© September 2012
ABSTRACT
High-end products are the life extras, which make life more rewarding, fulfilling, more enjoyable and more comfortable. 100 questionnaires were administered to Chinese high-end product consumers through a stratified sampling technique. Data was also collected qualitatively by using secondary sources. The results showed that the average Chinese luxury good customers are aged from 15 to 25 years and are younger than the consumers in Europe and US. 80 percent of individuals who are wealthy in China are aged below 45 years. Luxury good consumers in US, Europe, and Japan make up 30, 25 and 15 percent of the total consumers respectively. Common high-end products among the Shanghai Chinese people include cosmetics, perfume and personal care, which have a market share of about 20%. Watches have market share of 35% in the luxury spend. Suitcases and handbags claim a market share of about 20-25%, while men's wear has a market share of about 15-20%. Jewellery, shoes, women's' wear and other categories of luxurious goods have a market share of about 15-20%, 20% and 20% respectively. The research concluded that the age of respondents was a clear indication that most high-end product users especially belts and wrist watches are young and enthusiastic people. In China, the consumers of high-end products comprise mainly students and a handful of the working class group. Common products in the market should therefore be tailored towards meeting and even exceeding the luxurious needs of the Chinese market.
CHAPTER ONE
1.0 Introduction
The global luxury market has changed tremendously over the last few years. This has been driven by unprecedented advent of new technological innovations alongside a sceptical attitude with which many consumers have been watching market trends derived from the effects of global financial crisis, which has affected several markets between 2008 and 2012. The current breed of consumers are more interested in an intrinsic value and developing of deeper relationships with brands that they choose to support or interact with (Four Seasons Luxury Trend Report, FSLTR 2012). A research carried out by The Affluence Collaborative, a research powerhouse that critically analyses the habits of high income consumers, the high-class customers are demanding to deal with companies and brands that would eventually simplify and improve their lives. For example, the report indicates that in the travel sector, there are increased expectations related to personalization in all related areas, which includes digital media platforms. This facilitates luxury travellers to research purchase, engage and reflect upon their travel expectations and experiences (FSLTR, 2012).
1.1 Global Market Overview
As the world becomes a global market, there is fragmentation of markets as luxury products cross boundaries to reach consumers in the global market. This is observed in the case of Chinese luxury market, which has differing characteristics compared to European and American market, mainly due to a rapid growth supported by young middle class groups of customers that are currently defining markets across China (Li & Fung Research Centre, 2012). The moderate growth in the U.S. and some European markets alongside a robust performance in the Chinese and Latin American markets has contributed to the growth of luxury market considerably.
Boosted by the above markets, the global luxury market is expected to grow by 10% in 2013 as quoted by Bain and Company, a consulting firm (FSLTR, 2012). China has been hub luxurious goods in the recent years with the global luxury market shifting from the western world to the new Asian Economic giant. As the World Luxury Association alludes, there was an increase in the annual sales of luxury products whose sales more than doubled to 12.6 dollars in 2011 up from 3.5 billion dollars in 2002. This accounted for a 28% share of the global sales in luxury market (Li & Fung Research Centre, 2012). Importantly, these figures did not include yachts, private high-end jets and vehicles.
1.2 China Luxury Market overview
The chart above reflects the expected growth of luxury market in China between 2010 and 2020. The chart portrays a gradual but steady growth in the market segment. According to this chart, the Chinese luxury market will be the leading market taking about 20% of the global luxury goods market; this implies that the market will be instrumental in setting the pace for luxurious goods in the global market. A report by Bain & Company anticipated the global luxury sales in china to hit the 191 billion Euros mark by 2011; this represents a 10% year –on- year growth (Ling & Fung Research Centre, 2012). The report further indicates that there is a steadily increasing demand for luxury goods in China, with the demand remaining strong, and the number of dollars spent on luxury goods rising over the next few years as the chart above indicate. Perhaps by 2015, China will be the largest market of high-end products in the world (Grail Research, 2008).
According to Bain & Company (2010), the total luxury spends by Mainland China was RMB 156 B in 2009, but less than 50% of this was spent overseas. The report indicates that out of the RMB 141 B realized in 2008, RMB 81b was from overseas markets, RMB 60B was realized from the domestic market. In addition, the overseas total china luxury spend increased to RMB 87B, while the domestic spend increased to RMB 68B in 2009. This represented a growth of 8% in overseas luxury goods spend, and 14% in domestic luxury-goods spend; this led the overall luxury goods spend by China to increase by 10% between 2008 and 2009. The figures above portray that the domestic purchase of luxury goods in China increases steadily though it is still below the 50% mark. The Luxury Brand international director noted that the figures above show as the market grows and matures, consumers increasingly become more sophisticated, projecting domestic shopping as the most important to the future of luxury spend in China (Bain & Company, 2010).
1.3 Product Segments
The Chinese luxury market has a rich selection of products that are responsible for the current impressive performance in luxury goods spend. According to a Bains & Company Report (2012), cosmetics, perfume and personal care have a market share of about 20%, while watches have market share of 35% in the luxury spend. Suitcases and handbags claim a market share of about 20-25%, while men's wear has a market share of about 15-20%. Jewellery, shoes, women's' wear and other categories of luxurious goods have a market share of about 15-20%, 20% and 20% respectively. These figures indicate most Chinese will incline to buy luxurious watches compared to other products (Bains & Company Report, 2012). However, the market portrays a growing increase in purchase of luxurious handbags and suitcases as gifts for either personal or business usage.
The report indicates that most Chinese would prefer shoes, perfume and cosmetics, and watches compared to both men's and women's wear. This trend indicates the demand for luxurious clothing in the Chinese market is still below ornamental demands, meaning most Chinese view watches, shoes, and the use of luxurious cosmetics as a sign of prestige compared to wearing high end clothing (Sun, 2011). This is further collaborated by the fact that the Bains and Company (2010) report puts Louis Vuitton, Channel, and Gucci as the leading brands in Chinese markets with a market share of 43%, 25% and 20% respectively. Suitcases are therefore a sign of prestige in Chinese market compared to other ornaments or clothing.
1.4 Social and Demographic Trends in China
Luxury spend is in most cases related to social factors in any market. Understanding the social-economic trends in China will portray important trends contributing to the rapidly growing luxury market. According to Li & Fung Research Centre (2012), the general standard living of Chinese people has improved considerably; this implies the disposable income in many households has improved over the years. For example, the report indicates that growth in the highest income segment in China has increased tremendously by 14.5 percent. This is followed by the segment with high income at 12.7% aand the segment in the upper middle class at 12.0% between 2001 and 2010.
