Chinese Consumer Report 2012 - Luxury - Roland Berger

ROLAND BERGER STRATEGY CONSULTANTS
In depth knowledge for decision makers
CHINESE CONSUMER REPORT – Luxury
A brand awareness upgrade
Welcoming a new era in the Chinese luxury market

Foreword
Defining Chinese luxury brand consumers
Enhance brand awareness
Winning in the luxury market
2

Foreword
China is close to becoming the second largest luxury market in the world and it is increasingly attracting the
attention of major luxury brand producers worldwide. In view of this, Roland Berger conducted a study on the
behavior of Chinese consumers when buying luxury goods and their choice of brands. The aim of the study was to
offer those companies that wish to engage in this prestigious and lucrative market with valuable insights about their
target consumers. To achieve this goal the study looks at the key factors influencing and determining the purchasing
behavior of Chinese consumers: broadly their social characteristics as well as psychological and behavioral traits.
Our experts further segmented the entire consumer population into six archetypes, which we call Era Leaders,
Wealthy Second Generation, Ambitious Elites, Savvy Investors, Stylish White Collars and Gift Buyers.
China has a great deal of consumers who can be characterized as Gift Buyers. In addition, "showing-off"
(exhibitionism) is a significant feature in all the other archetypes too, albeit to varying degrees. One in four
consumers in China belong to the archetype Era Leaders. One of their strong traits is a penchant to follow others.
Given these findings it is not surprising that internationally famous brands are still the top choice for Chinese luxury
goods consumers.
To better understand the market, Roland Berger closely examined the considerations and actions that culminate
in the purchase of luxury goods. They noticed that the purchase of a luxury good is the culmination of four distinct
steps. We call these stages Origin of Consciousness, Selection of Brand/Product, On-site Decision and Final
Purchase. Our experts further observed that brand awareness plays a very important role in each of the four stages.
Member of Global Executive Committee
President, Asia
Roland Berger Strategy Consultants
The increase in the number of consumers who can be characterized as Wealthy Second Generation, Ambitious Elites
and Trendy White Collars suggests that Chinese consumers on a whole are maturing. These buyers – unlike most of
their peers – do not choose certain brands for the sole purpose of "showing off". On the contrary, they are choosing
brands that make them feel good, that give them a certain sense of self-satisfaction.
There is a shifting preference toward unique luxury brands, which requires a more nuanced understanding of the
luxury goods market. There must be an awareness of more than just the top luxury brands. Today to be successful in
China it is often enough for companies simply to have a well-recognized brand. But increasingly brand competition
will intensify, especially as a wider range of brands becomes accepted.
There is increasing brand awareness among buyers of luxury goods in China. This is a trend that all brand producers
have to address and try to exploit, both luxury goods makers trying to maintain their leading position in the Chinese
luxury market and latecomers striving to quickly catch up to their more established counterparts.
When it comes to brands, consumers are upgrading. And makers of luxury goods need to have a well-defined and
focused strategy, particularly when investing resources. Accordingly, Roland Berger experts recommend that
players thoroughly consider the following three aspects:
1. Identify brand ambassadors—these are the "active information seekers". Marketing activities should target this
group of consumers with the aim of having them "fall for the brand". They need to be aware of the brand and
promote it within their social groups.
2. Set up an interactive global store network. Given the fact that the Chinese are more likely to buy luxury goods
abroad than they do at home, companies should differentiate in-store positioning both within China and abroad.
Activities need to be undertaken to better manage how products are selected, customer service and how stores
are assessed.
3. Broaden the core market for marketing. Marketing and distribution activities should be extended beyond first-tier
cities. Specifically for this exercise, we identified the key luxury market cities through our proprietary model based
on spending power and economic scale. Store expansion should occur in these cities. Moreover these cities will
form the main battlefield on which the war for brand awareness will be fought. These are the cities where brand
preference and recognition will be built.
3

