Feature: Luxury and the new consumer mindset

Nothing stands still in Asia, and nowhere has the region’s desire for upward mobility been more evident than in its love affair with Western luxury brands. But while the appetite for luxury remains strong, tastes - and the definition of luxury itself - are changing.

Ten years ago, when the first upscale malls opened in India and luxury consumption in China took off in earnest, shoppers were predominantly logo hunters concerned with little beyond flaunting their new-found wealth. Today, they want much more bang for their buck. The emphasis has shifted from impressing the masses to genuine personal enjoyment and status within select social circles. As a result, the likes of Louis Vuitton, Gucci and Versace are having to work harder than ever to transmit their brand persona and reach out to a new, increasingly sophisticated generation.

In China, Angelito Tan, managing partner of BBDO/Proximity Live, identifies “luxury intellectuals” as the fastest growing luxury consumer group, accounting for around 35 per cent of the market. Tan says members of this group have their own interpretation of luxury and favour niche products and brands over trends (see box). This suggests a seismic shift in consumer attitudes and is not only apparent in China. Gone are the days of people bulk buying luxury items, the brand names of which they could barely pronounce. Instead, Asia is entering an era of unparalleled product and brand awareness.

Clearly, however, not every market is at the same point in the development cycle and consumer behaviour varies very widely between Japan, for example, and Indonesia. French research firm Ipsos recently produced an outline of the progression of luxury consumption in various Asian markets. The report describes Japanese consumers as “locked into luxe habits” and it expects Korea, Hong Kong and Singapore to head in the same direction. Yet it indicates that in Malaysia, luxury consumption is still about buying goods as a symbol of wealth and economic status. And while elite consumers are evolving fast in China, luxury has yet to filter down to the masses.

In Japan - a country where urban women who do not own a Louis Vuitton or Gucci bag are an anomaly - high-end labels are part of the fabric of society and no longer have the allure they once had. This was evidenced by Versace’s recent departure from the market. Rie Tanaka, chief researcher at Dentsu’s research department for consumer insight, explains the drivers of consumption have shifted. “The new luxury consumer is someone who is no longer satisfied with design, quality, history and tradition being the only values. This is because the subject of the story is not the brand, but the shopper. A trend here is not simply the purchase of an item that everyone is talking about, it is the selection that shows a person’s smartness and creativity; an item that expresses their ability to make the right choices.”

In Indonesia, where international luxury marques are confined to opulent malls, consumers are similarly pragmatic, according to Shubho Sarkar, CEO of Bates 141 in Jakarta.

“The view is, I will spend more, provided it gives me what I need,” he says. “We see the role of functionality in luxury. It’s not about having a Lamborghini that you barely drive in the garage. People here want to use their luxury items more often than not. It’s not about flaunting but having goods that others in your immediate social circle will recognise as good quality. For example, you may not be able to afford a BMW but you will buy the top of the range sound system.” Sarkar adds that the average person is reluctant to spend their hard-earned money on products that are not deemed essential.

Those that do spend are likely to be motivated by factors beyond the products themselves. In many markets, consumers are increasingly  looking for new, personalised experiences. They expect innovation while embracing the allure of heritage, and brands are increasingly reaching out to customers directly to encourage the right kind of brand engagement. Both Tanaka and Tan point to the importance of the retail experience.  

“In-store activation is not only the purchase of a product. The act of getting involved is in itself a form of limited (and therefore very special) entertainment,” Tanaka says, stating that in Japan, some of the most effective initiatives have involved the setting up of cafes for a limited time, or collaborations with designers.

“For niche brands entering China, as well as existing brands expanding to new cities, getting the retail strategy right is absolutely paramount,” says Tan. “For many consumers, the store experience is their first interaction with the brand, and first impressions count.”

Linda Locke, founder of  Godmother Consulting in Singapore, adds that the consumer groups themselves are more complex than many imagine. “Instead of a single demographic or psychographic profile, the new luxury consumer notion is really a collection of many micro-tribes.

