But we were startled when the agent asked, “Will you be paying in cash?”
I checked in a nearby mirror. No, I don't look like Warren Buffet, nor do I have the hairstyle of Donald Trump. Then it dawned on me, with over 320,000 millionaires in China, dropping a great wad of bills on a table to pay for a luxury apartment rather than using a mortgage is definitely the norm here, rather than the exception.
With this sheer volume of high net worth individuals, it’s easy to understand why luxury brand owners are falling over themselves in an effort to get a slice of the pie.
Things are already getting pretty extreme. For example, a luxury watch brand mounted an exhibition in Shanghai this month. As part of the exhibition, they had four beautifully crafted desktop clocks depicting scenes of China like Shanghai’s famous riverside Bund district and the Great Wall, for which they were asking $130,000--and not for the set of four, that was the per piece price.
But simply importing marketing strategies that have worked in developed countries will not be any more effective for selling luxury brands than it is for selling mass-market products.
First, China has unique demographic characteristics. Nearly two-thirds of the top 10% of income earners in China are under 35-years-old. In the U.S., the equivalent proportion is 18%.
Old money in China? There is none, which usually rocks the foundation of a global luxury brand’s marketing strategy. “Quiet confidence,” “security,” and “charm” are not the right adjectives or imagery for this market. Instead, luxury in China is about being extraordinary, bold, rich and extravagant, both for personal items or big-ticket items like cars.
When asked what brand of car is considered the most prestigious in a recent Synovate survey, China’s wealthy elite under age 35 identified BMW as the winner, with 25% rating BMW as No. 1. Even in the brand’s home market, Germany, only 8% of affluent consumers gave BMW the top spot, and in the U.S., it was less than 5%. Mercedes-Benz ranks second place in China because it has the user image of someone in the 40s or early 50s, a major generation gap. I bet Lexus will do quite well in China, meanwhile, as its upscale but youthful user image is most closely aligned to the target.
Among watch brands, there was a very interesting discovery. Only Rolex and Cartier registered any significant share of mention, because of another key aspect of luxury in China. All expensive purchases need to have show value, because keeping up with the Joneses is not uncommon here.
Not long ago, when the insurance sector started to gain a foothold in China, the insurance premium paid by affluent households was the source of bragging material. But this fad was short-lived, because it is hard to show off an insurance premium.
The underlying message is that there needs to be public acknowledgement of the luxury item purchased. The need for others to be able to recognize a brand's value explains the sheer dominance of Rolex and Cartier. Both have big brand clout behind them and near universal recognition, adding up to a strong salivating index.
Yes, there may be great exclusivity, and perhaps even better craftsmanship with a Glashutte, Patek Philippe or Audemars Piguet, but you will not get the all important flash value from these brands in China yet. Few consumers know them at this point, so they fail to impress.
So, how to win in China’s luxury market? If you are not a big brand, a bit of disruption will help, but you must make noise to raise the profile of your brand. A more actionable approach is to hire someone from Remy Martin or Hennessey--or from their advertising or PR agencies--as these people have been successfully marketing to China's wealthy for many years.
Darryl Andrew is the Shanghai-based managing director of Synovate, an Aegis-owned market research company based in Hong Kong.