Defining Chinese luxury brand consumers
The capacity and increasing speed of the global luxury market
[One billion euros]
Other countries
Other Asia-Pacific
countries
Japan
Chinese mainland
America
Europe
Who are Chinese luxury brand consumers?
CAGR
New market
capacity
New market
proportion
Source: Roland Berger Analysis
Gender distribution Age distribution Household income distribution
Chinese consumers are displaying a newfound
and growing interest in luxury goods. The
wealthy and elite are eagerly embracing the
culture of the luxury market and wish to own
the same brands that are popular in developed
economies. This has not escaped the notice of
mainstream luxury brand producers. In recent
years they have seen their products become
a feature of daily life in China to a moderate
but steadily increasing degree. If luxury goods
makers are to capitalize on this trend they
should move quickly to acquire and develop
a deeper understanding of Chinese luxury
consumers. As Chinese luxury consumers are
expected to account for 40% of the new luxury
market globally between 2010- 2015, it is an
opportunity that few can afford to miss.
Male
Female
China
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), Germany 2010 Survey; Roland Berger analysis
Archetypes of Chinese luxury consumers
Archetypes:
Western
European
Consumers
Era leader
Wealthy second
generation
Western
European
Consumers
China
highest
20%
medium
30%
lowest
50%
Ambitious elites Savvy investors
Western
European
Consumers
Stylish whitecollars
China
Gift buyers
Buyers of luxury goods in China are younger
than buyers in mature markets. This can
be attributed to a large degree to China's
demography. China has a relatively young
age population and wealth creation has been
mostly concentrated in the young generation
since the country's social and economic
reform. A further differentiating factor,
however, is that Chinese luxury consumers are
often found in the top social status group as
opposed to the more general across-the-board
distribution that occurs in mature markets.
Archetypes
% Share ~25% ~30% ~10% ~5% ~10% ~20%
Social profile
Psychological
traits
Behavioral
traits
> private business
owners, corporate
executives
(foreign, stateowned,
private)
> 25 to 40 years
old
Pursue
>worship
>wisdom
>self-cultivation
>follow others
> recognize top
brands
> young people
from the second
generation of
the wealthy
and officials,
including “rich
men’s wives”
> 20 to 35 years
old
Pursue
>innovation
>self-confidence
>passion
> are independent
> have strong selfawareness
> middle managers
of multinational
or state-owned
companies,
professionals,
entrepreneurs
> 25 to 35 years
old
Pursue
>enterprise
>passion
>challenge
> have strong selfawareness
> have a good
understanding of
luxury goods
> real estate
speculators,
stock traders,
freelancers, the
unemployed
> 25 to 40 years
old
Pursue
>trendiness
>individuality
>luxury
> have fluctuating
consumption
capacity
> focus on
popularity
> fresh to the
workforce, have
stable income
higher than their
peers
> 20 to 30 years
old
Pursue
>beauty
>luxury
>fashion
> have strong selfawareness
> have a good
understanding of
luxury goods
> lack of distinctive
features
Pursue
>worship
>respect
> have a low
purchasing
frequency
> focus on
popularity
Roland Berger experts segmented Chinese
luxury consumers into six archetypes
based on their physical, psychological and
behavioral characteristics. The six archetypes
are Era Leaders, Wealthy Second Generation,
Ambitious Elites, Savvy Investors, Stylish
White Collars and Gift Buyers. An in-depth
appreciation of the uniqueness of these six
groups can assist producers of luxury brands
to devise more precise brand development
strategies for the Chinese market.
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), industry interviews; Roland Berger analysis
4

Enhance brand awareness
An analysis of the six archetypes shows that
luxury goods makers presently focus their
marketing on brand awareness. This arises
not only because there is a large number
of Gift Buyers in the Chinese market but,
more importantly, because there is a lack of
understanding of luxury goods among buyers.
Consumers in the groups Era Leaders and Savvy
Investors are not yet confident when making
purchasing decisions. When buying luxury
goods these archetypes do not venture away
from the top names. They buy top brands only.
Analysis of Chinese luxury consumers purchasing behavior
Origin of
consciousness
Selection
factors
Observation
> reliance on social networks to get brand/product
information
> only well established brands with deep market
penetration command the strong brand awareness of
consumers
> product selection usually made prior to visiting the
channels
>risk aversion and trying new brands
>limited brand selection
Implication
> invest in
resources to
increase brand
awareness
> invest in
resources to
increase brand
awareness
To determine just how important brand
awareness is for the luxury goods segment,
Roland Berger experts looked very closely at
the luxury goods purchasing process and saw
that it could be divided into four steps. Brand
awareness was significant at each of the four
steps - origin of consciousness, selection
factors, on-site decision and final purchase.
Origin of consciousness, selection
factors and obtaining information
When buying luxury goods, Chinese
consumers are heavily reliant on the
recommendations of others and from
information gained at physical stores. As such,
their purchasing decisions can be described
as prudent, cautious and made without much
credible information. Clearly, this is a huge
obstacle for lesser-known luxury brands. Since
Chinese consumers stick to the tried-and-true
when buying high-end items, it makes it very
difficult for lesser-known luxury brands to
become known, recognized and alluring.
Compared with consumers of other products,
luxury goods consumers rely more heavily on
social networks when obtaining information.
This ties closely with the unique social aspect
of luxury goods: they are a proof of social
status.
On-site
decisions
Final purchase
> effect of brand awareness continues: brand popularity is
more important than design/style
> proliferation of brands, but the market is relatively
concentrated
> invest in
resources to
increase brand
awareness
> invest in
resources to
increase brand
awareness
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), industry interviews; Roland Berger analysis
The main channels of getting information [%]
Others’ recommendation
Physical stores
Magazines
TV commercials
Professional online
channels of luxury goods
Entertainment news
Brand’s official website
Posters/outdoor events
User comment
E-commerce websites
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), Industry Interviews; Roland Berger Analysis
5

