Chinese consumer mentality

Chinese Luxury Market looks after its own

Isaac Mostovicz writes that home-grown Chinese brands may have the opportunity to overtake their European counterparts in the near future...

A recent article in Black Friday Magazine talks about how, for the first time, luxury Chinese brands could be overtaking overseas companies in terms of popularity with their domestic audience. The old guard of Hermes, Gucci and Louis Vuitton could see themselves ousted by Chinese luxury brands like Shanghai Jahwa United, which sells highly regarded yuan perfumes, and Eve Group, which offers luxury menswear to high-profile customers such as martial arts actor Jet Li.

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The article goes on to discuss how Chinese consumers are becoming more interested in reattaching themselves to their country’s heritage and culture, so there could be significant opportunities for domestic brands looking to take a slice of the $33 billion luxury market.

“China’s manufacturing was very backward 30 years ago, and consumers worshiped and pandered foreign goods and ideas,” Jahwa Chairman Ge Wenyao said. “Foreign products are still good but the aura surrounding their brands is no longer there.”

A previous post in this blog talks about the new standard for “Made in China” goods, where brands are committing to providing quality goods for its domestic consumers. It will be interesting to see if China is able to produce some home-grown luxury brands that in time will appeal not only to the Chinese audience but have global allure.


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Online Chinese luxury market looks set to soar in future

Isaac Mostovicz writes that Chinese consumers will buy more luxury goods online in the future, according to a new report ...

A recent article in China Daily reports that for the first time, the e-commerce luxury market in China has exceeded 10 billion yuan (USD 1.59 billion.)

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The article, citing research by the firm iResearch Inc., sees this success looking set to continue expanding at 30% year on year over the next several years.


Previous blog posts have discussed the seemingly unending Chinese love affair with luxury goods, and this research shows that sales through luxury brands online have surged by nearly 70% compared with 2010.


However, although growth looks set to continue in the future the market is by no means as developed as it could be. As of last year, the turnover of luxury goods accounted for only 1.41 percent of China’s total online shopping industry.


“So far, China’s online luxury market remains small. We are waiting for it to explode,” Chen Xiao, founder of the luxury goods selling website, told Chinese-language newsmagazine, China News Weekly.


High tariffs, consumption tax and import duty all contribute to the market being currently underdeveloped. Whether this is set to continue or the Chinese love for luxury will overcome these barriers remains to be seen.



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Diamonds are Forever… in China, at least

Isaac Mostovicz writes that the Chinese luxury market goes from strength to strength, even as demand in the Eurozone languishes...

In the wake of diamond producer De Beers’ recent profits, an article in Finance Asia states that even a recession will not impact the growth of the global luxury market.

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The research company CLSA predicts that whilst the rest of the world is tightening its purse strings, the global luxury market will increase by 8% during 2012, largely driven by the appetite of the Chinese for luxury items – where it is predicted to grow by 25% by the end of the year.


“We think that the demand for luxury goods in China and Asia is driven by the rise of the middle class, and that is a structural story,” Aaron Fischer, Asia-Pacific head of consumer and gaming research at CLSA, told FinanceAsia in a telephone interview last week.


Fischer added that even if the economic slowdown were to impact the Chinese market directly, this would have no impact on their consumption of luxury goods.


Fischer’s team carried out this analysis based on the Japanese market, which in the past experienced a very similar explosion of luxury goods consumption. However, it acknowledged that the Chinese market has far more room for growth due to the increased number of outbound Chinese tourists travelling to luxury European hotspots like Paris, London and Milan.


Hong Kong has attracted multiple IPOs from Prada and Samsonite amongst other international luxury brands, all attracted by the successful Chinese growth story. But not all Chinese are welcoming the increased presence of luxury brands in their country, as it does highlight the growing income gap between rich and poor. Reportedly, Beijing has put in place controls around luxury advertising, asking companies to remove words such as “luxury,” or royal from their marketing materials.


Yet there’s no doubt that China is still one of the strongest markets in terms of demand for luxury goods – with Latin America, the Middle East and other emerging markets following not far behind.


“I don’t want to rule out Latin America and the Middle East. They are attractive markets as well,” Fischer said. “And over time there’ll be more opportunity in India and Indonesia, and some other Southeast Asian countries like Vietnam.”




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Chinese luxury brands on the rise

Isaac Mostovicz writes that Chinese consumers are driving a surge in home-grown luxury brands...