Therefore, classes according to the Li & Fung report registered a double digit Compound Annual Growth Rate (CAGR). The increasingly disposable income in these groups makes them to have an appetite for luxurious products; this makes these groups the largest luxury spenders.
The Hurun Wealth Report (2011) indicates there were more than 960,000 wealthy individuals in 2011 with their personal wealth exceeding the 10 million Yuan, which was a 9.7% increase from 2010. According to the Hurun Wealth Report, 60,000 of these individuals have a personal wealth of more than 100 million Yuan, with more than 4,000 being billionaires. Particularly, Beijing hands the highest number of wealthy people in 2010; this validates the chart above, which shows more wealth is distributed in urban areas, which offer an exclusive market for luxurious products in Chinese market. In addition, the Asia Pacific Wealth Report 2011 by Lynch and Capgemini reported the number of high end individuals in China to have grown by 12.2% yoy to more than 535,000 in 2010 (Li & Fung Research Centre , 2012). This report further indicated China was only after Japan in Asia pacific countries and regions in having the second highest number of individuals at the higher end of income distribution. These figures explain the drastically rising luxury spend by most Chinese. The improving social and economic status of most Chinese people places them in the upper middle to high-end classes of spenders who have an appetite for luxurious products in the market (Zhou, 2011). These rising figures are responsible for gradual but steady increment in luxury spend in China, both domestic and overseas.
Over the years, china has undergone extensive cultural and social-economic changes, which affect family structures in reshaping China to be better prepared for globalization (Fowler et al, 2010). The social economic changes are responsible for transforming families through higher wealth classes and rapid urbanization in many regions in China. In fact, according to Li & Fung Research Centre (2012), China's urban population stood at 690 million in 2011, which was an urbanization rate of 51.3%. According to this report, Frost & Sullivan projected the urbanization rate to grow at a CAGR of more than 2.8% from 2009 to 2014, to hit the 730 million urban dwellers by 2014. This accelerated process of urbanization has contributed to the rapid economic growth in second and third tier cities.
The upcoming middle classes in these cities have a high consumption power because of improving social economic status; this purchasing power increases the demand for luxury goods (Anestis et al., 2009). These upcoming cities have redefined the battlegrounds for luxury goods companies in china. With an increase in disposable income, most Chinese are eager to trade on luxury goods. This implies that consumption of luxury goods has over the time shifted from being associated with wealth and social status, towards satisfaction of personal needs and a better lifestyle (Heinemann, 2008). These are the major driving factors behind purchase of luxury goods. According to a KPMG and TN'S 2011 report, 54% of surveyed respondents stated the major incentive to purchase luxury goods was aimed at "to reward myself" (Li & Fung Research Centre, 2012).
1.5 Research Justification
According to the above statistics, there is a rapidly growing market for high-end luxurious products in China, driven by a rapidly improving social economic status of citizens, and increased presence of foreign companies in China as the country reshapes according to a globalized market. In addition, it has been found that luxury spenders are skewed towards some segment of items compared to others. According to the KPMG and TNS report, purchasing decisions are not merely based on availability of disposable incomes, but are viewed as incentives to reward an individual, and for social status in the society (Bain & company, 2010). This implies that there are other motivational and behavioural inclinations guiding individuals in acquiring high-end market products regardless of their disposable income. This is elaborated by the fact that the top three luxury products in the Chinese market are all suitcases, followed by watches, cosmetics and jewellery. Therefore, there is a need to delve deep and determine behavioural factors that guide individuals in preferring one product to another and acquiring these luxury products in the Chinese market.
1.6 Problem Statement
Coulter, Prioce & Feick (2003) noted that most luxury products in Chinese market originate from Europe. These products have defined lifestyles particularly across middle and upper class individuals in China, as a sign of prestige, leading to coining of a new noun "Peking Pounds" to reflect upon the extravagant spending by most Chinese in luxury goods (Sun, 2012). However, although China has been projected to sustain the rapidly growing expansion of luxury markets for the next 10 years (Anestis et al, 2009), literature in research related to Chinese luxury goods market remains scant (McColl, 2011), meaning the Chinese market for luxury products has not been well articulated in understanding the behavioural and motivational factors that define this market. This is because; for any luxury brands to penetrate and claim a market share in the Chinese market, such a product must understand the motives of the Chinese luxury consumers and the general market trends (Aaker, 2007). In addition, the Chinese and most Asian people in general are stringent with their cultural trends and any product that captures the market has to recognize and accord to these cultural orientations (Danziger, 2005).
Moreover, the Chinese population is composed of different age sets with different perspectives and different motivation factors in the market. Zhou (2011) argues that the mobile generation aged between 30 to 49 years was in their early 20s when reforms started in China in 1978, and were the first generation to benefit from these reforms. According to Zhou, most of the elite group members in China are from this group due to better education. This implies most of luxury goods customers originate from this group. In addition, the younger generation born in the 80s and 90s are more self-cantered and has a high rate of self-indulgence (Zhou, 2011).
The Chinese group of rich individuals is composed of 86% members below 47 years, are well educated 83%, and more than half of this group has an overseas experience of either living or working (Hendrick-Wong, 2007). This group has taste in fashion, an international background and young in age. People in this group have living standards consistent with the largest percentage of affluent consumers (Hendrick-Wong, 2007). The differences across age groups in China as suggested above, and the improving social-economic status of many families in China calls for a detailed research to understand how the varying groups affect market dynamics and their behavioural and motivation factors relating to the China luxury goods market.
1.7 Project Aims
The primary objective of this project is to investigate critically the Chinese Luxury goods market, and the behavioural and motivational inclinations that define these markets. The concepts that define luxury goods will also be investigated to understand how cultural orientations and differences affect consumers and their purchasing patterns in general.
Specific objectives
To understand luxury goods market dynamics in China
To understand the consumption behaviours of most Chinese towards luxury goods
To investigate the attitudes of Chinese towards luxury goods
To understand motivational factors behind purchase of luxury goods by Chinese consumers
1.8 Research Questions
The study in investigating the Chinese luxury goods market aims at understanding the market and answering the following questions.
