Lacking luxury

Luxury China: Market Opportunities and Potential by Michel Chevalier and Pierre Xiao Lu
John Wiley & Sons; US$29.95

You’ve heard the story before: With the rise of China’s wealthy consumer classes, luxury brands are clambering over each to pick up a larger share of this rapidly expanding market. But old dogs in the luxury goods business are fast learning that they need new tricks to attract Chinese consumers, whose expectations and values can vary starkly from those of their Western counterparts.

Seeking to shed light on this enigmatic marketplace, Luxury China: Market Opportunities and Potential by Michel Chevalier and Pierre Xiao Lu is a survival guide for foreign luxury brands looking to enter China. The authors cover all the major areas – customer and market analysis, distribution and branding, and an essential discussion on counterfeiting – but the book as a whole lacks a major thesis. It often reads like a set of separate research papers, compiled only on account of having a common topic.

Some parts seem to have been unnecessarily included and add little value. Notably, this occurs in the discussion on advertising, which descends into inane descriptions of the media in China, with no link to luxury goods or any other idea raised by the authors. The same problem crops up again – and is perhaps at its most pronounced – at the end of the book, which covers brand protection and counterfeiting but fails to draw together the issues raised.

Even when the authors do draw conclusions, they are poorly stitched and at times questionable. For example, Chevalier and Lu are unequivocal in their belief that China is not a profitable market for luxury brands, arguing that the capital required to grow is dauntingly large. Yet elsewhere in the book, during an assessment of the high barriers to entry in the China market, they claim that the dominant position of the incumbents can deliver a strong return on capital investment. This is supported by the high profits actually achieved by the major brands such as Louis Vuitton.

Luxury China is not wholly without merit, though. The authors’ analysis of the diffusion of luxury products in an Asian context is a particular strong point, offering insight into the behavioral patterns of the Chinese consumer. They note that, unlike Westerners, Chinese luxury purchasers have a slow adoption rate due to a hesitance to take on new products. In contrast, purchase rates drop off very quickly later in the product cycle, as buyers switch brands once the normative standards of their reference group change.

This interpretation is then applied to different types of shopper – from the luxury lover to the luxury laggard – which adds weight to the overall consumer profile.

To complete the analysis, the book also breaks down the various target groups, identifying their current composition and how it might change. Counter-intuitively, the luxury brand customers are predominantly male – in 2001, three out of four consumers were men – but the authors believe the focus is shifting toward females. The target market also appears younger than one might assume, with 86% of the members of China’s "affluent class" aged 47 or below. In addition, more than 50% of the disposable income of one-child families living in urban areas is spent on or by its youngest members.

Star appeal

Once Chevalier and Lu have established the identity of the shopper, they move on to the brands. The discourse on celebrity endorsement is enlightening, outlining past hits and misses which draw attention to the broad spectrum of factors that must taken into consideration when choosing a brand representative.

TAG Heuer, for example, is deemed to have made a poor choice when it signed up popular NBA basketball player Yao Ming: The Swiss timepiece brand is seeking upper-middle class associations yet Yao brings a mass-market sports appeal. In contrast, Mercedes Benz successfully played off the appeal of Chinese movie-star Zhang Ziyi to sell its latest convertible. "Through a clever interplay of language in the advertising slogans … the ‘extreme beauty’ of the [Mercedes Benz] CLS  and that of its endorser became intertwined," the authors write.

Although Luxury China has its flaws, it is nevertheless a useful and insightful guide for those working with luxury brands in China or elsewhere. For those without a vested interest in the topic, however, it might make for a difficult read.
 

ANDREW CURTAIN