What drives Chinese into Buying Luxury Goods in the 21 century - Essay Example

What Drives Chinese Into Buying Luxury Goods in the 21st Century? Introduction China’s luxury market has turned into a lucrative business over the recent years. Chinese consumers are becoming more brand conscious, becoming shrewder in their tastes, and making better exertion to comprehend the traditional brands. China has become the second largest market for luxury goods in the world. The Chinese economy is growing day by day and her people are buying expensively priced, branded commodities. They buy these things not only within China, but also from other countries as tourists. A rapidly growing upper and middle class are seen as bent on enhancing their individuality by buying luxury goods. China has been reported to have already overtaken the United States and Japan in terms of luxury items purchases (Vickers & Renand, 2003). China has worked hard to achieve economic prosperity, producing current generations of millionaires. Accordingly, this generation has been spending large amount in the luxury market day by day and Chinese are becoming more dynamic and active buyers in the market (Zhu, 2007). Background of the Study China has emerged as the biggest purchaser of luxury goods in the world market. Chinese consumers are showing great interest in buying luxury goods these days, and this has not been left unnoticed by the global luxury market. The United States, Japan, and Europe, who have been the top consumers of luxury goods, are indeed quite surprised with the growing appetite of Chinese for luxury items. Nearly all Chinese visiting Paris have bought expensive bags without looking at its price tags. They are also buying other luxury items like goggles, cars, shoes, and many others. Luxury goods refer to all those branded products unreachable by ordinary people. The rich and senior citizens comprise the bulk of overseas luxury buyers and item collectors. To them, luxury items are products of cultural essence, and obtaining them means owning a piece of culture. There are three groups in China buying luxury goods: those who are considered as spectacularly rich, the young urban professionals and people who want to gain some sense of satisfaction, and some shady characters composed of blackmailers or illegal groups who have smuggled luxurious goods into the country. China’s growing consumption of luxury goods has caused some worries to other people. Buying countries like the United States and Japan are worrisome that China has certainly become the second highest buyer in the luxury market. The economic growth has raised the living standards of Chinese consumers making them wealthy enough to buy luxury items. If this economic growth continues, then in the next few years China will overtake Japan to gain the first spot. (Tsai, 2005) Statement of the Problem What are the factors that influence the buying behavior of Chinese consumers leading them to purchase luxury goods? Hypothesis The economic growth in China has influenced the buying behavior of Chinese consumers, driving them to buy more luxury goods, brought about by an increase in their purchasing power. Aim The aim of this research is to identify factors that influence patterns of buying decisions leading Chinese consumers to increased level of luxury goods consumption over the years. Objectives of the study To explain the phenomenal growth and rising power of Chinese economy To describe recent trends in buying behavior of Chinese consumers leading to an all-time high consumption of luxury goods. To describe the correlation between strong economic growth in China and Chinese consumers’ rising demand for luxury goods. Review of the literature According to Heine (2012), luxury products are synonymous to luxury brands. He characterized luxury brands as having “high level of price, quality, aesthetics, rarity, extraordinariness, and symbolic meaning (Heine, 2012). Luxury products are commodities that can only be purchased by those who have big disposable income, since they are quite expensive and beyond reach by ordinary wage earners. Since ancient times, there was already a penchant for luxurious products among the Chinese, as symbolized by the imperial appetite for gold, a precious metal. Emperor Wu of the Han Dynasty, which dated back to 156-87 BC, even required his vassals to present him gold as tribute to his rule (Zhongjua, 2006). This drove up the production for gold and another precious metal, silver, during the ancient Han Dynasty (Zhongjua, 2006). In modern times, China has become the prime luxury consumer market, dominating the top end of the retail market ranking. According to Ernst & Young, about 300,000 millionaires, and a middle class of around 250 million, are living in China. Long famished from retail opportunities, China spent US$6 billion on luxury goods in the past year alone. Fabian (2008) estimated China’s consumption of luxury goods in 2015 will increase from 12 to 29 percent in a global luxury market expected to reach US$80 billion. Chinese luxury consumers are categorized as follows: 1. Rich People They are entrepreneurs and business tycoons. This group does not show off, and has quite a mature understanding of the reasons for buying luxury goods. They have spent many years accumulating wealth. Due to their strong buying sense, they are disposed to buying high quality products containing unique designs and other special features. According to Wemer (2001), these consumers follow and observe high class fashion. They spend money discriminately in buying luxury items like cars, jewelry, watches, clothing and so on (Wemer, 2001). 