What motivates most Chinese customers to purchase luxury brands?
How can companies win the Chinese luxury market?
What are the attitudes of Chinese on luxury brands?
What are the attitudes of most Chinese people towards owning luxury brands?
What are the consumption behaviours and patterns of luxury goods in China?
1.9 Study Significance
By conducting this study the researcher aimed to improve the understanding of many companies and luxury goods marketers regarding the trends, dynamics, behavioural and motivational factors that would best result to a successful marketing campaign of luxury goods in China. This study will contribute to the current knowledge base regarding the Chinese luxury market, while at the same time trying to contribute to knowledge regarding the general Chinese market. Through the study, many luxury goods companies that are based in Europe, America, or the UK will have a reliable and informative credible research to base their planning in mainland China. This study will also offer insights regarding the future of the Chinese markets related to luxury goods segment, providing many policy makers a master tool to formulate their policies to the future, or adjust the existing policies to accord to the market dynamics in China.
CHAPTER TWO
LITERATURE REVIEW
2.1 Definition of terms
There are various definitions of luxury goods as described in social economic science. Most of these definitions are based on special features attached to luxury goods. For example, Renand & Vickers (2003, p 459- 478) explain that luxury goods may be differentiated from the normal goods by their characteristics of exhibiting a distinctive mix of vital performance related to experientialism, symbolic interactionism, and functionalism. On the other hand Danziger (2005, 56) defines luxuries as the life extras, which make life more rewarding, fulfilling, more enjoyable and more comfortable. This definition indicates that customers would go for luxury goods not for their functionality, but to the extent that these goods offer perceived value of belonging to a higher niche in improving one's status and for enjoyment. According to Luxury Goods (2010), luxury goods are economic goods, for which demand increases un-proportionally as income rises, unlike in normal goods and inferior goods that portray a proportional rise with increase in income levels.
Therefore, as argued before, with the improvement of social-economic status in many families to the middle upper or the higher end classes, demand for luxury goods would be expected to increase exponentially. This explains the rapidly rising market for luxury goods in China, which is only second to Japan and expected to be the leading market by 2015 (Salmella, 2012), as the social- economic status of many families, improve and due to rapid urbanization that has been able to create immense wealth for thousands in a few years.
Over the time, luxury consumption has been an important segment of the global economy (Wang et al., 2010). This has been due to its high market value, its crucial role in influencing globalization and, the superior image that it commands (Keller, 2009). The use of superior images in describing luxury implies luxury is more influenced by perception rather than a physical component. This means that luxury is attached to the perceived value that a commodity presents in the market compared to other commodities. In fact, according to Danziger (2005), luxury goods can be described in terms of applied psychology and metaphysics. As Danziger (2005) elaborates, luxury is the culmination of all consumer's hopes, fantasies, and dreams, and may not necessarily refer to any physical or material properties of a product (p. 50). This implies that in investigating any luxury products in the market, it would be prudent to consider the points of attachment between a product and the consumer, based on the perceived value of a product, and not the actual value usability of the product. Consumers will therefore exhibit varying behaviours and motivations regarding a particular luxury product in the market; these are the main drives behind making a decision to buy or not to buy a particular product.
2.1 Characteristics of Luxury Consumers
Though there has been a drastic growth in the luxury market in China over the past two decades, research on luxury consumer has been scant and in most cases fragmented (Truong & McColl, 2011). There is a need to carry out a detailed research on behaviours and motivation of consumers in the luxury products market, to understand the dynamics and trends of specific products and markets. Truong & McColl (2011) in a study to investigate self-esteems and motivation of customers while buying luxury products noted that consumers are generally intrinsically motivated, and have a tendency to shop for luxury products that guarantee self-directed pleasure and superior quality. The study further noted that self-esteem of customers, which is an important psychology concept. Research has portrayed that the luxury products consumers in China portray different trends compared to other consumers in the global market.
According to a research by Li & Fung Research Centre (2012), the average Chinese luxury consumers are aged between 15 and 25 years younger compared to European and US consumers respectively. Interestingly, 80% of wealthy individuals in China are below 45 years. On the contrary, luxury product consumers in the same age group in the US, Europe and Japan, which are the three main luxury markets make up 30%, 25% and 15% of the total consumers respectively (Li& Fung Research Centre, 2012). These statistics indicate that the Chinese consumers have different consumption trends compared to their American, or Europeans counterparts, and are mainly composed of young wealthy people, with a need for fashion and luxurious styles.
2.2 Customer Segmentation
The Chinese luxury market is controlled by a younger generation compared to other leading markets as described above. For example, the average age of individuals with an asset base of more than 10 million Yuan is 39 years, and 70% of these are men: the average age of people with an asset base of more than 100 million Yuan is 43 years (Li& Fung Research Centre, 2012). These statistics portray a different trend in the Chinese market that is not replicated in other luxury markets such as in U.S., Japan or Europe. There are thus complex dynamics in the Chinese market that shape the luxury goods market. Chow (2011) terms the consumption of luxury products in China to portray a complex consumer structure compared to other markets.
According to 2010 Rupert Hoogewerf Fortune Report, though more than 87.5 millionaires in China had already reached the purchasing power of the world's top luxury products by 2010, the market portrays a distinct phenomenon in that only 30% of luxury goods consumption is affected by those in this wealth bracket (Chow, 2011). In fact, more than 70% of these purchases are carried out by white collar workers having an annual income that ranges from hundred thousand to very low figures of dozen thousands (Chow, 2011). Therefore, the Chinese luxury market is not driven by the super-rich, but by average people with a thirst for luxurious products to live frugally. These individuals may save for several months before acquiring their dream products.
2.3 Awareness of Identity and Status
Luxury is presented as a lifestyle or fashion that defines identity in the Chinese market. These figures establish a different consumer motive in the Chinese market that is dominated by younger people, whose wealth has increased drastically over the last few years. Though the luxury goods sales were $ 175 billion in 2008(Bain & Company, 2009), and with expectations of a rapidly growing luxury goods market in China in the coming years as discussed above, there are many research studies that have been carried out in this market to determine these growing trends (Tynan et al., 2010). However, the literature of such studies remains scant (Truong et al, 2008), necessitating more detailed studies on China luxury market to understand the market and motivation behind consumers when purchasing these products.
