bandwagons” are common in Russia. Meanwhile, Russian consumers enjoy luxury

consumption, so hedonic pleasure plays a lesser yet salient role (Kaufmann et al., 2012;

Peshkova et al., 2016). Collectively, these studies point to a direction for us to enrich our

knowledge of luxury brand consumption in emerging economies. In the following sections, we

shall examine the purchase motivation and salient segments in luxury consumption.

Cultural, psychological and social theories on luxury brand consumption <b>

Intrinsic and extrinsic motivations are strong drivers in emerging economy consumers’

luxury brand considerations. These motives correspond to one’s personal and social goals,

respectively. Personal goals include “inner reward for achievement”, “personal taste/heritage

appreciation” and “hedonic enjoyment”, while social goals include “building an extended self”,

“social-self enhancement”, and “gaining acceptance.” Although the literature views intrinsic and

extrinsic motivations as independent processes, they often interact in real-life settings. For

example, an extrinsic reward (salary increase) may enhance one’s intrinsic (job) satisfaction

(Amabile, 1993). Also, individuals may take private pleasure (intrinsic reward) when receiving

an extrinsic reward (job promotion) (Gagné & Deci, 2005), regardless of whether or not the

extrinsic rewards are socially displayed. Following this logic, we posit that luxury brands can

provide extrinsic rewards that are privately consumed. In short, the boundary between personal

and social goals for luxury brand consumption may be blurred.

There is another dimension of purchase motivation that has not been covered in the

literature. In particular, we posit that a person’s time-frame focus (e.g., past, future) is salient in

understanding how emerging economy consumers behave. While most of the purchase motives

(e.g., enjoyment or image enhancement) take on a “present” or “future” focus, it is unlikely that a

person’s consumption is driven only by this “present-to-future” time-frame. Instead, we posit

that memories of the past exert a salient influence on one’s purchases. Thus, we posit that a

transitional time-frame, “past-to-present”, is also influential in the purchase decisions of an

emerging economy consumer who has weathered considerable societal changes. In sum, we posit

that purchase motivations can best be represented in a 2 (time frames: “past to present” and

“present to future”) x 2 (motivations: “intrinsic” and “extrinsic”) matrix, as shown in Table 7.1.

Table 7.1

Emerging economy consumer purchase motives for luxury brands

Time Frame Time Frame

(Present-to-Future) (Past-to-Present)

Intrinsic Motivations Inner satisfaction Identity affirmation/heritage

Hedonic enjoyment Achievement celebration

Personal taste Compensatory consumption

Extrinsic Motivations Social enhancement Purposeful showing-off

(Social display) Building extended self Family pride & Saving face

Gaining acceptance Achievement announcement

Intrinsic motivations with present and/or future focus <c>

As studies (e.g., Chadha & Husband, 2006) have shown, emerging economy consumers

are using luxury brands to provide “inner satisfaction” and “hedonic enjoyment”. Consumers

who have more in-depth knowledge about particular brands may go deeper and appreciate the

brand’s heritage and design elements, leading to higher levels of brand engagement and loyalty.

It is important to point out that the derived intrinsic rewards are inwardly (or privately) directed,

though they may spill over to a person’s social domain. While many consumers may go to

Starbucks for its “quality” or its “American taste” – both privately directed goals – in India,

consumers may want “to be seen inside a Starbucks” – a clearly social goal (Rao, 2012).

Some intrinsic motivations such as “inner fulfillment” focus on the present time-frame.

However, these feelings of satisfaction may carry into the future, as luxury products are durable.

Interestingly, a luxury brand’s intrinsic rewards are not restricted to product ownership or usage

but can also be derived from the shopping environment and process. Members of a luxury

brand’s sales staff are professionally trained, attentive to the diverse needs of their customers and

meticulous in their approach to deliver a pleasant shopping experience. These pampering

services are over-and-above the mediocre services emerging economy consumers are used to

(Indesinglive.com, 2011). They are thus highly valued and become inseparable from the luxury

brand. Interestingly, some European/American consumers also consider the level of service at

Asian stores to be much higher than that in their home countries (The Conversation, 2015),

making the shopping process a highly-valued intrinsic reward for these consumers.