2. Parvenu This class consists of people who are not rich by birth, but they get their wealth by fortune. They want to spend money on buying luxurious goods to show off. They indulge in inferiority complex and want to get rid of their past. That is why they buy luxury goods to satisfy themselves and want to get into high class living. They are likely to be low educated, and wear brand items to boost self-esteem. They are also referred to as “nouveau riche”. According to Spence (1991), they do not discriminate in their purchases, since their main concern is to buy luxuries that will increase their self-image. 3. Middle class This class categorizes white collar workers in various multi-national companies. They are working hard and getting high pays from their companies. Due to their traveling exposures, they are used to buying luxury items from different countries. Buying luxury goods has become part of their lives. Their appearance matters a lot to their company. They are forced to buy luxury goods. According to Wang and Shang (2008), middle class group can still be divided into two: 3.1 Government Leading Officers This class is at the top of the hierarchy in China. They have positions in society that give them the power to buy luxury goods, whether they buy them from their own earnings or receive them as gifts. As they are working for the government, they are careful and discreet in buying luxuries for themselves. 3.2 High self-employed people This class groups those working in the stock market, insurance, real estate, and consulting. They use luxury items as part of their work, as they have to dress-up for representation. They are well educated and self-motivated to acquire a better life. Scope of Brands in China China is on the threshold of becoming the leading market for just about everything, becoming the most viable customer for many companies, especially in this time when many other countries are scrimping. In 2011, China purchased more Lamborghinis and Rolls-Royces than the rest of the world. In the first half of 2011, Gucci’s sales in China was up by 39 percent, Bottega Veneta’s sales was more than 80 percent (Zhou, 2004). Prada is reportedly currently planning to open 50 outlets in China. Just like Prada, other companies like LVMH, Nike, Gucci, Armani, and many others, have generated good sales due to Chinese consumers. As reported by Taylor and Francis (2011), few other luxury brands have emerged, inspired by the Chinese culture and trends towards luxury goods. Economic growth of China China is the second leading country after the United States, in terms of GDP, and in terms of purchasing power per person. It is also considered as the worlds fastest-growing economy. China’s economic growth averages 10 percent annually over the past 30 years. China is also the biggest exporter and importer of goods in the world (Adam, 2010). China adopted a policy of locating her industries at the coastal regions as it is easy to provide electricity for them generated from water power. Regions that are in the hinterland are less developed. With the increase in Chinas economic growth, attention has been focused on the structure and health of the economy. Accordingly, Chinese government divided the country into special economic zones so that business areas remain separate from the living hub of the country (Jao & Chi, 1987). When China came into existence in 1949, the country was down because of the world war inflation and civil war. She had poor economy and very little infrastructure. The government at that time put an enormous effort to stabilize the country’s economy. This was mostly done by relying on its own powers, and by suppressing private sector activities between 1951 and 1952. An anti-capitalist campaign was launched and all such efforts were shun by imposing severe fines (Perry & Wong, 1985). Mao Zedong came into power in 1958, and he launched a campaign widely known as “The Great Leap Forward”. The whole country was converted into an industrial zone and steel furnaces were installed at every backyard to produce steel required for building infrastructure (Park, 1997). The results of these reforms were realized in the later years, as shown in Appendices 1-3. Starting 1990’s the fruits of economic development have become obvious, with the Chinese people being capable of buying not only basic commodities, but luxurious items as well. Their income has grown to the point that they can now choose to buy commodities with expensive brands over those that are cheaper, unbranded products. They now have the need to satisfy certain desires other than their basic need for food, shelter, or clothing. Based from the above body of knowledge, it is now established that China has wealthy citizens that consume luxury items in record number. This research is expected to identify the characteristics of Chinese buying behavior towards luxury items, identifying those factors that lead them to desire luxury goods available not only locally but outside China as well. It will also aim at identifying the various influences the increasing appetite of Chinese consumers for luxury products. Contrasted to the Chinese consumers during Mao’s rule, the modern Chinese of the 21st century will be studied in-depth, through the buying behavior and attitude towards luxury products. Methodology A set of questionnaire will be designed to be used in gathering data from respondents. This will be distributed through internet online surveys. Data analysis will be done after information has been gathered and tabulated. Method and Design This proposal will use a blend of quantitative and qualitative method. The questionnaire is helpful in carrying out an analysis of an issue with such vast scope. However, it will be beneficial to realize the dynamics of group thinking. Data Analysis The questionnaire has been