Why is China's luxury population so young compared to economies in other nations?
They're very young for one simple reason: China is an incredibly ambitious society. And as a result young people use luxury goods as a marker of their intention to 'play in the game'. I've always believed that Chinese people are unified by the 'Confucian conflict' - on one hand, regimentation and on the other a trenchant ambition to move forward in life. As a result, people are always looking for tools to help them operate within a societally mandated hierarchy or framework. Individualism in China (in the sense of society encouraging individuals to define themselves outside of that society) doesn't really exist here. But on the other hand, ego - the demand for acknowledgement - is very powerful.
Which brands do they feel a particular affinity with, and why?
There are many, but that affinity is usually developed via a change in the business model. There are two ways to do that; one is through price tiering and sub-brands and the other is through product and portfolio diversification. So Gucci will get most of its sales through belts and mobile phone straps and sunglasses - same with Louis Vuitton. This is what's used to get the luxury brand in the hands of the younger generation. In terms of brands that have specifically targeted the young generation, it's only recently that Coach have made some interesting adverts to start owning a youth-centric segment of luxury business-casual for the so-called 'office girls', but very few brands have youth-centric positioning strategies. Usually they will use the premium, high-end products to build the image and rely on widening their portfolio or sub-tiers to penetrate the youth market.
Some are doing it, like Hugo Boss, but they have very Western individualistic messaging and that doesn't work so well.
Is this young luxury consumer more responsive to new media campaigns?
Any person is going to want to buy a luxury brand regardless of price or product segment because everybody has heard of it. So that means that mass media is extremely important. It's very difficult to develop niche luxury brands via digital; it doesn't work. It's got to be big and omnipresent.
That said, digital is a tool of deepening engagement and deepening affinity. You have a few brands that have started to have more sophisticated digital platforms but they're relatively few and far between. Most of the luxury marketing in China is very centrally controlled, and that means that very few brands have a local marketing arm. These brands are religions to their creative directors in Paris or New York, and the degree of localisation necessary is much more than what is currently happening. So you don't have a lot of great digital work going on for luxury consumers.
I think there are a few who have done digital well. Louis Vuitton had a digital version of its above-the-line global campaign, and 'Soundwalk' where you download music and have an urban tour surrounded by calming, wellness-type music. DeBeers has done interesting stuff through their 'In the Name of Love' competition and also the omnipresent 'Love World', but that's now been scaled back. You've got Chivas Regal's 'Timeless Chivalry' but again that's based on a very global positioning.
Overall, it's very scattered, and it should be done much more than it currently is.
What makes a brand 'luxury' in China ? Is it handicraft? Association with a particular culture?
In a nutshell, the benefits always have to be externalised. Luxury is a tool, it's a means to an end and the luxury segmentation in China is quite diverse. You have the guy on the top of the mountain and he's never secure of his position, so he wants to stay on top - [reaching him] is about mastery and connoisseurship. It's about understanding things that other people don't, and being able to demonstrate and manipulate it. An example would be Audi 8, where you're establishing a parallel between the craftsmanship and attention to detail and ancient Chinese art. So again, it's for somebody that has truth and ultimate mastery.
Then you have new luxury - men moving forwards, in the middle of their journey. Then you have independent women and then you have youth. And obviously youth is the broadest part of the pyramid, and established is the narrowest part. So for the people on top - and this gets back to the resolution of the Confucian Conflict - it's about a need to tick competitors away who are angling from below to maintain their position at the top. It's a way of subtly exerting power and control. Royal Salute is all about competitive mastery, knowing all the rules to the chess game. Cadillac is about ultimate control. Hennessy XO is about timeless connoisseurship. Breitling and Bentley is a celebration of perfection. So then you move into new luxury, and these are people that need to demonstrate they shine through, but always through substance - because they can never be superficial. Their complex is that they need to move up the hierarchy, but their ambitions can't be too blatant. This is not a space where you crash through gates; rules are sacred. So it's a way of demonstrating progress, a reassurance that new money doesn't need to be uncouth.
