If you have an image of China of cloth-capped workers slaving away in state-owned enterprises you had better think again. If the demand for luxury brands is anything to go by, with up to 25 per cent growth per year China is the world’s third largest consumer of luxury brands already and is expected to replace Japan by 2015 to become second only to the United States. With a growing number of (dollar) millionaires (320,000 already, worth $1.6 billion between them), China is a huge potential market. It has been estimated that luxury branded goods could reach 200–300 million people in five to 10 years, with 100 million of them being at the top end of the market. By 2009, the Chinese market for luxury goods was worth about $8.6 billion, and according to China Merchants Bank, holders of its unlimited credit card spent an average of $85,000 each in the first eight months after it was launched, mostly on luxury goods.
Although reliable national statistics are often difficult in China, retail sales were estimated at $1.84 trillion in 2009, an increase of 16.9 per cent over the previous year (People’s Daily, 2010). Per capita income on average is equivalent to only around $2,000, and even for the middle classes it is only $6,000 compared with $40,000 in the United States (Wiederhecker, 2007a). There are also significant income differences between the first and second tier cities in China and the rest of the country; just 15 Chinese cities between them account for 18 million middle class consumers.
Middle-class consumers like luxury brands as they give status and prestige over many local products. Interestingly, Beijing tends to be more conservative, and buying is about brand heritage and history whereas Shanghai, towards which younger consumers look, is more about fashion trends. The market is not only growing rapidly, however. It is also changing by becoming more mature, more saturated and more segmented as more brands are attracted to this large market. Brand awareness is increasing too with an average of over 63 luxury brands recognised.
The main motive is still personal indulgence, connoisseurship and trendsetting to reinforce perceived social status. Furthermore, Chinese consumers have shown themselves prepared to pay a premium for foreign brands, especially from Europe. However, a lot of the richest Chinese customers are first-generation entrepreneurs with a much younger profile and outlook than their Western equivalents, which could cause some targeting problems for some of the more staid and middle-aged luxury brands. The luxury men’s clothing brand Ermenegildo Zegna takes an adaptable view: ‘You have to constantly fine-tune. We’ve become much more scientific and analytical. We seek constant feedback from the customer, and monitor how particular items are doing – we take that into account in our store planning, we adjust our marketing efforts accordingly, the look of each store, the product mix’ (as quoted by Wassener, 2009).

Questions 1 Why is branding so important for luxury goods?
2 To what extent do you think the packaging considerations are the same for a luxury product and a mainstream fmcg product?
3 What kind of factors might a luxury goods company such as Ermenegildo Zegna take into account when deciding to launch its brand into the Chinese market?