2.4 Spending rates among middle class consumers in China
Farrel, Ulrich & Stephenson (2006) noted that as the Chinese economy records an exponential growth in the recent past, the affluent urban cities were the major attraction of many global companies, due to a high purchasing power of customers in this niche. However, new dynamics according to Farrel, Ulrich & Stephenson (2006) have emerged away from the well of urbanites considered to possess considerable amounts of disposable income. A research by McKinney Global Institute (MGI) portrays emergence of another important consumer niche that has been shaping China's markets leading to a heightened appetite of luxury goods. According to Comeo & Jean (1997), there is a spending spree among middle class people, which has reduced the saving rates especially in urban cities. The middle group in the improving social–economic status as Chow (2001) argues have portrayed a drastic hunger for luxury market niche with items such as handbags, mobile phones, jewellery, cosmetics, and other products having a high demand away from the high spending urban areas.
For example, Shanghai is currently in a tremendous route to restructuring in a post reform era; similar to the gentrifications trends observed in western cities; the housing redevelopment in Shanghai involves a process of class transformation where the low income residents with their negative social impacts are slowly being edged out by an upcoming middle class of citizens (He, 2007). The new upcoming classes are therefore shifting the luxury market from the high niche developed urban centres to new developing metropolitan areas. This is because the emerging middle class has replaced the indigenous low income groups after these houses are redeveloped, creating a new market for luxury products.
2.5 Customer Optimism and Prospects
Over the time the lure of China's affluent class in urban areas, earn about $12,500 a year and command about 10% of total urban disposable income, though this population accounts for just 1% of china's population (Farrel, Ulrich & Stephenson, 2006). Although this population accounts for such a low percentage, they are responsible for consuming global luxury goods with strong appetite, and this has allowed many companies to make a breakthrough in China even though they do not offer any modification to their business systems, or product offerings like in other product markets (Farrel, Ulrich & Stephenson, 2006). However, these companies are being forced to relook their strategies as more people migrate to cities for better paying jobs. The above groups though considered poorest slowly climb the income ladder and are responsible for formation of a new large middle class. The appetite for status and fashion in these groups is thus overwhelming, and this has been responsible for the changing dynamics in luxury goods markets across China (Chow, 2001).
One factor that makes the middle class to be composed of relatively young people is that these individuals were young during the Chinese reforms of the 70s, and have never lived through any economic recession (Atsmon et al, 2011). This makes 73% of Chinese luxury customers to be below the age of 45 years, while 45% of consumers are under 35 years compared to only 28% in Western Europe (Atsmon et al, 2011). The fact that this group has never witnessed any meaningful recession in the economy implies these individuals have grown up when household incomes and property values have been rising steadily in their entire adult life. One characteristic describing this group is that they are extremely optimistic about their future due to their improving household incomes, and have the prospects of becoming richer with time; in fact, more than 64% of these individuals believe their incomes will grow significantly over the next five years, to increase their wealth base (Yang, 2011). These prospects make the upcoming middle class of young people to have an increasing appetite for luxury goods, with high expectations of improving standards with time. Therefore, China Luxury market as driven by the middle class will continue to thrive and to reshape the global luxury market.
2.6 Customer motivation and attitudes
Incidentally, China luxury market has been thriving due to a variation of factors that dictate customer motivations and attitudes towards the luxury market segment. Atsmon et al, (2011) argues that the fact that the middle class is composed of wealthy individuals implies a market segment defined by a vibrant group that has unending hunger for life's best products. In fact, more than half of all luxury customers in China in a survey replied they believed in enjoying the life today rather than worrying about the future (Chow, 2011). This is largely driven by growing positive prospects regarding their income status to the future. For example, the Chinese method of purchasing luxury products has been termed as "Crazy Purchase" by some press analysts in foreign markets. According to Daily (2010), the American media described the purchasing trends of some Chinese tourists in Las Vegas that clearly described the crazy purchase definition. A group of 800 Chinese travellers visiting Los Angeles called in the Macy's store in Las Vegas Avenue, swiped credit cards extravagantly and poured cash, making the shop stewards to be shocked about the perceived "craziness" of the Chinese people. During the Chinese new year week, Chinese spent more than 4 to 5 thousand dollars in purchase of luxury products in stores in Los Angeles (Daily, 2010).
2.7 Conspicuous Consumption of Luxury Products
In addition, the Hurun report indicates the Chinese tourists were the largest consumers of luxury products globally in 2010 for the first time, translating to 17% of the total global consumption according to a Global Refund Report (Yang, 2011). A report in The Guarding paper reported that luxury clothing appetite of the Chinese is expected to hit 44% of the global consumption by the year 2020 (Wood, 2010). In addition, in 2010, Chinese tourists were reported to be the largest group of foreign consumers in France, having spent about 650 million euro on duty free items (Wood, 2010). These statistics collaborate with the findings of a survey by Atsmon et al (2011) that revealed Chinese luxury consumers prefer to have a better today than having to mind about their further, and the fact that more than 64% of Chinese luxury goods consumers have positive prospects regarding their status improving steadily to the future.
In addition, in Britain alone, luxury goods consumption by Chinese people is almost a third of the total amount spends, with the native Britons only spending only about 15% in this market segment (Xiao Lu, 2010). There is a widely held perception that the Chinese behaviour of spending lavishly is largely influenced by their Confucian values: respect and superiority, glory and awareness of shame, collectiveness and family (Xiao, 2008). These values make the affluent class to have a high appetite for expensive goods, and as explained below, the idea of collectiveness integrated with the Shai culture makes many Chinese irrespective of their class to spend heavily on expensive goods.
Recent statistics showing the spending trends by Chinese tourists in overseas markets indicate that in the National Day golden week in 2011, the Chinese tourists spend more than 2.6 billion euro on luxury goods in 7 days. These figures were reported to be more than 3 times the amount spent in mainland China luxury market (Zhou, 2010). In these seven days, the spending rate was about 2000 to 8000 euro on average per day. Most Chinese are driven by an urge to show off their luxury products and flashy lifestyles (GroupM, 2011). The Shai culture has been identified as one of the largest factors behind the flashy lifestyles and expensive spending across many classes in China.
