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Why mainland consumers have an big appetite for luxury goods

Mainlanders are voracious consumers of luxury goods, but their reasons for doing so are different from those of Westerners, writes Bernice Chan

PUBLISHED : Monday, 27 January, 2014, 9:34am
UPDATED : Monday, 27 January, 2014, 9:34am

In a Nike television commercial from the 1990s, tennis stars Pete Sampras and Andre Agassi jump out of a New York cab, set up a net at a busy intersection and start playing on the street. The pair are seen to be breaking the rules, challenging convention.

But when Nike's Just Do It tagline is given a Chinese context, viewers get a different message altogether. Ads shown in China reinforce the idea that one can yong yundong, or use sports to fit in, to get what you want, to win or fail. People are seen exercising and playing sports. Olympic hurdler Liu Xiang, whose injuries forced him to drop out of the 2008 Beijing Games, is shown as if trying to make a comeback.

They want to be seen as citizens of the world, absorbing foreign influences in a Chinese context
Tom Doctoroff

The Chinese Nike ad subtly demonstrates that the society is based on the Confucian and Taoist beliefs that stability, rather than individualism, is the goal of societies and is better achieved collectively as a group.

That's according to Tom Doctoroff, Asia-Pacific CEO of advertising agency JWT, who offered a number of insights during a presentation at the Asia Society on how 1.3 billion potential customers think. His latest book, What Chinese Want, explores the mindset of the Chinese consumer, and shows how they use material goods - particularly luxury ones - to construct an image of themselves.

Doctoroff says the Chinese have their own definitions of success that are rooted in Confucian culture. "The individual doesn't define himself, but it's about co-existence and regimentation and entrenched ambition. You have to pull yourself up by mastering convention, whereas in the West it's about challenging it."

According to the 2013 Julius Baer Wealth Report, affluent Chinese consumers see buying luxury products and services not as an occasional treat, but an integral part of their lives. From 2011 to 2012, the report says, the percentage of consumers with annual household incomes of more than US$78,000 doubled, as luxury purchases expanded into a wider number of categories, including watches and wine.

When it comes to buying international brands, Doctoroff says mainlanders are not trying to be Western. "They want to be seen as citizens of the world, absorbing foreign influences in a Chinese context."

To show others they are moving forward, he says, luxury brands are fundamental in China for advancement. "I read an article that said 65 per cent of Westerners think that luxury products are a signal of superficiality, whereas in China the equivalent is only 1 per cent. For the Chinese, materialism is really an indicator of hope for the future. They are not just status projectors, plain and simple, they are tools of advancement and the willingness to invest in these types of products is strong, even among the youth."

He gives the example of Starbucks operating hundreds of stores in China, even in tier-four cities, and points out that this is in a country that drinks tea, not coffee. However, it's popular because people like to show off that they can afford coffee that is priced higher than in most other outlets around the world.

The same goes for ice cream brand Häagen-Dazs. Doctoroff says people in China will not pay 60 yuan (HK$76) for half a pint of ice cream to take home and eat while watching an illegal DVD. But young men are willing to pay 60 yuan or more at one of 560 Häagen-Dazs parlours in the country to give a good first impression to their dates that they are cool and hip.

This need to outwardly express their ambitions is also shown in the purchase of Apple products, particularly the iPhone 5S, which costs 300 per cent more than local brands such as Xiaomi, which have a cheap image.

Conversely, Doctoroff says, people don't splash out on homeware and white goods, preferring instead to buy local brands of refrigerators, washing machines, plates and cups. However, as people's incomes increase, he says, they will have more house-warming parties and pay more attention to foreign brands.

President Xi Jinping's campaign to crack down on lavish spending over the past year has hit high-end restaurants and hotels hard. Banquets are either not serving expensive ingredients such as shark fin and abalone, or meals are hosted in low-key locations.

Nevertheless, Doctoroff insists luxury spending is in China to stay and the authorities have not cracked down heavily on the sector. In fact, a McKinsey survey on Chinese luxury consumers projects the country's share of global luxury spending to soar to more than one-third by 2015.

While branded items may be a way to flaunt one's success, Detroit native Doctoroff says that as one moves up the social ladder, luxury is a way of demonstrating connoisseurship and a discriminating taste, such as knowing the difference between an Italian fabric and a French one.

"Chinese leadership is different from Western leadership. Chinese leadership is more defensive, there is competition for your place both horizontally and vertically. So the ability to project a facility for managing and manipulating the system is really the mark of a man on top of a mountain, someone who has the wisdom to differentiate and discern. And that is how luxury brands are sold - not just based on pure status," he explains. "It's really interesting how much time you spend playing 'pronounce that luxury name' game with the Chinese," Doctoroff says with a laugh. "Patek Philippe, not PP. If you say PP it means you don't quite have it yet."

This discernment leads to the "stretchability" of the brands and the creation of various tiers within them that can attract much higher prices, such as designs that are more elegant and understated, such as the woven leather handbags of Bottega Veneta, or even bespoke items.

However, while the Chinese want to show off their ambitions through luxury products, they also want to fit in. "They want to be noticed but not seen as wanting to be noticed," Doctoroff says. This is why diamonds work well because they sparkle, not glare, and are elegant.

He presents a De Beers ad where "A Diamond is Forever". A couple are in Venice's St Mark's Square and the man loudly declares his love for the woman and presents her with a diamond ring. The Chinese would laugh at a commercial like this, Doctoroff says, because it is all talk and no action.

It is for this reason that the Forevermark ad in China is strikingly different to the US one: a Chinese woman remarks how beautiful the moon is as it reflects in a swimming pool. Her boyfriend says he'll get it for her, dives into the pool and then surfaces with a diamond ring worth almost half his annual salary.

Even though luxury brands are highly sought after in China, Doctoroff observes they are among the weakest in marketing on the mainland "because they are largely dominated by a belief in their product almost as a religion and it's often dominated by culturally oriented or absolutist creative directors in different cities". Doctoroff suggests that these brands aren't able to achieve a balance between local relevance and international aspiration.

The McKinsey report warns that since half of all Chinese luxury spending is made abroad, brands may lose consumer trust if its stores or image are not consistent across China and elsewhere. It adds that while Chinese consumer tastes are maturing with surprising speed, companies have to be careful not to try to cater to all people, otherwise they risk diluting their brands.

In the 15 years Doctoroff has been in China, he has witnessed many developments in society and has made insightful observations, even though he admits to not having had any interest in China, let alone Asia, before arriving. "Once I came to Hong Kong [in 1994], and even more so when I landed in Shanghai [in 1998], the intellectual fascination of a different world view and a different paradigm for society combined with the warmth of the Chinese people, particularly their aspirations in a professional context, made me fascinated."

bernice.chan@scmp.com

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In China class and sophistication is not at a premium..its the money and flaunting it that matters most, education too takes a back seat.

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