Will Luxury Lose its Luster in China?

Young Chinese Will Keep Sales Afloat, says Euro RSCG's Matt Donovan

By Published on .

SHANGHAI (AdAgeChina.com) -- Marketing upscale brands in China used to be simple. Combine a dash of beautiful people with a splash of tradition and the suggestion of exclusivity, and you had a luxury campaign. Status and the unattainable were the name of the game.

Lately, marketing in the luxury sector has undergone a sea change. The meaning of modern luxury has radically shifted for Chinese consumers and is increasingly multi-tiered, from high-end mainstream to premium, ultra-luxury, and stratospheric luxe.

Is your luxury brand tapping into the desire for extravagance, or ethics? Does it speak to connoisseurs or hedonists? Is it an experience, or is it a possession?

In the midst of pondering these questions of message and perception, the larger world has been rocked by well-documented economic upheavals. Worryingly, it has been found that luxury, so long thought to be sheltered from bad economic weather, is already being affected by the hailstorm of financial pain engulfing the world at large.

A recent Bain & Co. survey showed that even very wealthy consumers are quietly cutting back on their normally free-spending ways, and that this will likely push the worldwide luxury retail market into recession next year. This is a stark contrast to the growth spurts of the last two years.
Euro RSCG's Matt Donovan
Euro RSCG's Matt Donovan
There is some good news for luxury marketers in China. A fortuitous combination of local circumstances will suppress some of the effects of a pessimistic worldwide situation.

The first element is cultural. Although not readily quantifiable, a nonetheless important "X factor" that will play out in the luxury market over the next few years is the traditional Chinese cultural attachment to fortune, prosperity and money. Even in a recession, status will still be important in China.

The cultural factor has always been there, but disposable income and exposure to luxury goods have not. Young Chinese consumers, especially those between the ages of 18 and 35, are significantly more likely than their elders to not only pay attention to luxury brands, but crucially also aspire to purchase more luxury than Chinese have at any time previously.

This generation has been more exposed to international brands, is more discerning of quality, and is more ambitious in terms of purchasing than any generation China has ever seen -- and there are a lot of them.

Although aspiring Chinese luxury consumers are small as a percentage of the overall population, there are millions of them, more than the entire populations of many other countries, which means China is an important market for luxury brands to focus on, especially in a global recession.

Just two years ago, around 13% of Chinese had purchased a premium-branded product at some point in their life--a very significant percentage in terms of raw numbers.

Luxury is a strong signifier of status, or "face." As such, a significant segment of luxury consumers are not necessarily fabulously wealthy, but they are willing to skimp on other things in order to maintain a certain level of purchasing power.

Therefore, a significant number of luxury consumers are mid-level, white-collar workers in major cities who earn around 8,000 RMB ($1,165) per month, but decide to live at home in order to have the power to buy Gucci handbags.

The new China luxe-elite are under 35. At that stage of life, economic upheaval does not distract from the need to continue to strive for higher positions on the corporate and social ladders. Instead, it sheds light on new opportunities as higher-leveraged individuals falter. They still need that bag, they will still get married. Their need to feed their appetite for luxe will not easily lessen. Certainly there will be cutting back, but basic urges and desires will remain.

In an environment threatened by recession, brands have to fight even harder to create enough desire to woo consumers. Coupled with the shifting meaning of luxury, brands must constantly analyze the core basics -- who they are, what they stand for, and how do they help people?

Luxury is a social game in an increasingly social media and consumer world. In tough times, consumers bond with friends to get through. So who does your brand know? Who are its friends? Who is it influenced by and who does it influence? What topics is it an expert on? Which social groups does it belong to? Who wants to see it succeed? These questions are more important now than ever before.

Great luxury brands understand they are in an eternal battle between social currency and exclusivity. Figuring out how to increase a brand's mystique while not sacrificing its relevance, and ideally increasing both at once, should be a key element of any successful plan of action. Being relevant for luxury consumers, especially those consumers who make lifestyle sacrifices to maintain their purchasing power, will be one way for brands to stay ahead.

Matt Donovan is Euro RSCG's chief strategy officer, Asia/Pacific based in Shanghai.

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