TheStore Newsletter 006 Luxury in China

8/2/2019 TheStore Newsletter 006 Luxury in China

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Luxury InChina:

Goldmine orMinefield?


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ii. What Luxury Means in China

iv. A Simple Segmentat ion, Key Implicat ions

v. Finishing Tips

i. Set t ing the Scene, Some Facts & Figures

iii. The Cultural Context


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Luxury brands in China today have

a problem.


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It s a tangled glob of glit ter!


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Brand Different iat ionis in its Infancy


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Consumer Dif ferentiat ion of Luxury Automobiles: Anyone can st il l beanything differentiation still minimal.

Source: TNS, Luxury Brands and Middle Class Chinese, Online Survey, November 2006.

Brand Personalities are Not Perceived Clearly


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If you arenot t he No. 1 brand, even

if you are No. 2 or No. 3, t he oddsare your fingers will be burned

- Ivan Kwok, Bost on Consul t ing Group, Hong Kong


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I t s

huge,

As a luxury market

cluttered,

Uneducated

and slow


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And yet the facts

are excit ing


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rdlargest consumer of luxury goods in the world(after Japan and the US)

Source: KPMG 2006


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Chinese Millionaires Today*

Source: Merrill Lynch, Wealth Report, 2006*USD


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Chinese Who Can Afford To Buy Luxury Brands(expected to grow to 250m by 2010)

20102.5

Source: China Associat ion of Branding St rategy, quoted in China: The New Lap of Luxury, Ernst and Young, 2005


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Market Where Men Consume Much More

Luxury than Women

Source: Merrill Lynch, Wealt h Report , 2006

This is the


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Luxury Market in the World

Source: Merrill Lynch, Wealt h Report , 2006


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The Richest Men in China

RANK NAME WEALTH AGE

1

2

3

4

5

Huang Guangyu

Xu Rongmao

Yan Jiehe

Timothy Chen Tianqiao

William Ding Lei

1.70 billion

1.50 billion

1.45 billion

1.25 billion

1.20 billion

36

45

32

34

55

3 out of 5 are in their 30s53

Source: Hurun Report , 2006


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Average Age of Richest Men

Europe

China

60 47Source: Merrill Lynch, Wealth Report, 2006


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Stage 1 Stage 4Stage 3Stage 2 Stage 5

Source: The Spread of Luxury Model, The Cult of t he Luxury Brand: Inside Asias LoveAf fair wit h Luxury, London,2006

Subjugation way of lifestart of money show off fit in

INDIA

CHINA TAIWAN, S KOREA HONG KONG, SINGAPORE

JAPAN

China is at the Tipping Pointof the Luxury Explosion


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ii. So What Does LuxuryMean to the Chinese?


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Luxury in China

isn t new

Since ancient t imes, precious materialsand obj ects have been used to signify

status


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917 2007

Flashy Luxury is st il l used as a primaryMarker of Status


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SIGN

Signifier

Signified

Luxury in China TodayPrimarily MakesSocial Statements


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(SIGN)

(Signif ier)

(Signified)

Luxury Consumpt ionof Diamonds

MyHusbandis Rich


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Luxury Consumpt ionof Cognac

Werethe elite

(SIGN)

(Signif ier)

(Signified)


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Luxury Consumpt ionof Watches

I msophisticated

(Signif ier)

(Signified)

(SIGN)


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Luxury in China isfundamentally dif ferent

from in the West


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Internal

External


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Cross-Category Learnings: Shower Gel

Europe

Indulgent Experience

Joy of Showering

Fa,Clairol

(Herbals , Fragrances)

Asia/ China

/Good for skin

Beautiful skin

Dove, Olay

(Moisturizing Cream, Milk)


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Self-Actualization

Prest ige

Belonging

Safety

Physiological

IconicStatus

Admiration

Affiliation

West Asia/ China

Maslow s Hierarchy of Needs and its Asian Equivalent

Source: Consumer Behaviour in Asia, Hellmut Shutte with Deanna Ciarlante, Macmil lan Business, 1998

Safety

Physiological


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The Chinese Love Luxury

think luxurybrands denote

Success

think luxurybrands denote

Superf iciality

Source: TNS, Luxury Brands and Middle Class Chinese, Online Survey, November 2006.