In addition, luxury brands invest heavily in the store environments. Singapore’s Louis

Vuitton store is extravagantly designed and nicknamed the “LV Island” by Asian emerging

economy consumers (Indesinglive.com, 2011). Mr. Zhang, LV’s former General Manager,

commented that when Chinese consumers shopped at LV’s Singapore store, they complemented

that the bags were of a better value than those sold in LV’s European stores, even if the bags

were priced at a similar level. Thus, some emerging economy consumers are deriving intrinsic

value from the shopping environment and embedding such value into their luxury brand

ownership and consumption.

Extrinsic motivations (present and/or future focus) <c>

Extrinsic motivations (with present and future focus) represent the most researched topic

in luxury brand consumption by emerging economy consumers. It has often been argued that

these consumers derived socially relevant rewards beyond the brand’s intrinsic benefits. As

noted in the literature, consumers may use luxury brands to construct an extended self (Belk,

1988), enhance their social image, and gain social recognition (Kim & Ko, 2012).

Most emerging economies are highly competitive, compelling people to outpace others

in education, career advancement and even daily chores. In this regard, luxury brands play an

instrumental role in providing the brand owner with a positive social image (Chadha & Husband,

2006). It is not uncommon to find consumers who feel more confident when they wear luxury

branded cosmetics and clothing for job interviews and important dates. Since most consumers

cannot afford luxury brands on a daily basis, they adopt a portfolio concept with just “one or

two” articles of clothing that are highly priced. These pieces are used for special occasions to

provide the owner a situational boost of extrinsic reward (The Conversation, 2015).

In collectivistic societies such as China, there is a positive effect of enhancing one’s social

image through luxury brand ownership, yet there is an implicit boundary that regulates this

behavior and prevents one from “overdoing it” (Karlsson & Rodrigues, 2015), as some Chinese

consumers feel negatively towards owners of luxurious products. In a country where the income

discrepancy is among the highest in the world, the sentiments of the “haves” and “have-nots”

affect how consumers evaluate luxury brands (Foster, 1965). In this case, jealousy may run deep

(Wu, 2009). In addition, the outrageous showing-off behaviors of some luxury brand owners

may offend the general public (Hung, 2017). Over time, this complex social motivation is

recognized by marketers in emerging economies, and they may in turn change their selling

propositions from “exclusivity” to “socially aspirational”. After all, to be accepted in a higher

social class (social integration) is a more powerful appeal than “being exclusive” in this society

(Mandel et al., 2006). Thus, super-luxury brands (e.g., Hermès) may be less preferred than more

“common” luxury brands (e.g., LV) in these societies (Hung, 2017).

As mentioned earlier, counterfeits and copycat brands are readily available in emerging

economies. How do people in these countries view these products? On the positive side,

counterfeits render luxury brands affordable, thus allowing people to derive satisfaction through

status consumption. This is especially true for quality counterfeits, as some would claim that

high-quality counterfeits are as good as the real thing. Interestingly, aside from using counterfeits

to satisfy their need for status consumption, people in emerging economies also use counterfeits

for other reasons. For example, while one may invest in a real luxury handbag in a classic style,

the same person may buy counterfeits in trendy styles, as these styles do not last long and thus

may be perceived as not worth a large investment (Jiang & Cova, 2012). Thus, counterfeits in

emerging economies may serve as fast fashion items, a role served by brands such as H&M and

Zara in mature economies. Furthermore, as illegal items, counterfeits provide a sense of

“adventure” (Jiang & Cova, 2012) to users. The nervous and excited feeling users get when

using counterfeits is a brand experience that the real brand cannot provide. For these reasons,

counterfeits will likely continue to persist in emerging economies. However, there is an

important caveat to this observation: some people use counterfeits like the “real thing” (i.e., they

want others to believe they are using luxury brands), while others use them for what they are

(i.e., the real brand does not provide them with nervous fun). Thus, rendering the authenticity of

a brand differently allow diverse emotions to emerge (Phau & Teah, 2009). It would be useful

for future research to unfold this phenomenon further to understand the differential perceptions.