2.8 The Shai culture
The Shai 'shine on' carries its original meaning implying people under the sunshine, but has currently been a slogan among the young to portray style, happiness, and flashy lifestyle (Yang & Ruan, 2011). As the word suggests the young generation has taken the new term to mean bask in the sun, translating to having the best of life's gifts through extravagant spending on one's happiness and style. The culture has overwhelmingly conquered the social media after first appearing in the mainland China website called Sahike Zhongguo (Yang & Ruan, 2011). Yu (2007) explains there are many Shai X family words that have been coined lately, with the current emergence of Shai X family being perceived to relate closely to social culture and psychological factors. Therefore, with the economic development, and the improving social economic status of many Chinese people, confidence and the minds of the crowd have grown stronger and more open-minded. This has led to new words such as Shai xingfu 'showing happiness' or Shai ziji 'showing oneself' meaning expressing oneself to a certain degree in the current society (Yang & Ruan, 2011).
Zhu (2010) explains Shai may have been derived from the English word 'share' or 'show,' or a homophonic sound from them (quoted in Yang & Ruan, 2011). Therefore, the new Shai X family has found extensive ground in the virtual world, and other platforms across China; it is a forum for young people to show off, shine, or bask in the world's best luxury as derived from the usage of this word. According to GroupM (2011), the Chinese Shai culture largely evolved with the development of the luxury market in China with Shai been taken to mean being constantly enriched. This has brought out the three main stages of Shai in China as used currently, which are Shai product, true man show, and Shai lifestyle (GroupM, 2011).
2.8.1 Product Shai
Shai was used originally to mean showing off your purchasing power. To 'Shai,' a product forms the favourite online behaviour in the fashion or luxury category (Group M, 2011). The fact that most Chinese luxury spenders are still at their lowest stage, or the show stage, the Shai products then becomes very ideal and popular for them to quench the thirst of showing off, and learning more regarding the luxury category from their fellow consumers' Shai. This influences a picture of the product, some introduction and the emotional sharing of personal shopping and usage experiences, which has been very effective in influencing others to the luxury market. This has been the reason why China's love for luxury market has extended to broader groups, with those considered to prefer traditional standards rapidly becoming new targets for luxury goods marketers, previously accustomed to target the wealth and elite groups in urban areas (Atsmon et al., 2011).
2.8.2 True man show
This is the first stage in the evolution of Shai product, which means showing off ones expertise and creativity (Group M, 2010). This is also known as live Demo in China, and reflects an emerging way to Shai products. Many people not only Shai these products, but go ahead to show the real efficacy and their personal taste of clothing (GroupM, 2011). Due to the tangible efficacy involved, this culture attracts masses to luxury fashion; luxury fans have taken this culture as the new way of expression in the fashion and luxury world across China (GroupM, 2011). Due to the immense interaction and sharing of opinions across these platforms, this stage is considered as a brand marketing campaign activity that increases brand awareness and motivates customer engagements (GroupM, 2011). This collaborates with the assertion that most Chinese consumers are not only interested in buying more stuff, but an increasing number are seeking for new experiences to round their lifestyles (Atsmon et al, 2011).
This trend has seen spending on luxury services growing at 20%, compared to spending on luxury products that increase at a rate of 13 %, which means that more customers are willing to spend on experiences compared to goods because of influence and need to show off their creativity and expertise in spending in the luxury segment. As Shukla (2010) elaborates, socio-psychological motivations for purchasing products in with regard to status mainly targets social gains, ostentation behaviour, and esteem indication. This presents most Chinese luxury goods customers to be more extroverts than introverts. This is because; they have an outward movement of psychic energy that places more emphasis on gains and objectivity influenced by surrounding environment more than their inner cognitive processes (Luttrell, 2009). This explains the success of the Shai culture in the luxury market in influencing more people across different classes.
2.8.3 Shai Lifestyle
The Shai lifestyle relates to the emotional side of luxury consumers, which implies showing their overall taste (GroupM, 2010). This relates to how one's luxury life looks like. The use of street shots or self-shots in form of photos displayed in many areas across China is all about people's luxury and fashionable lifestyle, which has been responsible for increasing hunger in luxury, spend across all classes in China. Doctoroff in his book, Luxury Apprarells Brands are Approaching the China Market all Wrong notes Chinese belongs to the Confucian race to the best. The blue print of such persons and the Chinese culture according to Doctoroff is the conflict between projecting one's status and protecting oneself by conforming in avoiding alienation and advancing up narrow radar (Lisa 2006). This has made the lifestyle related Shai to be a hot tend in China.
2.9 Perceived Value Proposition
As more people are being influenced by their lifestyles of others in the luxury market, they are left with no choice, but conformation with this trend to prevent alienation from the fashion world. The fear for alienation collaborates the assertion that the luxury market is not only for the wealthy in China, but has found favour in areas considered more unlikely; where people have to save over time to buy their dream products to remain relevant in the highly changing fashion market. As GroupM (2010) argues, many brands have found a platform to leverage the emerging micro blog and SNS platforms to increase the influence that has resonated well with luxury fashion consumers. As O'Cass (2002) elaborates, individuals susceptible to interpersonal influence are more likely to be status conscious, while those susceptible to both interpersonal influence and status conscious have a higher status to focal brands, which they perceive to have a higher value and purchase intention. In this context, products and brands have a higher ability to communicate messages to others, as styles determine how consumers owning a particular product are perceived by others (Solomon, 1983).
2.9.1 Brand Personality and Psychology
The Chinese market has portrayed signs of differentiation (Chow, 2011), at the entry of luxury products in the market, people were just buying entry-level luxuries such as jewelleries, bags and watches. However, the Chinese luxury market developed in maturity due to maturing of customer's psychology, and improved consumer awareness, which has led to a differentiated market (Chow, 2011). While the elite and wealthy persons take utmost rational and mature attitude towards consumption of luxury goods, the new generation of luxury buyers is more aware of style and fashion on the global scale. However, they have no enough wealth to acquire products such as private yachts, grand villas and limos acquired by the wealthy class of older generation (Grail Research, 2012). To the older generation, brand's cultural background, design, and experience are important factors (Grail Research, 2012).
However, the young groups of consumers according to Grail Research portray immature buying behaviour, since they buy luxury goods as they enter the market with no prior experience or attaching them to their cultural background (Chow, 2011). The elite groups of wealthy Chinese have to look at what conveys a standard of excellence relates to their cultural background, what is exclusive, and what would offer the best experience (KPMG, 2007). However, to the two groups luxury consumption is both irrational and hedonistic, as it targets to purchase for personal pleasure despite the cost of such products.