Have you ever tried to buy some unfamiliar brands?
Buy unfamiliar brands
[mentioned %]
Never
1 out of 6 or 7
1 out of 4 or 5
1 out of 1 or 2
Almost every time
luxury goods
clothing
Channel predetermination
[mentioned %]
Q: Would you buy some unfamiliar brands?
Q: Do you decide on the brand and product category
before purchasing?
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), accurate, Roland Berger Analysis
On-site decision factors
Determine
brands and
products
Determine
specific brand
Determine
specific product
category
On-site decision
luxury clothing skin care mobile
goods
phone
Chinese luxury consumers are not confident
about the credibility of the information they
receive. Cautious purchasing behavior is
the result. They rarely buy unknown brands
and do no buy on the spur of the moment.
Purchases are made only after very thorough
consideration.
Similarly, consumers buying skin care
products and mobile phones rarely make
purchases on impulse or before lengthy
consideration. For makers of luxury goods this
is an important insight: the competitive battle
begins at the earliest stage of the purchasing
process.
Reasons for buying the product
[mentioned %]
Reasons for not buying the product
[mentioned %]
On-site decisions
Brand
Design
Quality
Price
luxury goods
clothing
Q: Which factor do you consider first when choosing
the products?
Don’t know the brand
The brand culture/
style doesn’t suit me
The price is too high
Others
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), accurate, Roland Berger analysis
Final purchase (taking high-end jewelry as an example)
luxury goods
Q: What kinds of brands won’t you buy?
clothing
Nothing is more important than brand for
Chinese consumers when purchasing luxury
goods in stores. Brand is more important than
design, quality or price. When affordability
is not an issue, Chinese consumers tend to
upgrade to top-tier brands.
Whereas it is common for consumers in more
mature markets to reject a brand because it
"doesn't suit them", this rarely occurs in China.
Brands are rejected in China because they are
not known.
market share [%; 2010]
Despite brand proliferation, the market is
relatively concentrated due to the presence
of certain more established brands. These
established brands enjoy high brand
awareness.
Upgrading brand awareness
operating history in China
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), accurate, Roland Berger analysis
brand awareness [%]
Roland Berger believes that Chinese luxury
goods consumers are becoming more
sophisticated, evolving into buyers that
purchase goods that make them feel good and
give them a certain sense of self-satisfaction.
6

These purchases are not made to show off. As
buyers become more egoistic and rational we
predict that brand preference and recognition
will be increasingly important in the consumer
decision-making process.
In the future, the question of "whether a brand
suits me" will become a more important
factor for Chinese consumers when deciding
to buy a luxury good. The rise of consumers
that belong to the archetype groups Wealthy
Second Generation, Ambitious Elites and Stylish
White Collars will go hand-in-glove with more
egoistic and independent purchasing decisions.
Therefore, the battle of brand preference and
recognition of luxury goods will ensure as the
drive for increased brand awareness takes effect.
The luxury car market provides a good
example of how makers of luxury goods can
position themselves in relation to the intrinsic
qualities and associations that the brand
wishes to project to Chinese luxury goods
consumers. The brand positioning of the four
luxury car brands are significantly different.
The brand positioning has been made based
on the uniqueness of the Chinese market
within the larger framework of global brands.
The four brands center around the values
"distinguished", "beautiful", "exquisite",
"credible", "advanced" and "dynamic". Each
brand has a focus on this first level and further
differentiates itself from its competitors on
the second level. Take "distinguished" as an
example: Whereas Mercedes Benz is linked to
distinguished origin, BMW is linked to noble
sports, and Lexus with implicit style. The
pairings in the example of "beautiful" are also
telling: Audi—fashion beauty, Benz—classic
beauty, BMW— artistic beauty, and Lexus—
purity and simplicity beauty.
The evolution of the psychological demand of Chinese luxury consumers
group affiliation
(generally recognize)
Source: Roland Berger analysis
First level Second-level values MB BMW Audi Lexus
Distinguished
Beautiful
Exquisite
Credible
Advanced
Dynamic
appreciation
(products, service, existence)
·compare with others
· lacking taste and
emotional demand
show off
(luxury, status)
distinguished
classic (eternal)
Implicit
tasteful (aesthetic, elegant)
Attractive
Simple (pure)
exquisite (serious)
caring
high quality
responsibility (credible)
advanced technology
(design model)
Innovative
Original
Dynamic
Young
Athletic
·egoistic
·rational
individuality
(taste, culture)
Commentary:
Different brand positioning and translation of deluxe car brands
In the past:
·Characteristics of Chinese luxury market
-- Consumers had a relatively low level of
education
-- Consumers valued brand awareness and
popularity the most
· Brand preference of Chinese luxury
consumers
--Social circle
--Befitting status and occasion
In the future:
·Rational demand
-- Satisfaction of rational needs, such as
quality and comfort
--Recognition of value for money
·Emotional aspect
--Focus on “whether the brand suits me”
-- Pay more attention to personal taste,
culture and modern values
Pleasant
Source: Roland Berger analysis
7

