Massification of luxury

Experts all over the world have been penning about luxury consumption among the Chinese customers. A Few have also discussed the issues of Chinese luxury brands aimed at worldwide customers including Shanghai Tang and LaVie. However, there is hardly any discussion on how slowly but steadily Chinese enterprises are acquiring or taking over Western luxury brands. This post is an attempt to highlight that.

In the later half of last century, a revolutionary style of luxury customers emerged. This involved successful business people, industrialists, artists and those who acquired brand-new riches in several marketplaces across the globe. This nouveau riche had little idea on how to use their new-found wealthiness and how to become stylish person. A innovative service industry emerged due to this: the fashion stylist who assisted this nouveau riche look and feel modern person.

One of the major impacts of this revolutionary luxury customer was that they made a second rung of overambitious leaders, directors and carrier go-getters at large. These materialistic customers also wanted to consume luxury however didnt have the means to purchase such goods.

To get out of this market luxury companies came up with a totally brand-new set of products which later on were defined as accessible luxury. It included bags, scarves, wallets and bags, belts and such other low-price goods. While the new marketplace was lucrative, most luxury organizations recognized that the production prices didn't provide enough margins when produced in the European factories.

To amend their financial bottom-line many luxury firms then looked for markets where these goods can be made for a cheaper cost. China was the most apparent options, still it was a unruly marketplace to establish relationships with local manufacturers. Many Hong Kong based dealers took advantage of the position and jumped opening up factories in China which developed luxury goods for many well recognized luxury houses.

As they gained knowledge and expertise in developing quality high-priced luxury goods some of his Hong Kong dealers and their Chinese counterparts realized that the greatest profit margin lies in the ownership of a luxury organization. In the early part of the brand-new millennium the Chinese encroachment in the luxury market jumped.

The most booming stories among these is the Chinese entrepreneur Silas Chou, the President and CEO of Novel Enterprises Limited, one of the worlds leading vertically-integrated textile and apparel manufacturer. In 1984, he actively helped his family in establishing Dragonair. He took over Tommy Hilfiger Corporation tacitly. Within 8 small years as a chairman he changed the luxury company from a US$25 million only America centric clothes company to a world-wide US$2 billion brand.

The above presents us a little thought of how the Chinese businessman are now stepping up in the luxury business which was predominantly European a few decades ago. As the market presence of Chinese consumers grow in the field of luxury, the other side of the movement also is going to grow only. Certainly some food for thought for the European luxury manufacturers and marketers.

Source: Massification of Luxury: the Chinese Invasion

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Impulsive buying behaviour in recession

Researchers suggest that 90% people across the world make occasional impulse purchases. However, when asked about impulsive buying behaviour approximately 30% to 50% only classify themselves as impulsive. This highlights two interesting issues: (1) consumers’ own understanding of what is impulsive; and (2) the difference between what consumers portray and what they really do. While impulsive buying has been strongly associated with female consumers (especially in the categories of fashion, accessible luxury, and so on), man are not really far behind in this area. Moreover, the communication channels including the electronic channels such as web marketing, email marketing among others provide added impetus for impulsive purchases.

A recent survey of more than 70,000 American consumers representing a wide range of income groups by Taylor Nelson Sofres (TNS), one of the largest market research firms in the world, found an increasing shift from branded products to own-labels. Furthermore, it the survey results also highlighted increasing usage of coupons among the survey’s highest income bracket customers. In an earlier consumer market research focusing specifically on luxury consumption (http://pauravshukla.blogspot.com/2009/02/rise-of-affordable-luxury-consumption.html) we observed similar results where many consumers were moving towards buying affordable luxury.

This poses as significant challenge for companies. Companies like P&G, the world's largest consumer products company, have already adopted an approach called ‘performance-based value messaging’. This, I believe is due to the nature of most P&G products which belong to Fast Moving Consumer Goods (FMCG) area. This is the area where most consumers make decisions when in the store and therefore the overall behaviour may be highly impulsive. In this recessionary times, P&G has focused on communicating to the frugally minded consumers that it is worth spending more on its products as they perform much better in comparison to own-labels and therefore provide better value overall.

While many academic researchers define impulse buying as a sign of immaturity and lack of behavioural self-control, impulsiveness and resultant impulsive buying is a significant reality of our everyday lives. In recessionary times, we all tend to become more frugal and therefore less impulsive. It is believed that our behaviour becomes more planned when we face economic and financial strains.

However, the above stated notion of reduction in impulsive buying in recessionary times raises interesting questions.

Following are some of the interesting research questions relating to impulsive buying behaviour in recession:

1. Does our impulsive buying behaviour get affected in recession? Do we seriously adopt more planned approach to buying?
2. If the impulsiveness reduces, what sort of reduction is observed?
3. Is the reduction in impulsive purchase behaviour substantial that managers should worry about it?

I am really interested in knowing your views about it. Therefore, could I request you to answer the above three questions from your own perspectives?

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Rise of affordable luxury consumption

In past few posts, I have discussed the impact of recession on luxury consumption. In two of these posts (Luxury consumption: will it really be affected by recession? and Luxury Consumption Tendencies in Recession: Early Evidence) looking through an exploratory study, I opined that the overall luxury consumption will not decline as much in this recession due to several factors including, mass consumption trends, tourism trends and the rise of emerging markets.

The mass consumption trends have shown an interesting consumption trend overall which has been termed 'the lipstick effect'. The effect relates to tougher economic conditions when consumers who are used to buying luxury products tend to consume lesser costly luxury products but the consumption pattern continues. It was first observed by analysts at Estee Lauder who saw a huge jump in Lipstick sales after Sep 11 attacks and Leonard Lauder, Chairman of Estee Lauder promoted it. Later on when analysed, this effect was observed through various recessionary phases world has seen across countries.

There is conclusive trend emerging to support this effect. Rather than changing their overall spending habit and becoming thrifty, consumers are simply trading down (another term quite known in fashion world) to cheaper luxury products to cheer themselves up. The trend is clearly seen from the recent sales figures from the world's big cosmetic firms including Shiseido, L'Oreal and others. The European personal products index is an excellent proxy for the global cosmetics sector because it is dominated by L'Oréal and Beiersdorf. So far in the downturn, this index has already outperformed the broader market by 45%.

The accessories (or what is called affordable luxury) is a very interesting product category. They involve products such as perfumes, belts, glasses, small ticket jewellary, and so on. The accessible luxury goods, even if they are relatively inexpensive in price (comparing to it true and intermediary counterparts), still function as luxury products as they are ‘creative, sophisticated’ and yet ‘sold through luxury distribution’. Many of these products are used for self-gift giving and also general gift-giving. My last blog on Valentine's Day as a marketing opportunity highlighted the day as one of the biggest events for consumption of affordable luxury products.

The affordable luxury products provide an interesting comparative research environment to look into. There are several research gaps in our understanding as to: how do other affordable luxury products (else than Lipstick) perform comparatively? how do affordable luxury products perform against exclusive luxury (the real and very high end luxury); how do consumer engage with these affordable luxury products?

We are working on a research project on similar lines. Till those results are made available in public domain, watch this space!!!

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