Luxury Consumer Culture in China: Inside Observer Interview (Part II)
Vinay Dixit is the Senior Director of Asia Consumer Centers in McKinsey & Company and leads theInsights China by McKinsey service line. He joined McKinsey’s Shanghai office in February 2008 and has led several significant studies on Chinese consumers. His most recent publications include, “The coming of age: China’s new class of wealthy consumers” and “One Country, Many Markets – Targeting the Chinese consumer with McKinsey ClusterMap”. This is Part II. For Part I, click HERE
The China Observer: Where do you see foreign multinationals benefitting the most from a growing population of upper- and middle-class consumers? Are opportunities limited solely to tier-1 cities such as Beijing and Shanghai or is there a significant market opportunity in tier-2 and tier-3 cities as well?
Vinay Dixit: While the importance of key cities in tier-1 in China cannot be underestimated, significant growth will actually come from lower tier markets. In fact, we believe that almost 75% of new wealthy households will be created in areas outside the tier-1 cities in China.
The China Observer: It’s estimated that China’s Generation Y represents approximately 50% of the country’s current working-age population. Gen Y Chinese are relatively well-educated compared to previous generations and possess an optimistic nationalistic spirit that brands like Coca Cola, Adidas and McDonald’s tap into through their advertising campaigns.
Will luxury goods always come in the form of foreign-branded merchandise, or do you see a time when local Chinese luxury brands will be seen as attractive as their foreign counterparts?
Vinay Dixit: Our research reveals that in general, Chinese wealthy consumers place a significantly higher level of trust on foreign brands compared to those in the lower income brackets. However, there are marked differences on this trust level across the 7 need-based segments – from 23% to 80% who either agree or strongly agree to the statement, “I trust foreign brands”. In this kind of scenario, there would be some opportunities to local brands to position themselves for luxury consumption.
Having said this, it is usually an arduous task to build the heritage, product excellence and service standards that would provide confidence to the wealthy consumers to actually start considering them in their purchases.
The China Observer: When people mention companies like LVMH, Richemont, and PPR SA in China, images of copyright infringed goods and other “shanzhai” merchandise come to mind. How does this impact consumer behavior? Are luxury consumers as likely to buy the genuine when they can find the copycat for a fraction of the price? Do you find that in order to avoid suspicion of wearing fake merchandise, affluent consumers will dress from head-to-toe in authentic luxury merchandise?
Vinay Dixit: Clearly, there are varying degrees of interest in buying “Shanzhai” or even fake products across various wealthy consumer segments as well as across product categories. Our research indicates that many consumers have deep desire for “real” (and very expensive luxury goods) despite high availability of (cheap) fake goods. There is a difference though between some wealthy consumer segments who will not think to buy fake and those who will comfortably mix the two. For example, over 90% the “Luxuriant” segment disagree with buying fake watches and jewelry, whereas the figure is only 42% for the “Down to Earth” segment.
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