Winning in the luxury market
Comparison of consumers' level of involvement in the decision making process in
different product groups
Information seeking activity level
[mentioned %]
Often
Sometimes
Never
luxury clothing skin care mobile
goods
phone
Three characteristics of active information seekers
luxury clothing skin care mobile
goods
phone
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), Industry Interviews; Roland Berger Analysis
Characteristics of active information seekers
The number of brands
recognized with/without
prompting
Often actively
seek information
Sometimes actively
seek information
Never actively
seek information
Information seeking
channels
Magazines
Physical stores
Professional
online channels
of luxury goods
Consult others
Official brand
websites
Online search
E-commerce
websites
Number recognized without prompting
Number recognized with prompting
Number of brands recognized
without prompting
[mentioned %]
Reason for absolutely not
buying a particular brand
Don’t know
the brand
Brand style/
culture doesn’t
suit me
Price is too
high
Others
Often actively
seek information
Source: 2011 Roland Berger’s Chinese luxury consumers surveyLuxury Consumers Survey (n=13931,393), industry
interviews; Roland Berger analysis
Sometimes actively
seek information
Never actively
seek information
1) They are relatively less dependent on social networks;
2) Though active in getting information, they know a limited number of brands. They know
more brands than other consumers with capacity to increase the number of known
brands;
3) They believe the important factor of brand should be whether the brand suits them
rather than the brand's popularity.
Active information seekers, who are also highly receptive of market information, account for 14%
of luxury product consumers. Educating this group has the following benefits:
1) Education cost is very low as they actively seek information from relatively fixed
information channels;
2) Their social network can be leveraged to influence other consumers.
Roland Berger experts believe that Chinese
luxury goods consumers are upgrading from
simple brand awareness to a higher level that
is accompanied with greater expectations
from brands and greater demands. Brands
that are capable of recognizing the shift in
consumer sentiment will be more likely to
achieve success in the luxury market, outmaneuvering
their competitors. Strategies
need to be devised that cover marketing, sales
networking and product portfolio development.
Companies that accomplish them will not only
have a competitive advantage; they may even
disrupt market patterns.
Finding the brand ambassador
It is important for luxury brands to find people
who hold influence in desired consumer circles
– these people act as brand ambassadors.
We observe from our analysis that active
information seekers – these people are also
highly receptive to market information –
account for 14% of luxury product consumers.
This is about the same percentage as those
who consume relatively complex products
such as skin care and mobile phones.
Combined, this indicates that a significant
number of consumers involve themselves
heavily in purchasing process considerations
– at least with respect to these product groups.
An earlier analysis conducted by Roland
Berger experts also revealed that a higher
proportion of active information seekers were
found to exist among Stylish White Collars,
Ambitious Elites and the Wealthy Second
Generation luxury consumer archetypes, than
elsewhere.
Active information seekers display three key
characteristics: For those deeply involved in
the purchasing process, the thought that a
"brand's style/culture doesn't suit me" is now
more likely to be the primary reason for not
8