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Vs.

Vs.

And t hey l l pay a premium for publ ic consumpt ion

local brand technology

in-home

lower priced

ice-cream in-home


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Penet ration (%) across consumpt ion locat ion (Beij ing)

Yanj ing Budweiser Entertainment Outlet 20 33

Premium Restaurant 10 12

General Restaurant 83 7

Home 76 -

Brand imagery Budweiser Zhuj iang

Suitable to be consumed in a nightclub 12 -17

Suitable to be consumed with friends -1 0

Suitable to be consumed at home -7 14

Cross-Category Learnings: Beer


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The Chinese relat ionshipwit h luxury at t he moment

is purely funct ional, not yet

emot ional

- Former Marketing Manager, Chanel, China

Luxury:

t here s no pointhaving it

unless t here s apay-off


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That s why the

visual natureof a brand is so

important


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On Visual Cult ure

aside number one


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From childhood onwards, theChinese mindset is trained to

appreciate the nuances ofvisual symbols as cognit ive aids


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As a result, when it comes to brands, the

Chinese are some of the most visuallytuned-in consumers in the world


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The logof icat ion of bags wast he single most import antfactor in spreading the luxury

brand mania in Asia

Logo- Radha Chadha and Paul Husband, The Cult of theLuxury Brand: Inside Asias Love Affair with Luxury,

London,2006

We all know logos are

import ant here

Logo

?


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1Acronyms and Symbols

help tomake sense

of the big, confusing,

j umble of English brand names

PronounceableMemorable

But Why?


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2They have the benefit of instantrecognit ion the all-important

visual project ion

of status


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[ ]

But Now

Understatement is startingto matter more and more


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There are other ways toofor a brand to visuallyestablish it s uniqueness


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Symbol as logo


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Colour


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visualtexture


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Shape


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distinctiveadd-ons


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Detail


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iii. The Cultural Context


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The Confucian Conflict:RegimentationVs.Ambition

Vs.


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Regimentation Ambition


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Order

Hierarchy

Respect

Humility

Discretion

Preserving Face

Chineseness

Heritage

Tradition Rules

Harmony

Ego

Show

Sex Appeal

Energy

Pride

Drive

Irreverence

Innovation

Rule-breaking

Internationalism

Quirkiness

Vs


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want ing tofit in

and respect the

rules of society

but alsostand outand

demonstrateyour success

This means


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The use of Luxury today stillSignif ies Status

in this deeply structured and rigidly hierarchical society

, ,


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Equally importantly, Luxury Brands todayalso help you

get ahead


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Luxury inChina

Is

atool


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HSBC creating roads for you


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Bank of Communicat ions opening doors for you


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China Minsheng Bank be the centre of at t ract ion


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Ballantine s lubricat ing the corporate-success lifestyle


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Within this context, Luxury Brands need to be Enablers


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iv. A Simple Segmentation

Underst anding t he Core Conf l ict t hrough Luxury

Buyers in China

Th


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The

Established

New Luxury

Independent Women

Youth


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The Establ ished

New Luxury

IndependentWomen

Youth

* Note: These are qualitative estimates only


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The Established

1


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I need to demonst rat e t hatI belong at t he t op

but t here are always young upstart sangl ing for my posit ion

[ ]Luxury should be about Connoisseurship and Mastery

Key Implicat ion?

What does luxury mean


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What does luxury mean

to them?

