Ad Age China Series on Luxury Marketing

10 Things Every Luxury Marketer in China Should Know

Affluent Consumers Are Getting Harder to Reach, Says Patricia Pao

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NEW YORK ( -- Chinese researcher Patricia Pao, who specializes in luxury marketing trends in China, offers ten tips to help advertisers reach affluent customers in the mainland.

1. Don't ignore quality

Until the current recession, the Chinese appetite for luxury goods was so strong, luxury goods manufacturers could get away with doing little more than putting a label on merchandise with little regard for quality and value. Today, consumers are much more discerning about how they spend money and demand that luxury goods manufacturers provide quality.

A study conducted this year by Pao Principle shows mainland consumers no longer only care about logos and brand names. They buy luxury goods because they believe the quality is superior to comparable substitutes.
Patricia Pao
Patricia Pao

Over 88% of the study's 448 panelists -- all high net worth individuals, mostly women aged 20 to 39 -- said they "strongly agreed/agreed" with the statement, "I buy products where design, quality, durability and performance were remarkably superior to other products."

Mainland Chinese luxury consumers purchase luxury for its high quality and look, not to fit into the crowd or to display their wealth. They don't consider their luxury consumption as a way to easily display their wealth or income and they believe in their own tastes and focus on quality and look rather than buying to reinforce their status.

While our panelists agreed luxury goods generally play the role of status symbols, they claim that they do not buy for this reason. Rather, they buy luxury goods for their quality.

2. Everyone is a customer

Train salespeople not to "judge a book by its cover." Many affluent consumers we interviewed complained that luxury boutique salespeople prejudge people by the clothes they wear and the handbag they carry. If the salesperson feels the customer cannot afford the merchandise, the customer is treated poorly. Over 30% of our panelists cited improved service to be a motivator to purchasing more luxury goods.

3. Mainland Chinese no longer want to be one of the crowd

The one-child policy has caused a shift away from the group and towards the individual. The population policy has created a value system among these millions of only children that is "more self-indulgent and self-interested than the more communal ways of their parents.

As a result, these "new" mainland Chinese are no longer content to be "one of the crowd." They are looking to luxury goods to differentiate themselves from their friends.

We frequently heard phrases like "not wanting to follow others," "to be myself," "don't blindly follow the trend," "believe in my own taste," "liking unique things" and "liking only what I like."

If luxury marketers don't understand the impact the "one-child" policy has had on the way Chinese consumers view luxury goods, they will make tactical errors in marketing, sales and merchandising.

4. Choose merchandise carefully

The days of using mainland China as a dumping ground for excess inventory are over. Luxury goods companies can leverage Chinese customers' desire to be unique and stand out from their friends by offering limited edition items in their mainland boutiques. Bring your newest and best merchandise to China and start creating products for that market. Chinese will purchase your products if they know they can only purchase them in mainland China or if they are only available globally in a limited quantity.

5. Invest in magazines...for now

Print is alive and well in China. Over 80% of our panelists use magazines as an information source for designer handbags, watches and fine jewelry. However, magazine browsing is declining. Older consumers will keep them afloat for now, but younger shoppers are moving to the internet as their primary source of information. Browsing web sites was the second most important source of information for luxury goods, and is the most used source among 20-to-24 year old consumers.

6. Education is the key to conversion

Luxury marketers can expand their customer base in China if they help local consumers understand the value of their brand. According to our panelists, money is not the reason mainland Chinese do not purchase more luxury goods. Many of the affluent shoppers surveyed by Pao Principle admitted they possess limited knowledge about many of the brands we talked about. "Why is this handbag worth so much money?" was a common question.

Many panelists said luxury goods companies need to do more to educate mainland Chinese consumers about their brands. They cited the Hermes' scarves exhibition at the Shanghai Art Museum in 2007 as a great example of a brand effectively educating the mainland Chinese consumer of the value and quality of the Hermes franchise.

Investing in brand education is particularly important as luxury marketers develop their operations in China's second- and third-tier markets.

An interview with a panelist living in Xi'an, for instance, said, "I don't speak English and I find it difficult to pronounce the products and brand names. They are not that familiar to me. I do like to use luxury brands though and they are often gifted to me so I have quite a few. What do I want from a luxury company? I would like them to add more Chinese culture when they promote in mainland China."

7. Leverage company-owned web sites

Over 50% of our panelists say they browse web sites to gain information about designer handbags, watches or fine jewelry. Nearly 66% look primarily to luxury goods manufacturer's sites to find information regarding designer handbags followed by online forums (30.2%) and online shopping web sites such as Taobao and Ebay (29.5%).

8. There is no "one" China

Viewing China as one country is a mistake. Market leaders such as Louis Vuitton have saturated first-tier cites and are aggressively moving into second- and third-tier markets. Take Xi'an as an example. Louis Vuitton is leveraging its experience and economies of scale to expand in the capital of the Shaanxi province. The French company is bullish about Xi'an because it is the transport hub that connects western and eastern China, and it's a major beneficiary of government investment. But Louis Vuitton is adjusting its marketing and promotional strategies to reflect the fact that Xi'an and other cities in northwest China have the largest urban-rural gap in China, and have been hit hard by the financial crisis.

9. Recognize the gap between what you think mainland Chinese want versus what they actually need

Merchandise assortment and selection is a catch-22 in mainland China. Currently, most luxury purchases by Chinese are made in brand boutiques outside the mainland. Hong Kong is the preferred destination, because it offers goods at lower prices and with fewer taxes and is perceived to offer a better selection.

So luxury goods companies are putting more resources in their Hong Kong boutiques, but this trend creates a vicious cycle. Mainland Chinese luxury buyers like to shop in mainland China for convenience and would spend more at home, despite the higher prices, if they felt the brand boutiques carried merchandise that was either only available in mainland China or in the New York, Paris and Tokyo locations -- but not Hong Kong.

10. Speak and write Mandarin fluently and learn Chinese culture and trends

Even in first-tier cities such as Shanghai and Beijing, most mainland Chinese do not speak English. It is impossible to effectively do business if you do not speak Mandarin and possess insider knowledge of China's culture and current trends.

For example, social media is a hot marketing tool, but companies trying to leverage social media through sites such as Facebook and Twitter will be unsuccessful, because neither of these sites is currently accessible in mainland China.

Patricia Pao is CEO of Pao Principle, a global business consulting firm based in New York City.

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