Some luxury brands are trying to create more personal relationships with these customers via social media, mobile applications and CRM programmes. Others try to bring the brand to the consumer through live video streaming of their fashion shows, for example Burberry and Dolce & Gabbana.”

One emerging micro-tribe in China is the ‘super-lux’, whose interest is in brands few others can afford, according to Edward Su, managing director of Euro RSCG in Shanghai.“When everyone owns an LV bag, is it still luxury?” he asks. “There are not many super-lux consumers, or brands in Asia, although I would say Cartier is perhaps one of them in China. The ‘Love’ series of bracelets and rings to target younger shoppers was very clever. The younger line targets wealthy consumers who will potentially be switched on to the brand for the next 10 years.”

When targeting China’s wealthiest consumers, Su says ‘circle marketing’ is highly effective. “Rich customers move in certain circles, with friends and colleagues from their hometown or through business. In any circle there are opinion leaders. If the opinion leader buys and he tells others in his circle, they all buy. That’s why circle marketing is extremely effective in China. You need the PR and the celebrity endorsements to raise  awareness, but database targeting and sponsoring the right events can help spread the word like fire,” he says.

To keep top customers on board, some brands have built databases of VIP shoppers so they can track their best customers as they flit between Singapore and Hong Kong or Shanghai. Staff can be alerted to give these customers top treatment and skilled store managers can use the data to offer a more personalised shopping experience. Other luxury brands, with an eye firmly on the consumption behaviour of the new breed of Asian consumer, are expanding beyond their core expertise and joining with contemporaries to provide richer experiences.

“Creative collaboration between luxury brands is a really exciting new area of growth,” observes Nirmalo Wilkes, regional director of global brands at TBWA in Singapore. “Chanel’s mobile art pavilion and Rolex’s Ashes and Snow photographic exhibitions are expressions of this. Cross category collaborations have resulted in some really innovative products like LG’s Prada phone and Acer’s Lamborghini laptop.”

In China, the growth of the luxury market (up 12 per cent to US$9.6 billion according to Bain & Co) and the increasing demand for quality, better consumer engagement and innovation have prompted several leading luxury brands to take their strategies to the next stage. German label Hugo Boss recently signed an agreement with Macau-based fashion retailer Rainbow Group to establish a joint venture in the second half of 2010, while earlier this month, Burberry took control of its franchised stores in China for $111 million and announced plans to add ten new outlets. Other global luxury brands to replace their Chinese franchise partners with direct operations include Montblanc and Giorgio Armani.

The situation in China contrasts sharply with that in India, where luxury brands have largely been unable to gain wide reach across the country or effectively target the upper classes, who still prefer to buy on their travels abroad. As a result, the sector has seen little evolution and the biggest brands by nature cater to an extremely niche consumer segment.

“There are many challenges for luxury brands in India,” observes Preeta Sukhtankar, founder of website Bagsutra, the market’s first luxury handbag rental service. “For one, it’s very hard for them to find the right sites. The mall culture is relatively under-developed, and they don’t want to be too near a slum or a shampoo shop, which rules out a lot of retail space. There are a few key luxury malls, but other than that the locations are in the five-star hotels. This creates a problem. I know people who would buy a Louis Vuitton handbag, but they would not go into a five-star hotel. It’s too intimidating. The new Indian consumer isn’t comfortable with this yet.”

Nonethless, the number of global companies innovating in India is so large the phenomenon has been dubbed ‘Indovation’. But analysts estimate the luxury market lags behind China by five to 10 years and is developing in a very different way. Many stress the need for creativity in India but add that luxury brands in particular struggle to bend to the requirements of the market.

“For Indians to buy luxury goods in India, the pricing needs to change. For other goods, such as ready-to-wear clothing lines and jewellery, it’s very tough. Formal wear in India is still a sari and jewellery here is a home-grown industry. None of the Louis Vuitton stores sell the ready-to-wear range and Moschino has struggled,” Sukhtankar says.

This article was originally published in the 12 August 2010 issue of Media.