Intrinsic motivations with past-to-present focus <c>

Nostalgia marketing refers to strategies and efforts directed at people seeking satisfaction

from consuming their past, in terms of either their own past experiences or their cultural heritage.

Studies in marketing and psychology confirm that nostalgia is a strong motivator to action, as it

gives broader meaning to one’s life. While nostalgia marketing is particularly applicable to the

elderly market, allowing people to relive some of the most memorable parts of their past life, it

also allows young people and others who do not have related life experiences to share in this

heritage. Some fast-food restaurants are intended to evoke nostalgia; for example, the Old Dixie

Café North is modeled after the Elvis Presley era (Dennis, 2017). Its museum-like décor and

menu allow customers interested in that era to experience this piece of history and heritage.

The nostalgia appeal assumes that consumers may receive intrinsic rewards for reliving

memorable episodes from their past, which may be related to friends, events or dramatic life

moments (Wood, 1982). Reliving these episodes is especially rewarding when a comparison can

be made with the present to highlight dramatic life-changing events. In this regard, consumers

from emerging economies such as Russia and China will likely have many rich and memorable

episodes to draw from, as both countries have gone through many unprecedented changes (Hung

& Li, 2006; Perraudin, 2014).

We thus posit that consumers from emerging economies will find that luxury brands that

evoke their past offer intrinsic rewards. The past events may take the forms of identity

affirmation (e.g., from poor peasant to factory manager) or achievement celebration (e.g., from

poor to well-off families). If a person’s humble past deprived him or her of certain pleasures in

life (no toys in childhood), he or she may engage in compensatory consumption and acquire

luxury brands he or she could not have dreamed of possessing in the past.

Studies have shown that human memory is selective, suppressing extremely negative

events and elevating positive ones. Although how this selective mechanism regulates a person’s

consumption behavior is under-researched, it may help explain why some emerging economy

consumers prefer local to foreign luxury brands, even when the latter are better designed and

engineered. For example, in China, some consumers prefer the local “Sea Gull” watch over

Swiss-made Longines for this reason. Similarly, some Russian consumers have a strong affinity

for local fighter pilot watches that they prefer over Swiss army watches. A luxury brand’s ability

to embed past-present contrasts can be a powerful attribute.

Extrinsic motivations with past-to-present focus <c>

A key part of one’s memory relates to one’s social environment. This is especially

important in emerging economies that have gone through substantial urbanization. Through four

decades of robust economic growth, China increased its urbanization rate from 17.9% to 39.1%.

Similar social development is reported in India (33.5% urbanization) and Russia (74.1%

urbanization). This implies that the majority of urbanized Chinese and Indian consumers who

used to live among family, does not see distant relatives and friends on a daily basis anymore.

Instead, visits during festive seasons provide an opportunity to show how well they have

prospered (or not) in the city.

As emerging economies go through societal transformation, people may prosper through

hard work, endowment and/or pure luck (e.g., owning land in rezone areas). Accordingly, some

are motivated to “publicize” their wealth in a showy manner. Recently, a group of young

Chinese entrepreneurs returned to their home village in a flamboyant procession of luxury cars

(Mercedes Benz, BMW, Lincoln, Bentley, etc.) during the Chinese New Year celebration,

attracting much attention and admiration (Sing Tao Daily, 2018). While this was ridiculed on the

internet as “rural” or “uncultured” by netizens purporting themselves to be sophisticated, more

often than not, public displays of wealth in India and China are favorably reported in local

media. Here, the core motivation for public display behavior seems to have derived from a

comparison of the past and present as well as the success of the young people bringing pride to

the village. The extrinsic motivation to demonstrate achievement (with a past-to-present time-

frame) takes up a sizable segment of China’s luxury brand market.