2.9.2 Nature of Luxury Goods in China
Generally, most luxury products in China are from Europe and originate from a number of sectors. One factor that drives brand psychology in China is the meaning and implication attached to different products, which forms the basis to select one product over another. A study carried out by Grail Research (2012), and which surveyed about 260 Chinese consumers about various issues regarding their motivations in buying products and perceptions regarding key leading brands in China revealed some general trends related to brand psychology playing in the Chinese market. Certain brands were found to have deep meaning in the Chinese market. For example, Prada was found to be associated with "timeless" and "fitting well." Hermes was considered to relate to stylish design, and having been well made. On the other hand, the research revealed that Ermenegildo Zegna represented high quality and reputation with stylish design, and being timeless.
The study indicated that Hermes was the top brand in China and was perceive to be of the highest status among a set of 10 luxury brands, implying its prestige and quality. Polo on the other hand was reported to have the weakest associations with some key personality attributes according to this research. However, a research by TNS group revealed that most luxury brands consumers have low brand awareness, and low brand loyalty across China, and this has led many luxury product companies to undertake massive marketing campaigns across the country (KPMG, 2007). This validates the rapidly growing Shai culture, which has been able to influence large numbers of consumers to different products due to lack of brand loyalty. Through this culture as explained above, most consumers purchase luxury products based on experiences of their friends, and their perceived looks. The lack of brand loyalty has driven more than 80% of luxury products companies into China, as the market broadens and opens up due to the improving social economic status of many individuals (Chow, 2011).
2.10 Winning Chinese Luxury Market
Culture in Consumer analysis has been linked to consumption due to its considerable impact on behaviour of humans (Yaprak, 2008, Craig & Douglass, 2006). As described above, the Chinese people have been described to belong to the Confucian group to whom recognition, identity, and a sense of belonging are important considerations (Lisa, 2006). The Chinese people in addition are highly attached to their culture and have to confirm to these cultural orientations (Lu, 2010). This leads to formation of a number of typical Chinese cultural values and motives related to luxury buying in China. This includes the gift giving culture, favouring foreign brands, which are considered superior, and consumers going abroad to purchase luxury products (Xie, 2012). These trends are unique in China, but not prevalent in Western countries (Zhan & He, 2012). Factors such as seeking for wealth and success, style and fashion as well as a quest for achievement are all factors that are considered by the Chinese consumers while purchasing any luxury product.
Many Chinese consumers make decisions based on need for recognition and class, as their awareness go beyond the need to satisfy particular needs through owning such products (Mazzalovo & Chevalier, 2008). As the TNS survey indicates, consumers in China will always link luxury products to brand awareness and not the quality perceived from such products (KPMG, 2007). For example, Ermenegildo Zegna implies high quality reputation with stylish design, and being timeless. Such brand awareness makes this product succeed in the market, as it conveys both status and style. Therefore, consumers in China will only purchase those products that meet their affluent styles, and may not purchase any luxury brands if it does not meet this recognition (Kara, 2005).
In addition, the lack of brand loyalty, and the rapidly improving economic status in many families implies that an alternative way that companies may capture the Chinese market is through opening luxury shops in these areas, and undertaking detailed awareness campaigns to attract customers. Maintaining consistence services in shops in all city tiers, and offering sophisticated, more personalized and consistent services were found to be factors that may lead to success of any company wishing to venture in this market (Bain & Company, 2011). To achieve this, new companies may form partnership or joint ventures with local companies in the Chinese markets. These local companies have better knowledge and coverage of the market, and are aware of the local market conditions, which would boost the penetration of foreign companies, considering that different classes of people have unending thirst for luxury products, and these products are not a preserve of the elite as explained above.
2.10.1 Product Superiority and Recognition
The need for leisure and luxury, opinions gained from influential groups such as through Shai culture, and the improving education level that has led to a consumer revolution have all changed both the lifestyles, trends and attitudes of consumers in China (Berry, 2004). Many Chinese customers seek to be more identified with foreign luxury brands, which are of higher quality and portray status compared to the local brands that are in most cases counterfeited (Chow, 2011). In addition , according to the TNS survey, most European luxury products promote a global perception (KPMG, 2007), and with the trend of most Chinese preferring to purchase their products in overseas markets, much efforts have to be undertaken in advertising and promoting of local market to bring it at par with the international luxury market.
CHAPTER THREE
METHODOLOGY
3.1 Research Methodology
There is a rapidly growing market for high-end luxurious products in China caused by increased presence of foreign companies in China as the country reshapes to the globalized market. This is also driven by a rapidly improving social economic status of citizens. Luxury spenders are skewed towards some segment of items in relation to others. KPMG and TNS reports that purchasing decisions are not merely based on availability of disposable incomes but are viewed as incentives to reward an individual. The decisions to purchase are also inclined towards social status in the society (Bain & company, 2010). This implies that income is not the only independent determinant in acquiring high-end market products but other motivation and behavioural inclinations do guide individuals in the process. According to research conducted earlier, the top three luxury products in the Chinese market are all suitcases, followed by watches, cosmetics and jewellery. As a result, there is a need to delve deep and determine behavioural factors that guide individuals to prefer some products to others and acquiring these luxury products in the Chinese market.
This section of the methodology gives details of the data collection processes, population sampling, research design and how data will be presented. Data collected is either quantitative or qualitative depending on the purpose for which the information is required. According to Alan and Emma (2007), how correspondents need to be engaged can also determine the choice between qualitative and quantitative data collection methods. For this study, both secondary and primary information sources were incorporated to include questionnaires and interviews and other methods of engaging the respondents as will be indicated later in the chapter. Bryman and Bell (2003) argue that statistics results can well be obtained by questionnaires than any other primary way collecting data.
However, the respondents are limited in most aspects that they may not be able to express their views amicably. Since this research mainly investigates people's behaviour over high-end products purchases in China, it would be wise to find a collection method that allows walking by respondents and clustering data depending on the factors that aid their decision-making. Thus, it is important to collect data with questionnaires and interviews, a primary data collection method.
3.2 Population size and sampling techniques
According to Creswell (1994), a sample size is simply a small proportion of the whole population who are carefully selected to provide research data. This implies that it is a portion of the entire population whose features are studied so that the characteristics of the entire population can be established during the generalization stage. The population size cannot be the same for all studies depending on the scope and study purpose (Goddard and Melville, 2007). This study chose to administer 100 questionnaires to Chinese high-end product consumers based on their different locations in the country. The respondents were reached through stratified sampling technique.