As I discussed in a previous post, Beijing recently banned advertising in the capital that promotes hedonism or used the word luxury. However, according to a report by Reuters yesterday, this doesn’t appear to have affected a surge in home-grown luxury brands, thought to be driven by a desire from Chinese consumers to seek out goods that emphasise their culture.

Western luxury brands have on the whole experienced strong sales from the Chinese market in recent years, with consumers buying into the perceived heritage and exclusivity that the brands represent. However, with China expected to be the world’s biggest luxury market within five years, Chinese culture and preference cannot be ignored. More than 100 second-tier cities have populations with more than 1 million people and consumers in these cities have both the buying power of their tier-one peers and an interest in luxury brands, according to a report by PricewaterhouseCoopers.

Hermes last year launched its China-focused label Shang Xia, and the trend is set to continue.

That’s not to say sales of Western luxury brands in China will decline, according to Reuters, Sunny Wong, managing director of Hong Kong-based Trinity Ltd, said: “Luxury means heritage and it takes generations to build heritage. The Chinese customers want heritage brands — they want the story, they want the history.” It seems Wong is referring to Lambda personality types, who are likely to make choices based on how it will help them stand out, and how a decision benchmarks them against others. Western luxury brands are still very much a status symbol in China.

While focus for Western brands has traditionally revolved around marketing, now it is turning to the products themselves, presenting a new challenge for Western luxury brands.

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Part 2: Theta-Lambda Mentality of the Chinese Consumer

Isaac Mostovicz writes that there's more to explore on the dual Theta-Lambda mentality within the Chinese luxury market...

In my previous blog post, I talked about China’s young luxury population and the Chinese consumer pyramid. We also looked at how Tom Doctoroff’s ‘Confucian Conflict’ model of Chinese mentality parallels with my own Theta-Lambda theory on luxury consumption.

Acknowledging the fact that of course not everyone can fall neatly into one category and certainly, I am not saying one should be completely Theta or Lambda. What is still peculiar but altogether fascinating here though is the fact that Chinese consumers, if not all, but majority of them have this Theta-Lambda duality ingrained within their consumer consciousness. If we look at the study below, it might perhaps shed some more light on this:

Added Value did an interesting study where they had two variables which defined where a country was placed in terms of luxury. One axis was from maintaining to transforming lives, and the other was from inner to outer motivation. And in the transforming and inner motivation you have Japan, then you have the UK, which is about maintaining inner motivation, the US is in maintaining and outer motivation, and China in transforming and outer motivation. So Japan is about confidence – ‘don’t be shown up’, the UK is about pleasure and knowing, USA is showing you know/status and China is about showing and status but also moving forward in society.

Here we can see that the UK has a more Theta-like tendency; being more comfortable in the sphere of knowing and belonging with others, whilst the USA possesses more of a Lambda tendency; more motivated by externally displaying knowledge and status. China’s showing and status is a Lambda quality; showing off what you have achieved and differentiating yourself by being one of the few to be on top of the pyramid. However, status to the Chinese can also be interpreted as fitting in, belonging with your fellow peers. As Doctoroff puts it, you can’t be blatant in your ambitions, you can’t ‘crash through the gates’ because there are rules to observe and follow. You can say this is the Chinese way of being a Lambda but in the fashion of a Theta. It is then not surprising that what makes a ‘luxury’ brand in China are its benefits externalized.

Luxury, says Doctoroff is a tool, a means to an end and because the luxury segmentation in China is so diverse, it becomes a more important tool than ever. This again goes back to idea of the Chinese’ ‘Confucian Conflict’, of wanting to ‘play in the game.’ This statistic by TNS shows this difference in perception of luxury goods:

According to TNS, 64% of Chinese think luxury brands denote success, and only 1% think they denote superficiality.

In China, luxury brands are synonymous with success, yet they do not share in the western fear of fake luxury taking sales away. Instead, a brand that is copied substantiates the brand’s luxury status. However, because luxury goods are synonymous with success, it becomes even harder for someone to pull off wearing a fake.

Anybody that has the money to buy a luxury brand would not be caught dead with a fake.

Chinese can tell very quickly if something is real; it would be a huge loss of face to be discovered with a fake.

