Who is buying luxury goods?

China has long been one of the most important luxury markets in the world. In the past few years, new issues of "people, goods, and places" have emerged in the Chinese luxury market. What challenges will the Chinese luxury market face under these new variables of "people, goods, and places"? The author of this article has made a summary of the challenges that have emerged in the Chinese luxury market by combining the consumer portraits of first- and second-tier cities in mainland China. Let's take a look.

China has long been one of the world's most important luxury markets.

The developed world division of labor system has created huge wealth for China. Rows of high-rise buildings are rising rapidly on this vast land, and e-commerce platforms and logistics distribution have penetrated their rich tentacles into every aspect of Chinese life. For a long time, China has definitely not lacked rich people, but what it lacks is rich people with aesthetic appreciation.

In the past few years, new “people, goods, and venues” issues have emerged in the Chinese luxury goods market:

• In terms of “venue”, the COVID-19 pandemic has put heavy pressure on offline retail, and the luxury industry is seeking new channel transformation;
• In terms of “people”, young Chinese people are becoming the new blood of luxury consumption, and they have new decision-making patterns;
• In terms of "goods", whether it is the dispersed touchpoints for obtaining luxury information or the rise of new groups seeking differentiated aesthetics, they are driving the emergence of niche "new luxury products" with creative highlights and advanced designs.

So, how do we understand the new variables of “people, goods, and places” that have emerged in China’s luxury goods market? What challenges will the Chinese luxury goods market face under these variables?

Recently, KPMG released "The New Outlook of the Luxury Industry" , focusing on the "people" dimension, conducting a comprehensive study on consumers' behavior in purchasing luxury goods, and making recommendations on how luxury brands can lead consumers in the next 5-10 years.

A highlight of the report is that it uses luxury consumers in first- and second-tier cities in mainland China and the Hong Kong Special Administrative Region as samples for research, thereby summarizing seven types of consumer portraits.

It should be pointed out that there will be flow between these portraits, and some features of the portraits may overlap. The Community Marketing Institute will specifically combine the consumer portraits of first- and second-tier cities in mainland China to summarize the challenges facing the Chinese luxury market.

1. What is the mentality behind luxury consumption?

China's luxury consumption shows five typical mentalities.

According to the survey, when it comes to luxury consumption, the proportions of consumers with the following mindsets are as follows: showing off their identity and achievements (38%) > attaching importance to sharing experiences on social platforms, integrating into social circles, and paying attention to quality of life (32%) > having a more global perspective and paying more attention to brand names and places of origin (18%) > appreciating the brand's history and the excellent quality of its materials and craftsmanship (9%) > attaching importance to the brand's contribution to sustainable development issues (2%).

How to understand these consumer mindsets? We analyze from two dimensions: consumer mindsets and decision-making characteristics:

1) People who want to show off their status and achievements seem to have the easiest mentality to understand. They are the most ostentatious and hope to link their identity and social status with their purchasing power, especially the purchasing power of luxury clothing and accessories. The decisions of this type of consumers are more dependent on the recognition of others, so they have a strong preference for the most prestigious luxury brands with active marketing power.

2) People who want to integrate into social circles want brands to reflect their values, beliefs, attitudes, and achievements. Their decisions often affect the entire social circle (high-end food, premium hand brewed drinks, luxury car brands, overseas travel destinations), and they seek a sense of belonging in a comprehensive logical consistency. Therefore, their social sharing is more about finding similar people and a sense of identity.

3) People who value brand names and places of origin often gradually open up their channels for obtaining information from a closed environment to a global perspective, but they lack a real understanding of the brand's tradition and product design; their decisions are more about paying for an external symbol of high-quality life, and they are more easily influenced by bloggers on media platforms, friends, and family.

4) People who value the superior quality of brands tend to have a higher level of education. They view luxury consumption as a lifestyle rather than a form of social superiority. Their decisions are more focused on the function and quality of the product itself, and they also know how to appreciate the clever elements that require a higher level of aesthetics, such as design, fabrics, and manufacturing processes. They take longer to make decisions, and their decision-making process may be influenced by their peers but is more independent. They are more loyal to brands that reflect their personal beliefs and personality.

5) People who attach importance to sustainable development issues are the rarest. They are often influenced by overseas social initiatives, trends, and topics (a large proportion of them are international students), and hope to buy luxury goods that benefit society or nature. Their decisions are more focused on the purpose and philosophy behind the brand. They clearly support companies or brands that have a clear goal of creating benefits for mankind and the earth, and are willing to pay high prices to support products made from environmentally friendly materials, with sustainable production processes, and fair trade procurement.

Looking at the first to fifth groups of people in turn, the key points that consumers hope to express through luxury brand consumption are: showing off from top to bottom, recognition from the same circle, imitation from bottom to top, expression that is true to oneself, and supporting broader world issues.

