The Chinese Luxury Goods Market: The Complicated Evolving Demographics And Landscape

Chinese consumer’s knowledge of luxury goods continues to expandyear-on-year as does their appetite for various types of luxury goods. A uniquemindset has been created and thus a unique consumer market that luxury retailersmust cater to. We have a population who are both conspicuous and conservative orunderstated. This has been brought about by a group with contradicting values ofpre-reform socialism and modernism/post-reform ideologies. However, they havefound a way to make these contradicting values work together. Retailers must beprepared to understand and offer what these masses want and, so far, have done agood job of that. Despite the double market growth over the past several years, theluxury goods market in China is now running into difficulties due to governmentintervention. I speak of the anti-graphing campaign to stop lavish and unnecessaryspending by Chinese officials in order to weed out corruption among the ranks of theCommunist Party. Luckily, this is a temporary setback and opportunities continue toappear for luxury retailers.This thesis looked to answer where the growing number of Chineseconsumers is located, where they will be consuming luxury goods, how they wouldinteract with them, and their ways of thinking. Based on both primary andsecondary research used in this thesis, we found four different segments for whichluxury retailers should be prepared to offer a range of products both with differentprice tags and quality. The four total segments are split from one middle class and oneupper class classifications. The two middle class consumer segments were dubbedthe “Trendy Metropolitan” and “Proud Business Woman” while upper class segmentswere “New Money” and “Sugar2”.The middle class segments are going to be substantial players in the future asChina continues its development away from the East coast. A majority of theconsumers in these segments are new to luxury goods consumptions and mainlyfollow the trends of other, usually regarding famous figures opinions at the highestand continually looking for confirmation of the products they purchase. While theirincome is still not as high as consumers in other countries, they are not afraid to spendanywhere from5-19%of their yearly salary on luxury goods. They regard theopinions of others and purchase these goods in order to lift their own status withinsociety. Recognition from others is their main reason behind purchasing luxury goods,besides rewarding themselves for their hard work. As for what they look to purchase,they are mainly interested in smaller goods and clothing as they cannot afford bigticket items such as luxury cars, expensive vacations, nor can they spend large sumsof money on extravagant foods and beverages, although they will take part onoccasion. The majority of these growing middle class consumers can be found in thenewly developing Tier Three and Tier Four cities as well as continuous growth in Tier Two Cities. Their minds are stuck on seeing the brand rather than understand what itreally stands for. This leaves an opportunity for luxury retailers to mold the minds ofnew consumers and make them loyal to their respective brand. A hurdle to overcomewith this group is the lack of understanding in their exact purchasing decisions as eacharea of China harbors its own set of values and beliefs. Altogether they make up about400million are about50-54%of the luxury market in China. The two upper classsegments are consumers with different mindsest but essentially the same amount ofdisposable income.The “New Money” segment is the infamous土豪which still have themindset of a middle class consumer but with a substantial difference in wealth.These consumers are ostentatious and status-oriented, looking to purchase the mostexpensive and flashy products they can with limited knowledge as to what the brandstands for (hence the reference to middle class consumers). These are the manyconsumers that can be found taking a luxurious trip outside of the mainland andpurchasing various luxury products while in that country. The second segment thatmakes up our wealthy consumers is the Sugar2generation who are the sons anddaughters of the previously established wealthy in China. Upper class consumers havebeen growing since the Open Door Policy and their offspring are the ones who havebeen surrounded by luxury products for their entire life. They are knowledgeableabout the brands that they consume and are loyal usually loyal to a specific brand.They do enjoy showing off their purchases, however, they are starting to look forbrands that are more conservative. No logos are now the way to go and if there is apossibility for customization they will take it. These customers look for something tofit their lifestyle and will go to great lengths to find something that others do not have.Some consumers in this area are already tired of purchasing tangible goods and havesubstituted the lavish spending on lavish vacations. These two segments can be foundmainly in Tier One and Two cities, yet can also be found in Tier Three cities. The totalpopulation is only around10million people, yet their combined contribution is40-50%of the luxury goods market.Enticing these consumers is going to take a customized approach for eachsegment due to their drastically different ways of thinking and consuming, however,they all have something in common that luxury retailers can use to offer new servicesand interact with their consumers. The number of internet users in China is that of theentire European population. They continually search for information and confirmationonline about the products they are buying. This is going to be a first point ofinteraction with which luxury retailers must use to capture their target market. Thenecessity of offering customized services for each segment, completely Chinese madeweb site layout, and accessibility through a mobile device is crucial less retailers wishto miss out on the growing popularity. Both primary and secondary research showsthat an overwhelming majority of Chinese consumers access the internet through amobile device, mainly smart phones which continue to grow in accessibility. Thesefactors are presented and discussed more at length within the following thesis.