Added Value did an interesting study where they had two variables which defined where a country was placed in terms of luxury. One axis was from maintaining to transforming lives, and the other was from inner to outer motivation. And in the transforming and inner motivation you have Japan, then you have the UK, which is about maintaining inner motivation, the US is in maintaining and outer motivation, and China in transforming and outer motivation. So Japan is about confidence - 'don't be shown up', the UK is about pleasure and knowing, USA is showing you know/status and China is about showing and status but also moving forward in society.
According to TNS, 64% of Chinese think luxury brands denote success, and only 1% think they denote superficiality.
Where do people buy luxury in China? Is it online or in shops?
This isn't something that anyone knows, but I will say that 50% of luxury goods are purchased outside of China, like in Hong Kong, because the prices are very cheap. There's a 33% tariff in China for luxury goods.
I also think that a lot of times the luxury brands are using their retail as image building as much as sales generation. China is now the second largest luxury market in the world so there's a lot of shopping going on.
Should you take an 'ageless' (eg values-based) marketing approach with this group, or do they still like youth/popular cultural icons? Is the crossover where the money is?
The range of cultural icons here is relatively shallow. So when you think about what an icon is in China, it's somebody that is so big because they've redefined what it means to be Chinese without abandoning Chinese-ness. There are relatively few of those. Liu Xiang, the sprinter, because he defined what a body could you. Yao Ming, because he used Chinese intelligence to invade the NBA, Li Yuchun, the supergirl singer, because she redefined definitions of beauty and talent for women, Jack Ma of Alibaba. That's pretty much it - there are very few people that represent this timeless and deep value that give this contemporary twist to luxury goods for youth. I'm not saying you shouldn't be using stars for credibility enhancement, but it's not going to get to the level of timeless issues that appeal to young people.
Are there any successful domestic luxury brands?
No, it's mathematically impossible. Because one thing known by all is that there's clear internationalism. I'm not saying that there can't be mass premium, but true luxury local brands is a long, long time off. International credibility and international scale is absolutely fundamental to something being a luxury brand. And when I say luxury I don't just mean in terms of price, but price premium versus competitors. That doesn't mean there's not a degree of local luxury experiences.
The problem of superfakes - is it a problem? What are Chinese attitudes to brand authenticity?
Nobody thinks that these fakes are a major problem from the perspective of taking sales away. Fakes basically say 'Hey, it's good enough to be copied'. Anybody that has the money to buy a luxury brand would not be caught dead with a fake. If you talk to anybody like Andrew Wu, the head of LVMH or Mont Blanc, nobody is worried about the fakes. It's a Western fear.
Chinese can tell very quickly if something is real; it would be a huge loss of face to be discovered with a fake.
What advice would you give to luxury brands looking to set up in China?
One is to make sure you're bringing the brand in line with Chinese cultural imperatives and what Chinese people are looking for. Two, don't assume that all luxury consumers are the same, because it's a very vertically segmented market. And three, and related to number one, you also need to have a real marketing department in China. And if you think that you can import your creative and your marketing programs, you're wrong.
When you come in, you have to come in big. You can't have a guerrilla entry strategy - you have to come in big or don't do it at all. I mean mass media, the right stores in the right location, visibility is huge. I would also say that people need to educate a lot, so you need to spend a lot of your budget on product education. Everybody is eager to learn; whether history and heritage, process and technique or ingredients and provenance, or even about the luxury lifestyle more broadly - with BMW's lifestyle stores, for example. Extensions that bring it into the children's bedroom, like the Louis Vuitton teddy bear, or lessons on how to sip cognac. Education is key.
The last piece of advice I would give is the importance of demonstrating innovation. And this comes back to the fakes a little. Nobody will really think that your brand is fake, but you don't want to be associated with anybody who could possibly show up with a fake. So that's why always having new products that are on the cutting edge as image builders is really important as well. Chinese want to see an innovative brand - and that's what Dunhill did wrong. It just didn't innovate.
How do you see the sector evolving over the next 12-18 months?
I don't, really. Changes over the last seven years have been massive in terms of retail, disposable income and the broad array of brands, but what's also important is that very few brands have huge traction, because there is so little great marketing going on, so the number of power luxury brands with loyal followings is relatively limited.
I think for any brand to capitalize in China, and not just get lost in a sea of shiny things, they need to have a very clear China strategy. And I wish more clients had that, but very few do - it's just a retail land grab.