In this process, as the conspicuous consumption mentality gradually weakens (the first to third categories), their decision-making factors are gradually downgraded from top-level brand marketing to translators and transmitters of brand information; and they then have a deeper understanding of themselves and even the wider world (the fourth to fifth categories), hoping to express their understanding and views on personality and the world through consumption decisions.

China's rapid development has created huge opportunities for luxury brands to communicate with the five groups of people. Although there is mobility between groups, Chinese consumers will not flow from one group to another in a disorderly manner in a short period of time, which creates a favorable situation for us to observe the existing luxury market and help brands make better decisions.

2. Based on specific examples, what interesting conclusions can be drawn about luxury consumption?

A very interesting point in the report is that although luxury consumers can be divided into five categories according to the strength of their ostentatious mentality and the strength of their understanding of themselves and the world expressed through luxury consumption decisions, from the perspective of their specific understanding and degree of advancement of luxury goods, the fifth category > the fourth category > the second category > the first category > the third category. They are respectively pioneers of new luxury goods, luxury connoisseurs, identity seekers, status symbolizers, and luxury novices.

The reason why the fifth group of people can have a deeper understanding of luxury goods and can lead the trend of luxury consumption is mainly because they usually live in first-tier cities, most of them have received college education (92%), and luxury consumption can account for 16-25% (29%), 5-15% (26%), 26-35% and less than 5% (13%) of their annual household income. Most of them (82%) are willing to pay a 20% premium for brands that reflect their values.

Here is a specific case analysis. Wang Mengyi is a pioneer of new luxury goods. She is between 18 and 34 years old, married and has children. She spends more time on work/study (24%) rather than browsing social media (20%). She gets information more from official brand channels, followed by Xiaohongshu and Douyin. She prefers to shop on JD.com, followed by Tmall and official brand channels.

The above-mentioned contact preferences make them more willing to try innovative products such as the Metaverse, and more eager to acquire new knowledge. After the epidemic, they have a strong urge to travel abroad (preferred places include Milan, New York, Hong Kong, etc.).

Based on this, we can make a rough summary of the above five groups of people in three dimensions:

According to the proportion of people living in first-tier cities, pioneers of new luxury goods (at least 50%) > luxury connoisseurs (46%) > identity seekers (45%) > status symbol seekers (40%) > luxury novices (the proportion in second-tier cities is greater than that in first-tier cities);

By age, luxury goods novices (more than 40% are over 45 years old) > status symbol seekers (mainly 25-34 years old) > luxury goods connoisseurs (mainly 18-34 years old) > pioneers of new luxury goods (64% are 18-34 years old) > identity seekers (mostly 18-24 years old);

In terms of education level, status symbolists (10% have studied abroad) > luxury appreciators (89% have received undergraduate education) > pioneers of new luxury products (at least 50% have received undergraduate education) > identity seekers (the report did not disclose, but they spend more time in social environments or on social platforms) > luxury novices (19% are in high school or below);

In terms of the ability to accept brand premium, pioneers of new luxury products (82% willing to pay a 20% premium) > luxury connoisseurs (72% willing to pay a 10% premium) > status symbol seekers (more than 55% willing to pay a 6%-20% premium) > luxury novices (only one-third willing to pay a 5% premium) > identity seekers (55% unwilling to pay a premium of more than 5%).

3. Who is buying luxury goods?

In summary, we can draw very interesting conclusions about several types of portraits:

Among all luxury consumers, identity seekers are the youngest. A high proportion of them have received undergraduate education and spend more time in social environments or on social platforms (especially Bilibili, Xiaohongshu, and Douyin). 17% of them are occasionally influenced by others/kols when making decisions, but their ability to accept brand premium is the lowest, even if such brands can reflect their values.

Among all luxury consumers, luxury novices have the lowest education level and are the oldest, and they prefer to settle in second-tier cities rather than first-tier cities. They have a shallow understanding of products and are easily influenced by the opinions of family and friends, sales staff, promotions, discounts, factory direct sales, duty-free shops, etc. Therefore, they prefer easily recognizable luxury brands and can accept very limited luxury premiums.

Among all luxury consumers, those who buy luxury goods as status symbols are almost evenly split between first-tier cities (40%) and second-tier cities (39%).

Although they have a very high level of education, they have often established families with children and accumulated enough wealth. When they buy luxury goods, they still only accept easily recognizable brands. They are easily influenced by product placement advertisements in mainstream media/variety shows/video games, and are more likely to buy limited edition products through WeChat mini-programs/Amazon to show their status and wealth.

Among all luxury consumers, although luxury connoisseurs do not score the best in all aspects, they are among the top two in terms of the proportion of residents in first-tier cities, the proportion of undergraduate education, and the degree of youth.

Their higher cognition and aesthetic taste make them more loyal to their hearts, so their decisions are more influenced by direct interactions with brands such as sales, news briefs, industry articles, etc. (positive judgment) rather than advertising. In order to express their understanding of value through consumption decisions, they can afford a high brand premium.

Source: Community Marketing Research Institute (ID: Community_Marketing), insights into community consumption