3.2.1. Stratified technique
Stratified sampling is a technique used to divide a population into small subgroups that are homogeneous (Creswel, 1994). The subgroups (strata) should be equally restricted as it is imperative to assign every element in the entire population to one subgroup only. The subgroups should further be collectively extensive ensuring that no element in the population is excluded. Creswel (1994) argues that after stratification, simple or methodical sampling should be done within each subgroup to ensure that the sample is representative and reduces errors due to sampling. First, all the regions in China considered high-end products users were identified. Currently, China is considered to have 22 provinces including Anhui, Beijing, Fujian, Gansu, Guangdong, Guangxi, Guizou, Hunan, Hubei, Ningxia, Qinghai, Shanghai, Yunnan and Zhejiang. Out of these, only 20 provinces were randomly selected by tossing a coin twice to get out any two.
3.2.2 Random selections techniques
Each of the remaining 20 regions was to be represented in the study. From each region, five questionnaires were at least to be filled with a gender distribution of 2:3 or 3:2 but this was subject to random selection. The five were identified through randomly sampling households identified as heavy consumers of high-end products. This was by first estimating such numbers through the help of recorded statistics and research assistants from the regions then tossing a coin five times. The first two times would be considered for male respondents and the next three, female respondents. This order was reversed for every change in the province from which high-end product consumers were identified.
3.3 Research Design
This project used primary research methods primarily in China high-end product consumers. An analysis of their response was then conducted to ascertain their motivational factors towards the use of high-end products. In particular, there was an analysis of trends in high-end products purchase and consumption and the factors that affected the whole process. The methods used were as follows:
3.3.1 Qualitative collection of data
In this paper, qualitative research was adopted in secondary data collection. Sharan (2006) says that in addition to deciding cause and effects, envisaging, or describing the distribution features among the elements in a sample, more interest is in discovering the implication of an occurrence for the people involved. This study discovered importance of a background research before collecting information. It was important to understand the trends in high-end product as consumption in China and their motivational factors to get direction for the research. Qualitative data collection depended on group interviews, focussed group discussions, official websites and statistics about China high-end products. Journals were also helpful in this section in addition to collecting information from archives to understand trends in high-end products in China.
3.3.2 Quantitative data collection
This research also collected primary data using questionnaires for analysis of the statistics part of it. In this research a survey questionnaire with five questions and multiple-choice answers was designed. The purpose was to examine the trends in purchasing high-end products in China. However, the number of questions was subject to change. The survey questionnaire was then distributed through various methods including online methods and physically visiting the respondents identified for this purpose. Application of e-survey was justified by the rapid development of e-commerce in China which renders the old data obsolete. Secondly, the online survey could help identify any changes in the past years like luxury product customers who mainly depend on online platforms to purchase goods. Finally, it is easy to identify the email contacts of online high-end product users because of eBay and Amazon records.
Qualitative data collection method was chosen because of a number of advantages it has (Creswell, 1994; Goddard & Melville, 2007), and) as follows. First, unlike interviews, questionnaires consume less time and secondly, statistical information collected via questionnaires is easy to analyze. The other advantage of questionnaires is that it is easy to control the answers by respondents so that research objectives can be unequivocally met. Besides that, use of questionnaires requires very minimal effort in scheduling to discover the respondents' attitudes. As a benefit of this data collection method, confidentiality is easy to achieve hence honesty from participants is assured. Finally, questionnaires are very quickly administered and require a relatively shorter time and reduce bias.
Questionnaires however have some limitations as stated by Goddard and Melville (2007) and Creswell (1994). Questionnaires do not allow a research to judge the correctness of responses given. In addition, they reveal the analysts' predetermined feelings and assumptions and this limits the scope of the findings. Furthermore, unless the questionnaires are administered by well-trained and skilled personnel, problems could arise out of ineffectiveness and inefficiency thus unreliable results. Finally, questionnaires generally provide less information than interviews as they do not allow any follow-up questions.
3.4 Sources of Information
3.4.1 Primary Sources
The primary sources of information used were essentially questionnaires and interviews. The respondents were required to answer the questions send to them selecting the most appropriate among the multiple choices or by offering the information they knew. Thus, the research used both closed and open-ended questions. For the respondents reached by physical means, questionnaires were assigned. For consistency, and to avoid bias, there was no further clarification given in terms of interpreting the questions. The respondents were left to determine how to interpret questions and answer them. The study also met some five focussed discussion group members in China who responded to both topical questions and questions in an interview format.
The criteria was simple, the respondent was to prove the use of high-end products at least in the past two years. The products included jewellery, watches and many others. The products were to have been purchased at prices slightly above the one average citizens could afford to qualify the high-end quality. For online survey, there were respondents were to show that they were customers of high-end products through the online platform who had at least made a successful transaction in the past one year from reputable online stores. These two methods are complimentary is well utilized.
3.4.2 Secondary Sources
This paper used data obtained from China Internet Network Information Centre (CNNIC) 2005-2009 including other reports and journals on China regarding high end products. This data was used as a control to compare with that collected from the field. Information sources from various studies, baseline surveys and books on globalization were also explored.
3.5 Moral Considerations
Ethical considerations were taken specifically in terms of data collection and the privacy of the respondents. Ethics confers that there should be absolute security to anybody who participates in a research or gathering data. This is the only way researchers can access the confidence of correspondents and other research players. The core values in administering questionnaires and conducting interviews are honesty, objectivity, and privacy. All the participants should be assured of strict adherence to the acceptable Code of Conduct while ensuring the secrecy of the give information. Thus in this research, ethical considerations were integrated in the process of collecting information from the respondents. This was an attempt to shore up the motivational factors over high-end products. This study considered the following guidelines and code of conduct in disseminating and administering questionnaires. First, the confidentiality of the respondents was upheld except for their consent. Secondly, all the participants were advised to accurately complete their own questionnaires accurately. Finally, the respondents were assured that their views were to be strictly used for research purposes.
CHAPTER 4
DATA PRESENTATION AND ANALYSIS
4.1 An Overview
The purpose of this chapter is to provide a broad view of the data collected. Data collection was through questionnaires containing both open and closed ended questions. The questionnaire had three major sections. The first section collected personal and demographic information such as age, education status, family sizes, income and others. The second section collected information on the exposure level of the respondents to luxury products in Shanghai China. In this section, the ability of the respondents to demonstrate knowledge on high-end products and the frequency of purchasing them was analyzed. The factors considered by the respondents to be important in business were also investigated.
