Selling luxury goods in china
With most Western markets still recovering from recession, many marketers are tempted to look at China as their favourite bright spot. This is of particular importance for the luxury goods sector. Research by McKinsey reveals that by 2015 China will be home to the world’s fourth largest population of wealthy households. McKinsey also reports that about 80% of China’s 4.4 million wealthy people are under the age of 45 (versus 30% in the US).
Not only are Chinese consumers eager to spend. They are doing so in great quantities and will do so even more in the future. Luxury goods, which according to Bain & C°, a research consultant, reached an astonishing $ 9.6 billion sales or 27.5% of the global market in 2009, are expected to overtake the US as the world’s nr 1 luxury goods market by 2015 with forecasted sales of $ 14.6 billion. This figure matches the one disclosed by Ruder Finn Asia in their 2009 China Luxury Forecast report claiming that in Greater China at large, more than half of the respondents declared to intend increasing their purchase of luxury goods. The good news is that Chinese consumers appear to be remarkably brand loyal, with nine out of ten sticking to their preferred brand. Among favoured global (luxury) brands, veteran names like Louis Vuitton and Cartier have been joined by many new entrants since they first tapped the market in the early 90s. Audi for example witnessed a jump in sales of 42.5% y/y in 2008 and that same year, China was the largest outlet for Hennessy brandy.
But such achievements don’t come easy. China-expert Jeanne Boden (www.chinaconduct.com) in her book “Mindmapping China” implies that building expectations on flourishing marketing data is one thing, implementing a successful approach of the Chinese market is a totally different ballgame. Building a brand position in the country is a matter of patience, trust building and a healthy amount of prudence. Indeed, marketers dealing with Chinese businessmen have learned to approach their counterparts with utmost carefulness. Whilst it takes two to tango, realising that being considered outsiders doesn’t contribute to a long-standing relationship, if only because of cultural divergence. Nevertheless, showing an understanding of Chinese cultural attitudes – and making it clear to be committed to doing so - often helps to be taken seriously.
The vast size of the China (covering 5 different time zones with bewildering regional differences) can lead to unrealistic expectations. Marketers are used to divide the country in 10 different tiers, based on size, sophistication, purchasing habits and attitudes, disposable income (varying widely from $ 8,000 in tiers one, down to $ 800 in the lower tiers), distribution patterns, etc The regions most open to sophisticated foreign brands - and thus the easiest to enter - are the urban areas around Shanghai (15.5m inhabitants), Beijing (12.2m) and Guangzhou (10m), home to China’s wealthiest populations, also providing the most sophisticated distribution systems. This is where the global brands are best known and thus appreciated for their status and display value.
Another word of warning: trying to catch a piece of China’s $ 1.153 billion retail sales (measured during the first 8 months of 2009 only) mass market can be tricky. Purchasing power (GDP $ 6778) of the large majority (in particular living outside of urban areas) remains low for international standards and even those with above average spending power will do so in a rather conservative manner.
Benchmarks to judge the Chinese market in terms of advertising investments remains difficult to assess. According to J.Walter Thompson, the importance and impact of the Chinese marketing communication scene is distorted because of heavy discounting. In reality, the market is polarised between people trying to build a price premium for a brand and commoditized players frenetically competing on price. Consumer media investments are believed to hit $ 45 billion (2010) and growing at double-digit rates. Indeed, the Asia-Pacific region is expecting to reach a full quarter of global media investments by 2012 and China will overtake the UK investment level this year.
Another remarkable factor is the importance of one-to-one marketing, in particular through digital media, underlining the role of the internet in China, both for the distribution of messages as from an e-commerce perspective (China has the largest number of mobile phone subscribers and internet users in the world). One problem here again: consumers are hesitant purchasers online since they like to be able to touch and inspect the products they intend to order.
So, what are the rules for addressing the Chinese consumers? Jeanne Boden underlines seven of them: 1) stress tradition (products are expected to have a history), 2) underline family values, 3) Chinese are enthused gamers (contests in shopping malls), 4) Chinese letter types are complicated to adapt to brand names (BMW is bâo mâ meaning costly horse, Adidas’ tagline in Chinese becomes: “Go for the challenge, show our families that we thrive”), 5) Blind admiration for all Western is a thing of the past but quality perception remains key, 6) Chinese love rankings as “the best” or “the first” - even if this implies some exaggeration and finally 7) focus on product information to direct consumers in their choice.
Jeanne Boden’s “Mindmapping China” is published by ASP Academic & Scientific Publishers (ISBN 9789054876908). See also AdAge’s white paper “Winning consumers in China: the top 10 things marketers need to know to succeed in the world’s fastest-growing market”- www.adage.com Interpartners contacts in the region are: Chiu Liu Chian in Singapore (firstname.lastname@example.org) and Rob Willett in Sydney (email@example.com).