- It reflects knowledge andsophist icat ion

-

- It shows an understanding of t hef inest in al l t hings

-

- It is a way of exert ing power andcontrol

-


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Lexus At the Pinnacle (not dynamic enough)


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Cadillac Ultimate Control


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Royal Salute Competitive Mastery


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Cadil lac Crafted Connoisseurship


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Hennessey XO Timeless Connoisseurship


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Breit ling and Bent ley Celebrat ion of Perfect ion


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Chivas 18 Indulgent Connoisseurship


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By the way, this is also the segment most likely

to be indulging their wives (tai tais)

and mist resses (er nais)


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On Madame Maint enance

aside number two


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After the male-skewed topsegment , t heer nais of China havebeen the second maj or f orceresponsible for t he growt h ofluxury in China

- Radha Chadha and Paul Husband,The Cult of the Luxury Brand: Inside

Asias Love Affair with Luxury,London,2006


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Luxury consumpt ion amongsecond wives and mist resses ishighly compet it ivebrandsbecome a symbol of power, t o

be wielded over a t ime-sharing husband or lover

- Radha Chadha and Paul Husband,The Cult of the Luxury Brand: Inside

Asias Love Affair with Luxury,London,2006


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The kinds of brands a man wil lbuy for hiser nai are completelydif f erent f rom what he l l buy hiswife theyll be much flashier,sexier

-Marketing Manager, top five internationalluxury label, Shanghai


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NewLuxury

2


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I need to move up t he hierarchy but myambit ions can t be t oo blat ant

[ ]Luxury should help me Shine,

but through Substance

Key Implication?

What does luxury


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mean to them?

- an important way of demonstratingprogress

-

- ref lect s balanced discernment in otheraspect s of l i fe

-

- a reassurance t hat new money doesn thave t o be uncouth/ t asteless

-


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BMW ii respectful progress


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BMW I personal elegance, personal substance


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Mart ell XO achievement through substance


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Tag Heuer achievementthrough inner met t le


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Hennessey VSOP unleashed personal creat ivit y


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X Drive inner spirit of adventure


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Ford Mondeo ambit ious aspirat ion


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Ford Mondeo achievement despit e rebellion


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Dunhill My Style as

Achievement


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Both these male segments tend to

be heavily involved in the Chinesepract ise of business gif t ing


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On Business Gif t ing

aside number t hree


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Guanxi is t he single biggest fact or for spurring

the growth of the luxury market in China

- Radha Chadha and Paul Husband, The Cult of the Luxury Brand:Inside Asias Love Affair with Luxury, London,2006

Confucian heritage

dictates that the

Guanxi


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dictates that theindividual s posit ionis determined bytheir externalrelat ionships with

society

Guanxi in modern China is a system oft ki th t th l t i hi


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Guanxi in modern China is a system ofnetworking that manages these relat ionships

through reciprocal favours, rewards and

recommendat ions for

business and personal gain


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Grey money is t he perfect amniot ic f luid

for any luxury brand market t o develop in


Business gif t ing count s for around


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of Chinese Luxury Consumpt ion today

In our shops, you wil l oft en see t wo guysshopping one guy choosing product s, t he

other wil l j ust sit and read, and then when

the things are being wrapped up, he willd Y b i b i


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come and pay. You bring your business

contact t o t he shop, i t s not as blat ant asa red envelope wit h cash, but youbasical ly say, let me buy you a jacket

- Tim King, Managing Director, Richemont Luxury Asia

Pacific, Alfred Dunhill division

classic

gif table itemswill always


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gif table itemswill alwayssell wellin China


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IndependentWomen

3

I want t o advance as a modern woman, but as a Chinesewoman I can t sacrif ice my gent le femininit y


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[ ]Luxury should help me Sparkle, not Shine

Key Implication?

What does luxury

mean to them?


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- a reflection of modernity, refinementand good t ast e

-

- allows me to say I mean businesswit hout having t o say it

-

- opens doors wi t hout aggression-


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Dior J adore sexy self -knowledge


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DTC total control wit h total elegance


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Hugo Femme femininit y wit hin


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Dior Rouge equal, yet unmistakeably feminine


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DTC unintentional sparkle


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Longines uncompromising feminine elegance


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Youth

4

I want t o be in but I don t have t he means yet


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[ ]Luxury should be Accessible

Key Implication?

Knowledge Money

Connect ions

What does luxurymean to them?