Four distinct groups of luxury brand consumption <b>

The above discussion leads to an important question: is the 2x2 motive classification a

conceptual exercise, or do real-life consumers exist in each of the cells? Although the exact

corresponding groups of consumers do not exist in their purest forms, we can uncover consumer

groups that resemble each of the four cells in China. We expect that similar groups may exist in

India, Russia and other emerging economies.

Table 7.2

Four groups of luxury brand consumers

Time Frame Time Frame

(Present-to-Future) (Past-to-Present)

Intrinsic Motivations Global Materialists Nostalgic Compensators

Inner satisfaction Identity affirmation/heritage

Hedonic enjoyment Achievement celebration

Personal taste Compensatory consumption

Extrinsic Motivations Millennials (Generation 2) Tuhao Consumers

Social enhancement Purposeful showing-off

(Social display) Building extended self Family pride & Saving face

Gaining acceptance Achievement announcement

Global materialists <c>

A significant segment of luxury brand consumers in China is that of global materialists.

This cohort of consumers was born after the country rejoined the global economy in 1979. They

ride on the economic reforms, becoming high-paying professionals, managers and entrepreneurs.

Many of them are optimistic in their life prospects. They have adopted a materialistic lifestyle

and can afford luxury consumption. At the same time, the market for Chinese women also

experienced unprecedented growth; thus, for the first time, this segment can afford foreign

cosmetics and fashion brands (Hung et al., 2005; Hung et al., 2007b). As this cohort becomes

more sophisticated and demanding, they become concerned with product quality, health, family

and the environment (Atsmon & Dixit, 2009), thus further fueling their desire for luxury brands.

They regard luxury brand consumption as a reflection of their personal achievements, lifestyle

preferences and personal tastes.

In addition, many global materialists justify their consumption as an avenue to learn

about the world and broaden their personal horizons (Hung & Li, 2006). To them, luxury brand

consumption is a “ticket” to becoming global. They prefer brands and products with superior

(i.e., quality, style, workmanship, design) performance as well as the “feeling” of luxurious

enjoyment. By becoming global, they legitimize luxury brand consumption as a personal

investment for better career advancement in the connected world, where China plays an

increasing role.

This group of consumers is mindful of potential social repercussion of boosting their

wealth, as they are aware of the growing negative social sentiments towards the super-rich and

their lifestyles. As many of them have humble roots, they recognize the increasing gaps between

the rich and the poor in China, so they are quite reluctant to engage in showy consumption. To

them, personal motives (e.g., inner satisfaction, rewarding one’s achievement) and performance

motives (e.g., taste for quality, desire for details) are more salient than social recognition in

luxury brand consumption. In response, marketers of luxury brands have redesigned their selling

propositions for this segment, as this segment can represent the future of luxury brands in

emerging economies.

Millennials (Generation 2 - China’s blessed generation) <c>

Another group of luxury consumers in China is its young consumers. Most of China’s

Generation 2 are millennials (Wang, 2017), and many of them are children of the global

materialists. Others are experiencing a strong start in their career. Whereas the average age of

luxury consumers in China is only 33, it is projected that this average will drop further as the

Generation 2 cohort moves to the fore (Roll, 2017).

China has undergone drastic social institutional changes over the past decades. Using

insights from Generational Cohort theory, Hung and colleagues (2007a) show that in these

dramatic and society-wide changes, the prevailing social institutions and the life experiences of

an individual during his or her formative years leave a durable mark on the individual’s values

and consumption behavior. Accordingly, the Generation 2 consumers are extensions of the

global materialists, but they take the materialistic values a step further (Gu & Hung, 2009). In

other words, they are more global in their value orientation and more materialistic in their

consumption behavior compared with the global materialists in China.