In order for luxury brands to succeed in the Chinese market, they must have mass media exposure, must be big and omnipresent and in the right stores in the right locations. Physical presence is also important so you must have an overseas marketing department; you cannot import your content and it cannot be done digitally. Education of your luxury brand to the public is also imperative, as well as the ability to demonstrate innovation of your luxury brand. The idea of a mass media exposure on the public very much hones into Theta personalities, because it’s telling them that everyone else will have this and in following this trend, you desire to belong with this group of people. But it also appeals to the Lambda side of the Chinese consumer because it is so in your face and because the public would have been educated of this particular brand, they would know just how successful you are.

In summary, we’ve explored Doctoroff’s Chinese model of mentality, his ‘Confucian Conflict’ and found how very important it is for a luxury consumer in China to exercise this when buying luxury goods. In addition to this, we have also seen how this ‘Confucian Conflict’ comprises of essentially the same two parts as my Theta-Lambda dichotomy, but here they co-exist in a more symbiotic relationship, and what’s more, it is the majority of the China’s population who subscribe to this luxury, symbiotic mentality.

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Part 1: Theta-Lambda Mentality of the Chinese Consumer

Isaac Mostovicz writes that Doctoroff's 'Confucian Conflict' model parallels with Theta-Lambda dichotomy...

Luxury Shopping CenterI came across a very interesting piece by Tom Doctoroff in the Huffinton Post. Titled ‘The Confucian Consumer and Chinese luxury: FAQs’, it explores the differences of the Chinese mentality on luxury goods and how establishing a luxury brand in China should also be implemented in an approach that is reflective of this. China’s continued economic growth and effect on the global market has become so prominent that it has become a recurring theme in many of my blog posts, with looks at its effect on the diamond market, property market, auto market and even art market. Therefore, Doctoroff’s FAQ comes at an opportune time to explore the mentality behind China’s booming economy alongside my theory of the Theta-Lambda relationship.

According to Doctoroff, China’s luxury population is very young because it is a very ambitious society. The Chinese adhere to an ideology which he calls the ‘Confucian Conflict’, regimentation vs. ambition for innovation. This conflict is very similar to the Theta-Lambda persona. China’s regimentation parallels Thetas’ own importance on comfort, affiliation and belonging, while Lambdas’ search for challenge, achievement and differentiation are synonymous with China’s ambition for moving forward.

Unique to this Chinese mentality is their desire to maintain this conflict, this ying-yang balance.

Individualism in China (in the sense of society encouraging individuals to define themselves outside of that society) doesn’t really exist here. But on the other hand, ego – the demand for acknowledgement – is very powerful.

Doctoroff further says that luxury goods in China are a sign of the consumer’s intention to ‘play in the game’, to become a potential competitor for that spot at the top. What we are seeing here is a very strong Lambda trait of that need for acknowledgement.

Despite having this ‘Confucian Conflict’, Doctoroff describes what can only be a Chinese consumer pyramid. At the top you get your most elite, but to stay on top, he must have reached a high level of mastery and connoisseurship that he can ultimately demonstrate and manipulate however he wants.

An example would be Audi 8, where you’re establishing a parallel between the craftsmanship and attention to detail and ancient Chinese art. So again, it’s for somebody that has truth and ultimate mastery.

This somebody could well be a Theta because of its high emphasis on truth, unity and brilliance. Next down the pyramid are men who are moving forward whilst in the middle of their journeys. Then we have the independent women and at the widest point, we have the youth.

So for the people on top – and this gets back to the resolution of the Confucian Conflict – it’s about a need to tick competitors away who are angling from below to maintain their position at the top. It’s a way of subtly exerting power and control…So then you move into new luxury, and these are people that need to demonstrate they shine through, but always through substance – because they can never be superficial. Their complex is that they need to move up the hierarchy, but their ambitions can’t be too blatant. This is not a space where you crash through gates; rules are sacred. So it’s a way of demonstrating progress, a reassurance that new money doesn’t need to be uncouth.

Again, this model of behaviour takes parts from both Theta and Lambda personalities. You are ambitious and seeking achievement in the highest form possible, yet you are not ostentatious in the respect that you still observe social boundaries and rules for fitting in, if still only in appearance. This is very different to trends in Western culture where society encourages individualism and western marketing reflects this. It is for this reason that a western marketing approach to China’s consumers will just not work. You can’t have a ‘western individualistic messaging’ approach to a culture where individualism is not emphasized or in existence.

Photo: Flickr

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