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- ref lect s savviness andconnect edness

-

- helps express t hat I have my sight sset high

-

- gets me not iced by t he right people-

I know girls from very modest backgrounds in China who will goto Hong Kong to buy their luxury bags they ll hole up 4 or 5 to ahotel room, carrying a stock of instant noodles with them for the

whole trip and then they will return to China with 4 or 5 Louis


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whole trip, and then they will return to China with 4 or 5 LouisVuit ton or Gucci bags and no more savings. This is the state of

luxury in China today

- Wendy Zhou, former Brand Manager,

Davidoff, China

22-27


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of Chinese aged 22-27 spendtheirent ire mont hs salaryevery month

36% of Chinese aged 22-27 spendmore t han they earn

15%

Source: ht t p:/ / news.xinhuanet .com/ engl ish/ 2006-07/ 21/ content_4863118.htm

Youth Market : A Huge Opportunity


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But Few Are Doing it Well


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Hugo barriers are inconsequential


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Hugo personal style, born of personal choice


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Tag Heuer aspire tothe top


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Omega accessorize your modernity (ballet)


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Miu Miu accessorize your modernit y (clubbing)

the super-rich*

only count for

less than 0 02%


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less than 0.02%of the population

0.02%

St aying accessible is crucial

in such a young and upwardly mobile market

*USD millionaires


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Affordable Access


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Herms in China now do bracelets and mobilephone accessories


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Yohj i Yamamoto sell out of leatherorganizers, belts, coin purses


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And Gucci in Shanghai is a

mecca of accessories

Don t only t arget high net wort h individuals every middleclass Chinese wil l save money to pay for high-pr iced it ems


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- Nanda Grif f ioen,Consumer Planning Direct or, Diageo China


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vi. Three More Tips

Come in Big


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Educate

Innovate


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Come in Big

but protect your exclusivity

Visibility is Crucial


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A luxury brand in China represent s middle class

aspirationsso you can t af ford to be t oohidden

- Nigel Luk, MD, Cart ier, China

Internationalism Rules

What t hey are buying is


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internat ional success. Neverdilute your West ern

credentials

- Radha Chadha and PaulHusband, The Cult of the LuxuryBrand: Inside Asias Love Affair

with Luxury, London,2006

First impressions real ly count here. You don t get a second chance

Aim High


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- Market ing Manager, Shanghai

Makes Cars You Would Be Proud To Own

-20 -10 0 10 20 30

B i k

Audi


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FAW-VW

Shanghai VW

Ford/ChangAn

Ford

HyundaiNissan

Toyota/ FAWToyota

MazdaHonda

Buick

Source: 2004 Synovat e car t racking


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Educate

Everyone is st i l llearning, (event hose who are working

Through product


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wit hin the indust ry)

()

- Former Market ing Manager, Chanel , China

History & Heritage

Process & Technique


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Ingredients & Provenance

And through Lifestyle

Lifestyle stories like the Chivas life have had runaway success in China


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Teach how to LIVE the


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luxury l ifestyle

How do you eat f ish eggs?


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Innovate


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LV doing chess and mah-j iang setsin China

LV


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Vertu teams up with Boucheron to of fer an expensively bej ewelled mobile

VertuBoucheron

Innovation

of your product, brand,and communicat ionswill help you stay

one step ahead


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pand ensure your brand doesn t end up in unexpected

places

Being seen as j ust as up-t o-dat e is crucial in China


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Counterfeiting


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the wrong hands


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Rolex Old chunky gold , and fake watch, imagery

difficult to shed


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Id never wear a Rolex now, i t sassociated with the first boom of the

newly ri ch

- CEO, nat ionwide company, 39,Shanghai

Potential solutions: Remind consumers of the inherent quality,craftsmanship and heritage of your brand


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And align the brand with the highest levels of achievement

Enabling Tool Wit hin Cult ural Cont ext

The Establishment :Mastery & Connoisseurship

To sum up


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AndLogoficat ion, Tai Tais and Guanxi

Youth:Accessibil i t y

Come in Big

Educat eInnovate

New Luxury:Substance not Flash

Women: Sparkle not Shine


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ThankYou

Documents

TheStore Newsletter 006 Luxury in China