purchasing a product – and no longer "I don't
know a brand."
For active information seekers it is vital that
brands appear frequently in information
channels. Not only does this reinforce
recognition, it also enables preferences to
be formed. Brands that wish to speak to this
segment of the market must intensify their
marketing initiatives in magazines and online
channels. More importantly, they must win
the active support of active information
seeks. It is critical for luxury goods makers to
strengthen the relationship and increase the
level of intimacy between the brand and active
information seekers through events and VIP
publications, allowing them to take part in the
brand development process through word-ofmouth.
Setting up a global store network
3) About 10% of the consumers who
buy luxury goods purchase these
goods at the request of relatives
and friends
Given the interconnectedness between
domestic and international purchases,
physical stores of luxury brands in China
should not just be points of sale. They should
rather view themselves as display windows,
highlighting to consumers the potential of
worldwide sales.
Considering that many consumers examine
products at home and then shop abroad,
stores in China should become the marketing
ground for products sold only abroad. As well
as carrying SKUs that drive sales volume,
stores in China should also display designs
and products that are available in Hong Kong,
Singapore and Tokyo through the use of
product catalogs, leaflets and samples. At the
same time, stores abroad should be better
prepared to cater to Chinese demand.
Sophisticated consumers demand services
that are consistently good. More and more
astute consumers expect and require
"friendly", "professional" and "unpretentious"
in-store services. These values should be
clearly communicated with consistency
to ensure that the consumers' shopping
experience is positive and maximized.
To ensure that sales staff act in accordance
with the brand's intentions, more attention
needs to be paid to store assessments.
These should extend beyond the analysis of
sales figures and incorporate indicators such
as store image, number of store visits and
consumer satisfaction rates.
Many Chinese frequent luxury stores
worldwide, especially in places close to home
like Hong Kong and Macao. According to a
survey Roland Berger conducted in 2011,
over 50% of consumers purchased luxury
goods outside of mainland China in 2010.
Nevertheless, the consumption pattern
inside and outside of mainland China is
closely related.
Chinese consumers’ consumption behavior inside and outside China
Chinese consumers’ luxury
consumption location
Chinese consumers’ purchasing behavior abroad
Our survey shows that:
In China
Abroad
1) Over 70% of consumers who buy
luxury goods outside of mainland
China have also bought products
from the same brand inside
mainland China
2) Over 20% of consumers who buy
luxury goods outside of mainland
China make their purchasing
decision when in mainland China
% of
global
sales
Total
Mainland
China
Hong Kong,
Macao and
Taiwan
Outside
Greater
China
Knowing the brands through
others’ recommendation or
through retail outlets, leading to
low number of preferred brands
High price confirms the brand
exclusivity, leading to cautious
purchases
Often first time purchases of
some brands
Leverage brand awareness
developed in China
More reasonable prices lead to
rather liberal purchase behavior
that is based on developed brand
awareness
Repeat purchase - about 70%
of the consumers abroad have
made purchases from respective
brands in China
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), industry interviews; Roland Berger analysis
9

Luxury market capacity in different tier cities
Luxury market penetration and average spending in
different tier cities
Population [million]
Average spending
[thousand/year]
Penetration of luxury
goods: first-tier, secondtier,
third-tier, fourth-tier
Number of cities
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), industry interviews; Roland Berger analysis
58 key battlefield cities for Chinese luxury brand market
spending power
Battlefield for
luxury goods
consumer spending power
third-tier
Total spending in luxury goods
in different tier cities
[100 million]
fourth-tier
Key battlefield for luxury companies
first-tier
second-tier
Source: 2011 Roland Berger’s Chinese Luxury Consumers Survey (n=1,393), China City Statistical Yearbook, National
Development and Reform Commission, Yearbook of China Retail Corporations in Chain; Roland Berger analysis
#city
Spending on
luxury goods
Population (million)
City Luxury brand
population consumers
population
Key battlefield
coverage
#city
City
population
Target
consumer
group of
luxury goods
Spending on
luxury goods
Broaden the core market for marketing
There is untapped potential for sales in China's
luxury goods segment. Although most luxury
companies have opened stores in China's first
and/or second-tier cities, buyers from third
and fourth-tier cities account for nearly 40%
of total sales. This proportion is expected to
further increase in the future.
Consumers from second-tier cities have
contributed a higher percentage of sales than
those from first-tier cities. Consumers from
third and fourth-tier cities together have also
contributed a higher percentage than those in
first-tier cities.
In our view, there are many key battlefield
cities for luxury companies in China. As it
is unrealistic to cover all third and fourthtier
cities, we have identified the key cities
of the luxury market through our proprietary
model, which is based on spending power and
economic scale.
In this model, which follows the 80/20 rule,
we aimed to cover the largest luxury goods
consumer population with the fewest number
of cities. According to our model, 70% of luxury
goods consumers can be reached by covering
58 cities. Leading international brands have
not yet reached this coverage level. In the near
future, the growth of China's luxury market
will still be driven by store expansion from
multinational luxury companies.
Low-tier market coverage by international
luxury goods companies is still low but
considerable market capacity exists for
network growth.
The key question for international luxury brands
is how to effectively reach that large pool of
potential buyers in third and fourth-tier cities.
10

Beijing
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Shanghai
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Guangzhou
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Hong Kong
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Taipei
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