Understanding in the Chinese Luxury Market: What Do Rich People Want?
CUHK marketing expert shares his insights on the modern needs of luxury consumers and the power of female consumerism in China
By Jaymee Ng, Principal Writer, China Business Knowledge @ CUHK
China’s strong spending power has fuelled the global economy for years. According to a report by Nielsen, China’s average consumer trend index stood at 113 in the third quarter of 2018, far above the global average of 105. State-owned Xinhua News reported that consumption will remain strong and is likely to contribute to 65 percent of the country’s economic growth in 2019.
Such a strong consumer market is a hot battlefield for brands around the world. How do foreign brands succeed in this highly competitive market? What are the best marketing strategies? These are some key questions for many top brands to consider.
One of the success factors is to identity the target segment in China, according to Mr. Larry Poon, Adjunct Associate Professor in the Department of Marketing at The Chinese University of Hong Kong (CUHK) Business School. Mr. Poon is a director and management consultant of a wide range of companies in the Asia-Pacific region. He has also been teaching the EMBA, MBA and MSc courses at the CUHK Business School since 2001.
“When foreign brands consider China, they usually picture it as a homogeneous market. But the truth is, every Chinese city is different: Beijing is very different from Shanghai, and Shenzhen is very different from Guangzhou. The China market is in fact ‘one system, many cultures’.” – Mr. Larry Poon
One System Many Cultures
Given the huge demographic of China, Mr. Poon believes marketers must pay close attention to the different lifestyle and customs in different parts of the country and design their market segments carefully and accordingly.
A market segment refers to a category of customers who share common characteristics. This segmentation helps marketers to design market strategies to penetrate the target market.
“When foreign brands consider China, they usually picture it as a homogeneous market. But the truth is, every Chinese city is different: Beijing is very different from Shanghai, and Shenzhen is very different from Guangzhou. The China market is in fact ‘one system, many cultures’,” he said.
A Changing Luxury Market
According to Mr. Poon, the consumer trend in China, especially for the luxury market, has changed rapidly in the past few years, and is expected to keep changing at a very fast speed in the years to come.
For example, he recalled that before 2000, it was not possible to market any luxury goods in second-tier cities. However, nowadays, more than half of all luxury consumers in China are living in second- or even third-tier cities. As for those luxury goods lovers in first-tier cities, Mr. Poon said they might not even need foreign brands to sell goods at their doorsteps.
“The customers in first-tier cities have become more sophisticated and cultured over time. They also love to travel and so they will go directly to Italy or France to buy their favourite luxury goods,” he said. “Therefore, marketers should monitor their target segments very closely. You may think you have a solid customer base in those cities, but your customers may not even be there anymore.”
A Good Story is Better than a Price Tag
As Tyrion Lannister said in the Game of Thrones Finale: “There’s nothing in the world more powerful than a good story”, storytelling in fact has become a dominant technique in marketing luxury goods in China.
The modern sophisticated consumers also tend to appreciate the meaning behind a luxury brand and the value of luxury experience. Hence, a good marketer must be able to tell a good brand story and share the brand culture with his or her customers in order to win their hearts.
“These customers have changed from buying luxury products from ‘word-of-mouth’ to buying them because of their appreciation of the brand culture and the experience. They are not following a brand as blindly as before,” said Mr. Poon. “In the past, you only had to tell them how expensive the products were and display the products in a nice setting,” he said, adding that the current trend could be changing quickly in the next few years for these high-end customers.
Seamless Omnichannel Marketing
However, for the relatively mid to low-end customers, the consumer trend has not changed so rapidly. Due to its mass-oriented nature, the trend stay rather stable, except that their purchasing behaviour has moved towards favouring online shopping more than visiting physical stores. However, Mr. Poon noted that although online shopping is an overwhelming marketing force, brands should not abandon brick-and-mortar stores completely.
“The ideal scenario is that customers can browse products online for necessary information and then visit the physical stores for their availability. At the store, they can try them on, share their photos and experiences online,” said Mr. Poon. “This is what we call ‘omnichannel marketing’. You must surround your customers with multichannel selling and the experience must be seamless.”
The Rise of Young Female Consumerism
Not only the consumer trend for luxury goods is changing, the economic power in the Chinese population is changing too. As younger professional women are taking up more managerial roles, their spending power has been growing enormously. A report by the Boston Consulting Group predicts that female earnings in China continues to increase and will reach USD$4 trillion by 2020.
Mr. Poon fully believes in the purchasing power of professional women. Previously he also conducted a consultancy project for a famous jewellery brand and identified the trend. As a result of his consultancy, the jewellery brand developed a set of products catering for this segment with huge success.
“You have to grasp their motivation of purchasing,” he said. “After studying their consumption behaviour, we found that it is not because they want to buy luxury products but because they want to please themselves. They want to make themselves happy.”
Unlike customers in other segments who may buy luxury goods to show off their status, professional women just want to make themselves happy. “When the motivation is different, the service that you provide has to be different too,” he added.
For example, when selling a piece of jewellery to professional women, one needs to emphasize the kind of lifestyle or the message of wearing the product conveys instead of the price of the product. The emphasis of lifestyle has to be reflected from the product design to the store design, and even to the medium that the brand used to reach this target segment. As this segment is increasing in size, their purchasing power should not be underestimated.
The Future Trend of Sustainability
As for the future, Mr. Poon thinks sustainability will be the major trend for businesses. Even though most companies are still used to the concept of profit-maximization, he believes most of them will be willing to sacrifice some profits for sustainability within the next ten years.
“Do good to the world needs to be carried out in both the internal and external side of the business. Companies should not adopt a passive sustainability strategy. They should actively seek out ways to be environmentally responsible. As a result, their products will be better in terms of quality and popularity among customers. Their high investments in green technology will be highly rewarded and they will find gold in green,” Mr. Poon concluded.
Poon, Larry K.Y.
Adjunct Associate Professor