The Chinese Lap of Luxury

While the sinking finances of Western consumers prompted them to temporarily halt their indulgences in 2009, the Chinese consumers continue to march ahead on the gilded road of luxury and rewarded the luxury goods industry with a 20% growth for the year. The boom is further magnified this year - large new stores of Louis Vuitton, Coach and other such brands decorate the shopping streets of Shanghai and China is expected to show a 30% growth in luxury goods in 2010.

While rapid economic growth and swelling ranks of the rich are definitely fueling the market, there are also clear cultural factors which make the Chinese more attracted to luxury products than some other markets. The old Chinese saying "yi jin huan xiang" (return home in golden robes) expresses the phenomenon of using visible symbols to reflect your success. Having succeeded, it is important to make sure that your achievement is noticed and applauded. But at the same time traditional Chinese values do not suggest sticking out or drawing undue attention on oneself through conspicuous behavious or consumption ("qiang da chu tou niao" - the bird who sticks out his head gets shot!). Why then are the Chinese consumers lapping the expensive symbols of luxury? Apart from economic and cultural factors, I feel that there are a few other elements serving as psychological fuel for the luxury market in China.

1. Universality of ambition and common standard of evaluation of success. In China there is near universality of ambition - almost every person dreams of and strives for success. As compared to other societies which are more class based (social or economic), and people blessed or cursed by advantages and disadvantages of coming from specifc backgrounds or bloodlines, the relatively flat social structure and the fact that all money is "new money" puts everyone on a relatively equal footing in their endeavour for success . In a similar vein, not many symbols of success or achievement are available to display as the absence of "background" provides little opportunity to display your success other than through the symbolism of whatever your new money can buy. Luxury goods provide easily recognisable symbols or markers of having reached certain milestones.

2. The simple perception of money. In China the history of branding and availability of quality goods is rather short. Over the last 20 years, Chinese consumers have discovered that money generally buys superior quality and hence expect the expensively priced luxury goods to deliver matching value. Chinese attraction to luxury products, therefore, is driven by an expectation of high quality. As an implication, for luxury goods manufacturers, it is equally important to ensure and deliver product excellence and exquisite craftsmanship, as it is to project a luxurious and exclusive image.

3. Lack of inverted snobbery. In China, there is no inverted snobbery or "old money" looking down on the ostentatious behaviour of the "new rich", which discourages the use of luxury products and in fact makes it fashionable to appear casual and use moderately priced products. This sentiment restricts the market of luxury goods in developed markets, but because of the relative homogeneity of the society (e.g. all money is new money) does not appear to make a strong dent in China.

4. Absence of price anchors. Dan Ariely in his book "Predictably Irrational" talks about the concept of arbitrary coherence. We tend to assess the value of goods and services in relation to certain anchor benchmarks or comparison standards (which some times can be quite arbitrary and irrational). In countries like India, which are also booming economies, but where there has been a historic continuity of consumption, the consumers have grown up with products and services which were low priced but still delivered acceptable quality. In relation to these historical anchors it is more difficult for Indian consumers to accept the high prices of luxury goods, But in China where there was a long discontinuity in consumption of quality products, many consumers have no anchor of what a good quality hand bag, watch or a car should cost - making it easier for them to accept the high prices of luxury goods.

These factors combined with China's rapid economic development and cultural factors provide a potent mix, resulting in a resplendent display of luxury and a great market for purveyors of these pleasures.

Written by Ashok Sethi

Ashok.Sethi@gmail.com