By Dr Ben Voyer, Associate Professor at ESCP Business School

China is seen as an “El dorado” by many luxury brands, and is expected to become the world’s largest luxury market in a very near future. As a consequence, many luxury brands have been heavily relying, over the last decade, on Asia and China to grow. But recently, Burberry has announced its growth in Asia, for the coming years, would come from Japan. The growth rate on the Chinese luxury market is still expected to be around 2%, but figures are down from 7-15% in the previous years.

The Chinese market has entered a period of transition, and leading luxury companies will need to be creative to adapt to these changes. Current areas for growth are the affordable luxury market- with brands such as Coach – and smaller cities (tier 2/3). The Chinese market is also becoming global – 60% of the sales on the Chinese market actually occur outside of Mainland China.

These changes also signal that the market is becoming more mature, and that consumer preferences are changing. Luxury brands therefore need to understand the risks of a ‘one size fits all’ strategy in collectivist cultures. As research conducted with my colleague Dr Kastanakis suggest, consumers from collectivist cultures have very different types of motivations when consuming (see Kastanakis & Voyer, 2014). Chinese values of collectivism mean that belonging to groups is more important than being seen as different. Chinese consumers therefore want to look like the ‘typical’ luxury consumer, rather than stand out with a different limited edition. The type of products preferred by Chinese customers is also changing. Chinese consumers used to prefer loud products with highly visible labels (e.g. LV bags; Burberry check) but are now becoming more educated and turn to quieter brands (i.e. with less visible logos). This means that brands with highly conspicuous logos and symbols, such as Burberry or Louis Vuitton, need to reinvent themselves once again to continue to appeal to the Chinese customer.

Another major change affecting the Chinese market is the emergence of local players. Brands such as Shanghai Tang, which belongs to the luxury conglomerate Richemont; Powerland, a Chinese handbag maker competing with Prada; or Shang Xia, linked to the French luxury brand Hermes, have appeared on the Chinese luxury landscape. They arrive at a time when Chinese nationalism is rising, and when wealthy customers are looking for alternatives to the main Western luxury brands. These newcomers however face some difficulties when trying to go global, given the negative connotation of the ‘Made in China’ image for luxury goods. Shanghai Tang creatively replaced its ‘Made in China’ label by a ‘Made by Chinese’ one.

Altogether, these changes make the Chinese luxury market more interesting than ever. For luxury companies, it is the beginning of a new era on the Chinese market – one that will need creative inputs to stay at the top!

For more on this topic, you can watch my interview on the top icon CNBC:

http://video.cnbc.com/gallery/?video=3000277451

Useful links:

MSc in Marketing & Creativity
Creative London Summer Course