4.2 Demographics
Demographic analysis studies a population with an aim of obtaining information about gender, age, occupation, income, and nationality. The factors named herein have an effect on the perceptions that people have towards product preferences and further play a role in the consumption behaviour including high end products. An accurate analysis of these demographic factors helps business people in terms of location, pricing, design etc in order to increase sales and profitability. The table below show the gender analysis of the respondents of this study.
Table 1: Gender of respondents
| | |
Frequency
|
Valid Percent
|
| Valid | Male |
6
|
60.0
|
| Female |
4
|
40.0
|
| Total |
10
|
100.0
|
Among the respondents that participated in the research, 40% were females while the remaining 60% were male. The questions were distributed randomly to the actual consumers of high end products. Thus, these results show that male customers form most of the market for high end products in China. This indicates that consumption of high end products is assigned more to men than women. Consequently, male respondents are better placed to give accurate information in this research than their female counterparts.
Age distribution among the respondents ascertained that all the respondents were below 40 years of age with 20% being aged above 25 years. The rest (80%) were aged 15-24 years. This analysis clearly indicates that consumers of high end products are mainly young and enthusiastic people. The age group of 15-24 years in Shanghai China consists of people who have just completed high school or are pursuing higher education in universities and tertiary colleges. These mainly depend on their parents for financial upkeep except for a few cases who may be having part-time or vocational jobs. On the other hand, people above 25 years could be probably working or job seeking and possibly have smaller families. Therefore high end product consumers in China in terms of age are mainly students either in institutions of higher learning or high school. A few of the consumers are working class who have high incomes. The high end products should thus be designed to meet the needs of the students and the working class. The table below is a summary of the ages of the respondents who chose to handle this question. The data is also presented in a graphical format just below the table.
Table 2: Age of respondents
| Age |
Frequency
|
Valid Percent
|
| 15-24 |
8
|
80.0
|
| 25-40 |
2
|
20.0
|
| Total |
10
|
100.0
|
Financial analysis of the customers was also conducted. Research results (shown in the table below) showed that many of the respondents are middle and low-income people who earn less than 100 dollars per month. 90% of the respondents had a total monthly income of less than 100 dollars with the rest earning between 300 and 500 dollars a month. these results imply that the marketers of high end products should consider the income distribution in pricing strategies. Income limits customers from buying high-end products since they are usually expensive low income people can only buy high end products on credit, loan or merging. This is the reason most of the products that sell are cheap or have a fair cost compared to the competitors. The table showing incomes of respondents is shown below.
Table 4: Incomes of respondents
| |
Frequency
|
Valid Percent
|
| less than 100 |
9
|
90.0
|
| $301-500 |
1
|
10.0
|
| Total |
10
|
100.0
|
The nationality of the respondents was also investigated and all of them were of Chinese origin more specifically from Shanghai. The respondents were also investigated to determine their occupation. 90% were students while the rest were employees from either the government or the private sector. These results justify the above two arguments related to gender and monthly income. Thus, high end products should be tailored to meet the students needs in order to increase utility of this market. The table below shows the occupation details of the respondents.
Table 5: The occupation details of the respondents
| | |
Frequency
|
Valid Percent
|
| Valid | Employees |
1
|
10.0
|
| Student |
9
|
90.0
|
| Total |
10
|
100.0
|
4.3 Travelling trends about High-end product consumers
The research also sought to find out the travelling trends of the respondents. This was to ascertain whether the level of exposure affected the purchasing and usage behaviour of high-end jewellery products among the Chinese people. The literature made it clear that the level of exposure among people increased their chances of using high-end products. Because this was already established, this was a confirmatory test and to get the comparison statistics about the prevalence of exposure against age and gender. 60 percent of the respondents reported that they had either travelled to the US, Canada or both. 40% had neither travelled to the US and Canada; they had neither travelled to any other international country. Generally, many of the high-end product consumers are well exposed in relation to travelling abroad. Among the exposed, 73% were male while the rest, 27%, were females. According to their age, the level of exposure to other countries was observed high among the young generation of the age below 40 years of age. The table below shows the level of exposure of the respondents.
| | Travelled abroad |
Frequency
|
Percent
|
Valid Percent
|
| Valid | Yes |
6
|
60.0
|
60.0
|
| NO |
4
|
40.0
|
40.0
|
| Total |
10
|
100.0
|
100.0
|
The chart below shows how the respondents have travelled to the different countries of the world. The percentages are different because the computations were merged so that percentages could exceed 100. From the combined computation, Asian region had a total of 33% followed the US with a total of 26% of the respondents had travelled there. Canada was 22% and other countries in the world with a percent representation of 19. See the pie chart below.
To establish really the influence of the level of exposure to the use rate of high-end products in China (Shanghai), it was necessary to know the duration and purpose for which respondents travelled abroad. The table below is a summarizes the purposes for which the respondents travelled to other countries once in their lifetime.
| Purpose |
Frequency
|
Percent
|
Valid
Percent
|
| Work |
3
|
30.0
|
30.0
|
| Education |
5
|
50.0
|
50.0
|
| Others (e.g. Adventure) |
2
|
20.0
|
20.0
|
| Total |
10
|
100.0
|
100.0
|
Many Chinese people travelling abroad seek an education either at college or higher education level. 50% travelled abroad for the purpose of education, 30% travelled to seek for employment or be absorbed in the work force. The rest of the respondents travelled for other reasons such as seeking adventure, visiting their relatives and general tourism.
The duration of stay overseas and the purpose for which respondent travelled to the countries would be checked against their buying and consumption behaviour for high-end products. The research hypothesis however is that the higher the level of exposure, the higher the possibility of consuming high-end products in china. The research established that most of the respondents who had reported that they travelled abroad had stayed there for a period between a few months and five years. Many respondents, 30%, travelled overseas for a duration of four years while 20% travelled for a duration of 2 years and less than one year respectively. 10% each travelled for one year, 3 years, 5 years and more than 5 years respectively. The chart below has the results of the duration analysis.
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A family now seeks refuge on
streets after their houses were burned down this weekend causing a loss of more
than Ksh. 500,000 by people they know very well in Mamboleo’s Kanyakwar estate.