Generation 2 consumers were born under China’s one-child policy (abolished in 2016),

an event that sets them apart from their parents as well as their peers in other countries. As the

only child in the family, many of them were pampered by up to six adults (parents and paternal

and maternal grandparents) and grew up as “little emperors” and “little empresses”. As a

privileged generation, their education and housing are often paid for by their parents. This leaves

them with substantial purchasing power in addition to gifts of money from their grandparents

during birthdays and other festivities. These life experiences and financial strength turn

Generation 2 into a group of demanding yet very promising luxury consumers (Wang, 2017).

Accordingly, we posit that Generation 2 consumers are motivated to gain extrinsic benefits and

look to luxury brands to (1) build their extended self, (2) enhance their self-image and (3) gain

acceptance among their peers.

Tuhao consumers (country barons or vulgar tycoons) <c>

A notable group of Chinese luxury shoppers is the nouveau riche (or Tuhao), otherwise

called “country barons” or “vulgar tycoons” (Qin, 2013). This group of consumers emerges from

a low-income background. Although they had limited education and skills, they became wealthy

as a result of unique opportunities, such as owning farmland or mines that they could sell to

global materialists, who had to earn their wealth through hard work. Armed with their new-found

fortune, many would like to gain social respect quickly. However, lacking the cultural capital of

the social class they aim to join, their consumption behaviors are often awkward and irrational

(BBC News, 2015). They have been known to purchase super-expensive cars, drink top-price

wine by the bottle and even use money to light cigarettes just to show that they have the money

to do so. Some of their behaviors have drawn negative media attention and have even been

publicly denounced (e.g., the parade of expensive cars discussed earlier). Many of their daily

consumption acts (e.g., demanding immediate attention, over-ordering in restaurants, engaging in

self-centered behavior in social settings) elicit mixed responses. Regarding their luxury

consumption, shopkeepers welcome their spending but are offended by their attitudes and

behaviors, especially if they disrupt other customers.

This group of consumers loves luxury brands, using them to show off and live out the

elite status that their new wealth has bestowed upon them. They favor showy products and highly

popular brand names, including heritage luxury brands (e.g., Bentley cars) that give them style.

Some take classes to learn how to pronounce name brands (e.g., Louis Vuitton) and names of

sophisticated foods (e.g., foie gras) (GQ, 2015) so that they can act, eat, and dress according to

their newly acquired economic status. Without cultivating their personal taste or engaging with

the brand or product, they simply imitate European styles and tastes to appear sophisticated. A

McKinsey study shows that this flashy group constitutes one third of the luxury brand market in

China. Nonetheless, its conspicuous consumption style has generated dislike and ridicule among

the public, especially among the millennials and global materialists (Danziger, 2017).

Nostalgic compensators <c>

China’s economic transformation has been phenomenal, dramatically changing the lives

of 1.3 billion people. While some lose out in the transformation, most of them or their children

have benefited from the reforms. Some of them find the appeal of comforts of life that were

formerly unavailable to them (e.g., Western-style fast food) to be substantial. For example, in the

early years of the country’s reform, a farmer couple celebrated their wedding anniversary by

going to the Beijing McDonald’s for the first time (Watson, 2006). Today, McDonald’s and

other foreign fast food chains have proliferated throughout the country.

Nostalgic compensators are consumers who have overcome their humble past (i.e., they

are not poor) but are still less well-off than the global materialists (Hung et al., 2007a). They are

older and have less purchasing power for luxury brands than the other three groups.

Nevertheless, they are motivated to try luxury brands for two reasons. First, some of them like to

compensate for the lost years when they could not afford such purchases. Second, they may

engage in luxury consumption for nostalgic reasons, as some of their treasured memories are

linked to luxury brands. Their purchase motives for luxury brands are more likely internally

rather than socially directed. In addition, their luxury consumption time-frame is more likely to

be linked to the past. The two key characteristics in their consumption behavior are listed below.

Event-related justifications for high-ticket purchases. <d>

Nostalgic compensators need to justify the spending of their hard-earned wealth on

luxury brands. Accordingly, they are only willing to do so for special occasions. To this older

group of consumers, important festivals and family celebrations (e.g., weddings, the birth of a

child, important birthdays, etc.) are justifiable events. Interestingly, these consumers would

willingly accept luxury brands as gifts from their children, but the latter may need to conceal the

high price they paid.

