If there is one thing that makes China’s new rich unique, it is probably that they are - in the words of one commentator - “shockingly young”. MasterCard economic advisor Yuwa Hedrick-Wong makes the observation after his company surveyed the mainland’s affluent consumers - finding that 64 per cent of the rich are aged between 31 and 46 - an age range that is considerably lower than their counterparts in more-developed countries.
For the predominantly foreign luxury brands that are jostling to attract the attention of this audience, age is a factor that can pose a different set of challenges from what they are used to. “This is in stark difference to traditional luxury markets, where the target audience is in its 50s and 60s,” explains JWT business director Jancu Koenig. “The difference, from a consumer perspective, is that the younger group, cultural differences aside, engages with luxury brands for different reasons and in different ways. Luxury brands are not dealing within just a new cultural context, but also with a new generational mindset.”
The more sedate approach that works in mature markets is unlikely to hold much sway among an ambitious audience that has little time for old-world niceties. “The biggest challenge is to cultivate brand loyalty,” explains Angela Fu, director at Ogilvy Public Relations’ luxury goods practice. “Understanding the brand preferences of the new rich is also challenging, as this group is difficult to reach to conduct research. And, because this group is so stretched for time, finding the right medium to communicate with them can be a challenge.”
In this environment, luxury players are having to think beyond the traditional route of buying several pages in upmarket glossies. “Most current advertising still relies on obsessive proliferation of the brand through mass media that seek economies of scale - the more eyeballs, the better,” says Carat China communications planner Seth Grossman, whose agency handles Gucci and Pernod Ricard. “But affluent consumers want more than mass messages sent to eyeballs. They want respect, recognition and relevant communication, and they’ve indicated that the best way to give it to them is through experiences that are personally relevant, memorable, sensory, emotional and meaningful.”
Grossman notes that clients are increasingly shifting their budgets away from mass media towards more interactive events - such as exclusive, invitation-only parties - even in tier-two and -three cities, where TV is dominant. “Everything is geared around being perceived as big and famous,” says Koenig. “If a dominant international luxury brand in China is seen as doing little activity, then people quickly assume that there might be something wrong with the brand.”
Nitro strategic planner Leeon Zhu agrees, pointing out that - in tier-two and -three cities - good PR remains the most effective medium to build luxury brands. It is the reason why Tag Heuer conducts annual roadshows, and why Martell XO has rolled out VIP tasting dinners in lesser-known locations. More pertinently, it also reflects a more fundamental trend - that luxury brands are sometimes bypassing established cities such as Beijing, Shanghai and Guangzhou for upcoming boomtowns like Wenzhou, Kunming and Shenyang.
The last three shops that Louis Vuitton has opened, for example, are located in these three cities, while French luxury giant Hermes raised eyebrows - and perhaps real estate prices - when it eschewed the traditional powerhouses to open its first mainland watch boutiques in Kunming and Anshan. Few observers see significant short-term return for these brands in these cities; instead, it is all about raising awareness. “Luxury basically means face and showing-off - there’s no deeper emotional bonding established,” explains Zhu.
As the market matures, however, luxury marketers need to appeal to a consumer’s mind, rather just his vanity. Both Grossman and Koenig note that product quality, above all else, will become a critical differentiator - rather than just the price tag. “Status is still king,” agrees Koenig. “However, we have observed a growing interest in what makes a certain brand truly special. That means consumers are starting to engage with and buy brands beyond just price and recognition. People want to understand the heritage of a brand, what it stands for, how the product is made and consumed. This opens the door to more engaging and deeper client events.”
India The wealthy are finally spending at home, discovers Nandini Raghavendra
A few years ago, the only news that the luxury sector made in India was which international brands were entering the country, how many stores they were going to set up and in which cities they were going to be. Today, it is a different story. As Capgemini and Merrill Lynch estimate in the annual World Wealth Report, the number of people with net assets of US$1 million or more in India had reached 100,000 in 2006 — up more than 20 per cent from a year earlier. It was the second-fastest rate of growth in the world, after Singapore’s 21.5 per cent.
A year ago, when Alain Voit, CEO of Lladró Commercial, visited India, it was to doff his hat to a market which had been giving the company strong returns. The average Indian spend at Lladro is $1,700, the highest among the Spanish brand’s 120 markets across the globe, compared to the world average of $490. A big contributor to this success has been Indian inspirations like Ganesha and Krishna art. Viot says those are not the core of Lladro’s business in India, but have worked as a good retail strategy.
Though spend on luxury goods is hugely skewed towards India’s new millionaires, Ashish Chordia, CEO, Porsche India, says that people here have had money for a very long time - but it is only now that they are comfortable about spending it locally, rather than when they are travelling abroad. Alex Kuruvilla, managing director, Condé Nast India, says the luxury market has turned on its head in the last 24 months.
There has been an explosion in affluence, with investment bankers, entrepreneurs, IT, software professionals all joining the luxe sector as new consumers. “We clearly have a ringside view. There is a broadbased shift taking place, as a result of which several categories are seeing an explosion. Take the auto segment: while the mid-car segment is slowing down, the $37,000 to $48,000 and above categories are seeing a huge growth. Global launches are happening all the time, all of which are a new phenomena, fuelled by the new rich. These consumers walk in and buy without so much as a glance at the price tag,” says Kuruvilla.
While the luxury auto segment may be a new gainer from this spend, for brands like Moët Hennessy, which has been in India for over a decade, it is consistent marketing efforts to encourage product trial which has led to growth of up to 45 per cent. “We began selling champagne by the flute instead of the bottle, a retail strategy that worked wonders for us,” says Ashwin Deo, MD, Moët Hennessy.
What has also been a hit are brand ambassadors from Bollywood. Luxury watch brands have used this combination to a great advantage - LV’s Tag Heuer has Shah Rukh Khan, while Longines signed Aishwarya Rai and many others followed suit. A select few luxury brands are also looking at in-film placements.
The past 24 months have also seen Indian luxury consumers turn their eye to private jets and yachts. A recent international yacht show in Mumbai, which included Ferragamo’s famous Swan, saw much interest from ‘old’ as well as new millionaires. The market potential for a luxury boat is so large that Ferretti Group MD Alessandro Diomedi is confident that Indian corporates will soon begin convening board meetings on the high seas.
One of the biggest challenges for the growth of the luxury sector in India has been the right retail environment. Italian label Ermenegildo Zegna exited the country after its first foray, and only returned after it found retail space in the Taj Mahal Hotel in Mumbai. While five-star hotels have so far been the choice of most international brands, there are some like Gucci who differ. “Hotels are very restrictive,” says Robert Polet, president, CEO and chairman of the management board of Gucci Group. He cites the example of China, where, following the opening of Gucci’s first store in 1997, the brand followed up with the next seven, all standalone in malls or on high streets.
India is all about leapfrog luxury, says Mohan Murjani, chairman of the Murjani Group - which is bringing in brands like Gucci, Jimmy Choo, La Perla and Tumi, among others - and the new luxury shopper is in the know and willing to spend. “While they shop for brands like Gucci and Jimmy Choo, they are also looking at newer luxury brands like Bottega Veneta. In America it may taken decades for luxury to grow; in India it has taken just a couple of years,” notes Murjani.