Democratizing luxury consumption. <d>

Belk (1988) noticed that some emerging economy consumers replace (substitute) high-

price luxury products with low-price replicas of similar products. For example, to celebrate

festivities and important occasions, some consumers may use cheap champagne as a substitute

for a high-priced champagne. This practice is common and gives rise to copycat or look-alike

brands in emerging economies. Real-estate developers in Hong Kong (whose practices have now

spread to Mainland Chinese real-estate developers) have used this strategy effectively for the last

twenty years. Since the general public may not be qualified or willing to pay for expensive club

memberships (e.g., country club, golf club), the developers seeking to attract them build nice

residential clubhouses to provide a cheaper version of the prestigious and exclusive club

services.

It is important to note that this discussion may not cover all types of luxury brand

consumers in China. Rather, our aim is to highlight the potential links between motives and

luxury brand purchases in emerging economies. Again, we recognize the obvious bias in using

China as the country of reference; thus, our discussion is a mere beginning to the research that is

needed in this area. We hope this discussion will generate insights and ideas for future research

and professional practices.

Research and managerial implications <b>

Our earlier discussion highlighted several market characteristics of emerging economies.

Compared with mature, free-market economies, emerging economies are more dynamic, more

restrictive in the citizen’s mobility and are engaged in nation-wide reforms. Collectively, the

economic, social and institutional forces give rise to market characteristics that include diverse

regional markets, groups of gainers and losers, institutional by-products (counterfeits and

copycat brands) and overt consumption behaviors (cross-border purchases). As well, we

discussed the origin and emergence of four distinct groups of luxury brand consumers in the later

part of the chapter, paying particular attention to their choice of intrinsic and extrinsic goals and

the time-frame they use when they consider luxury brands. The final part of the chapter would

answer the “so what?” question; that is, the implications for research and marketing practices.

Research Implications <c>

We suggested that the global materialists, who attained their wealth through career

advances and prudent investment decisions, will be more intrinsically than extrinsically

motivated in their purchase of luxury brands. Further, they will assume the present-to-future

time-frame and use luxury brands as avenues to attain global exposure. The global materialists

can be contrasted with the millennials (generation 2), who will be more extrinsically than

intrinsically motivated in their purchase of luxury brands. They will assume the present-to-future

time-frame and use their luxury purchases to align with global trends.

Meanwhile, the nostalgic consumers, who have enjoyed economic gains and derive

satisfaction as they look at past events, will be more intrinsically than extrinsically motivated in

their purchase of luxury brands. As well, they have an affinity to local brands that they could not

afford earlier – foreign brands were not available before and did not comprise part of their

memory. The Tuhao consumers, on the other hand, who become suddenly rich, will be more

extrinsically than intrinsically motivated in their purchase of luxury brands. Although they will

also be influenced by the past, as nostalgic consumers do, Tuhao consumers will choose pricy

luxury brands without a detailed evaluation of their performance value.

The categorization of emerging economy luxury consumers into four major segments

provide a general framework to understand these consumers, their demographic profiles as well

as their motivations. Nevertheless, future research should validate these segments and

empirically examine the consumers’ underlying motivations and purchase behaviors.

Furthermore, as luxury brand consumption is context-based, future research should examine

these segments, motivations and behaviors in different countries and reveal the variants across

different cultural and temporal (e.g., in accordance to the evolution of luxe model) contexts.

As noted earlier, the characteristics underlying the millennials segment (i.e., extrinsically

motivated, present-to-future time-frame) have received the most research attention. Thus, further

research efforts are needed to examine the other three segments. In particular, the nostalgic and

Tuhao consumer segments that have a past-to-present temporal orientation need to be better

understood.

Related to, though not restricted to, nostalgia is the interests in local luxury brands among

emerging economy consumers. While past research tends to assume a global orientation in

luxury purchases, we noted in this chapter that local luxury brands have the potential to satisfy

some emerging economy consumers’ cultural/heritage needs and address their affinity to certain

memory and past events. Local luxury brands and the roles they play in emerging economy

consumers’ purchases provide a rich area for future research.

Finally, counterfeits and copycat brands are rampant in emerging economies and would

likely remain this way in the near future. We identified different motivations underlying

consumers’ counterfeit purchases as well as noted the authenticity issue (use counterfeits as

counterfeits, use counterfeits as the real brand) that affect how counterfeits and copycat brands

and perceived and used by emerging economy consumers. Nevertheless, these issues are under

researched and represent a gap in the literature that future research can address.

Managerial implications <c>

Today, luxury brands have developed effective marketing strategies in China and other

emerging economies; however, some are still puzzled by the unconventional and highly

culturally embedded behaviors of the consumers. We propose that luxury brands can further

improve the effectiveness of their marketing strategies by targeting the four key consumer

segments in the following ways.

First, for nostalgic compensators, luxury brands need to emphasize “performance” and

“price value” as their primary brand appeals as these appeals fulfill the consumers’ long-standing

need for product performance and value. However, in light of this segment’s stronger purchasing

power nowadays, the brand needs to position itself as a “prestigious” brand to justify their higher

price. The next set of appeals includes “technology”, “modernity” and “trendiness”, which help

legitimize the consumer spending. While they are not as pivotal as the primary ones, these

appeals help justify for nostalgic compensators that they are buying a contemporary, higher-

priced version of their once-loved brands.

As nostalgic compensators are less likely to consume to satisfy social motives,

“showiness” and “exclusivity” may generate negative feelings, and these appeals should thus be

avoided. To promote luxury brands to them, we instead recommend “renaissance marketing”,

“gift-giving” and building a “portfolio” (luxury nostalgia mix with conventional nostalgia

products) as key promotional approaches. In addition, given their humble past, we need to

recognize that these consumers are challenged by two purchase hurdles. The first challenge is

“overspending”; to overcome this, we recommend selling to them at major events (birthdays,

major festivals, etc.). The second challenge is to avoid being “showy”, and this issue needs to be

addressed in both product packaging and advertising messages.

In many regards, Tuhao consumers represent the opposite extreme from the nostalgic

compensators. Brands targeting Tuhao consumers need to appeal to them using “showiness”,

“exclusivity” and “prestige”. For these consumers, the need to show-off means a high price is a

must, while anything that emphasizes price value is frowned upon. The secondary brand appeals

include “technology”, “trendiness” and “global acceptance.”

Given their strong purchasing power, the brand needs to be promoted as “attention

grabber”, “highly visible” and “a social display.” In this regard, event-based promotion would be

highly preferable. These events should comprise opportunities for these consumers to display

their product ownership. As mentioned earlier in the chapter, Tuhao consumers would regard

returning to their home village for the Chinese New Year as the most appropriate occasion to

show off. In addition, these consumers may use the luxury brands to “nurture” or “reciprocate”

personal and business relationships (called guanxi in China or blat in Russia); thus, “gift-giving”

can be an important promotional emphasis. These consumers may prefer to leave the price tag on

the gifts as a way to show off. There are two potential purchase hurdles, which are “price-value

justification” and “portfolio” (mix of high and low price products). Marketers should not

emphasize such messages in product packaging or in-store promotions.

Next we turn to the millennials, or the Generation 2 consumers. Compared with the two

former groups, these consumers do not have strong purchasing power themselves. Instead, they

are well supported by their parents and grandparents. These consumers are young people who are

heavily influenced by their peers. As they eagerly search for their identity, they will likely use

luxury brands to construct their social selves, as postulated by Belk’s extended-self model.

Accordingly, we posit that the primary brand appeals would be “peer acceptance”, “trendiness”,

“technology” and “globalness”. This can be illustrated by Xiaomi, a local Chinese cellphone firm

that has turned global. The brand is highly acceptable to these consumers, because Xiaomi

successfully posits itself as an internet company to avoid being perceived as a “low-price” cell-

phone brand among the global competition. The firm continues to develop premium sub-brands

(RedMi) and globalize its operation (opening stores in Europe) so as to capture these consumers.

To millennials, the secondary brand appeals are “performance,” and “prestige.” These

appeals confirm that they make the right brand choice when they purchase the brand. “price-

value” is also needed, because many of them come from mid-income families.

In promoting brands to these consumers, we recommend using “celebrity endorsement”

and “social acceptance” approaches. In doing so, the brands can show themselves to be highly

respectable (because celebrities endorse and use them) and socially acceptable (because the

consumers’ peers find the products appropriate). In most cases, the celebrity has to come from a

similar age group as the millennials or a group of entertainers and sportspersons they aspire to,

whereas older celebrities would be frowned upon. As for purchase hurdles, we recommend that

marketers pay attention to the brand’s “local image” and its “showiness”, as we believe these

appeals would be negative for this consumer group.

Finally, let us turn to the global materialists, who highly regard global trends and

enjoyment in their purchases. We posit that the primary brand appeals for this group are “high

performance,” “peer acceptance” and “globally trendy.” In addition, “technically advanced” and

good “price value” would appeal to these consumers. The secondary appeals would include

“modernity” and “prestige.” As mentioned earlier, these consumers are intrinsically motivated;

thus, “showiness” and “exclusivity” would be negative appeals to them.

In promoting brands to these consumers, we recommend that firms emphasize “global

trendiness” and “new technology”. Event-based selling with nostalgia marketing should appeal

to these consumers. They may also look for good “price value” and a “portfolio” (mix of old and

new) in their consumption baskets. However, “high-price celebrity endorsement” and

“showiness” would likely be wasteful, as they would not appeal to these consumers.

For ease of comparison, we summarize the aforementioned implications in Table 7.3.

This should help luxury brand owners to better position their brands and promote the brands to

different consumer groups.

Table 7.3

Managerial Implications

Group Brand Appeals Promotional Considerations

Nostalgic Primary Appeals Promotional Emphases

Compensators - Performance - Renaissance/nostalgia marketing

- Price-value - Strong gift market (for elderly)

- Prestige - Price-value justification

Secondary Appeals - Pride through peer-referencing

- Technology - Experience in lifetime

- Modern/fashionable - Portfolio (mix of old & new)

- Global trend

Negative Appeals Purchase Hurdles

- Socially showy - Event-based legitimization

- Exclusivity - Avoid flashiness (as wasteful)

Tuhao Primary Appeals Promotional Emphases

Consumers - Socially showy - Pride/flashy – socially

- Exclusivity -Visible – socially (large brand logo)

- Prestige - Once in a lifetime

Secondary Appeals - Event-based legitimization

- Technology - Some gift market (guanxi)

- Modern/fashionable

- Global trend

- Performance Purchase Hurdles

Negative Appeals - Price/value justification

- Price-value - Portfolio (mix of old & new)

Millennials Primary Appeals Promotional Emphases

(Generation 2) - Technology - Globally trendy

- Peer acceptance - Social acceptance

- Modern/fashionable - Contemporary celebrity

- Global trend - Heavy event-based promotion

Secondary Appeals - Some gift market

- Performance - Portfolio (mix of old & new)

- Price-value Purchase Hurdles

- Prestige - Price/value justification

Negative Appeals - Too local/outdated

- Socially showy - Too showy to be socially rejected

Global Primary Appeals Promotional Emphases

Materialists - Performance - Globally trendy

- Peer acceptance - New technology

- Global trend - Event-based promotion

- Price-value - Some renaissance appeal

- Technology - Price/value justification

Secondary Appeals - Pride through achievement

- Modern/fashionable - Portfolio (mix of old & new)

- Prestige Purchase Hurdles

Negative Appeals - Too showy to be socially rejected

- Socially showy - High pay celebrity

- Exclusivity

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