designed on the basis of prior research work on the topic. The questionnaire is divided into three sections: Previous information of the respondents. Situation of the respondents for luxury goods consumption. Motivation of respondents towards luxury items. There will be nine questions on the research questionnaire. Opinions will be sought through internet poll. This kind of polling aids in getting better knowledge about the factors affecting people’s interest for luxury goods. The set of questionnaire is simple, and minimizes the chances that respondents will avoid answering them. Q. no.1: Gender? Q. no.2: Age? Q. no. 3: Monthly income of respondents? Q. no. 4: Occupation of respondents? Q. No. 5: How often you spend on shopping? Q. no. 6: Do you have any luxury goods? Q. no. 7: How do you get information about luxury goods? Q. No. 8: Have you ever regretted after buying a particular luxury item? Q. No. 9: If you are travelling, do you prefer to buy luxury goods abroad? Ethical Consideration Every respondent will be informed about the character and the plan of the study. They will be given a choice whether to participate or not. They will get assurance that their privacy will be protected. Any result of the study will be based on objective analysis, and will not misrepresent or compromise the conclusion of the study. Conclusion Chinese people are experiencing economic development providing them a sizeable disposable income. They are now in the position where they can afford to acquire expensive luxury goods. Different companies are investing in the market for their brand in China to get maximum profits. With the increase in Chinese interest for luxury goods, more luxury brands are coming in. This development has become a threat for major markets of luxury goods, such as the United States, thrusting China in the number one position as the largest luxury goods market in the years to come. Gantt chart Main Tasks Duration Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Designing of Questionnaire 1 Day                                                             Gathering of email addresses for polls 1 Day                                                             Mails for Polls 2 days                                                             Background Study 2 days                                                             Objective finding 2 days                                                             Review of Literature 2 days                                                             Scope of Brands 3 days                                                             Follow up for Mails 1 days                                                             Economic growth study 3 days                                                             Potential Market 3 days                                                             Analyzing of Data 3 days                                                             Developing finalized report 3 days                                                             Re Checking of all the data 2 Day                                                             Printing 1 Day                                                             Delivery of End Product 1 Day                                                             References Adam, S., 2010. China to exceed U.S. by 2020, Standard Chartered says. Bloomberg Businessweek. Fabian, F., 2008. Redefining luxury: a review essay Heine, K., 2012. Luxury brand management. [Online] Available at: www.luxury-brand-management.com [Accessed 1 March 2013]. Jao, Y.C. & Chi-Kueng, L. 1987. Chinas special economic zones: policies, problems and prospects. OUP China. Park, Jung-Dong, (1997. The special economic zones of China and their impact on its economic development. Greenwood Press Perry, J.E. & Wong C., 1985. Political economy of reform in post-Mao China. Harvard University Press. Spence, J., 1991. The Search for Modern China. WW Norton & Company Publishing. Taylor & Francis, 2011. The Journal of Chinese Economic and Business Studies. Thorstein, B.V., 1999. The Theory of the Leisure Class 2001. The Commercial Press. Tsai, S., 2005. Impact of personal orientation on luxury-brand purchase value - an international investigation. International Journal of Marketing Research, (47): 429~454 Vickers, J. & Renand, F., 2003. The marketing of luxury good: an exploratory study - three conceptual dimensions. The Marketing Review. Wang W. & Zhang L., 2008. Exploration on reasons and development of Chinese luxury market. Economic Relations and Trade, p. 51. Wei, G., 1999. Special Economic Zones and the Economic Transition in China. World Scientific Publishing. Wemer, S., 2001. Luxus und Kapitalismus. Shanghai: Shanghai Peoples Publishing House. Zhonghua, X., 2006. The Story of Gold. 2006 ed. Beijing: Foreign Language Press. Zhou, E., 2004. Twenty years since the building of the nation. Ch.1. Zhu, X., 2007. Case studies on motivations of Chinese consumers on luxuries. Appendix 1: As depicted in the picture, China’s GDP increased drastically from 1992 to 2005 i.e., from 2,200 billion to 18,232.1 billion. Appendix 2: According to IMF, World Economic Outlook Database in April 2005, China’s accumulated growth has reached 360%, which was 160% from 1990-1998 Appendix 3: China’s increase in the GDP can also be shown in the following table. Year Gross domestic product US dollar exchange Inflation index Nominal Per Capita GDP PPP Per Capita GDP (2000=100) (as % of USA) (as % of USA) 1955 91,000 2.46 19.2 2.43 - 1960 145,700 2.46 20 3.04 - 1965 171,600 2.46 21.6 2.63 - 1970 225,300 2.46 21.3 2.2 - 1975 299,700 1.86 22.4 2.32 - 1980 460,906 1.49 25 2.52 2.04 1985 896,440 2.93 30 1.65 2.84 1990 1,854,790 4.78 49 1.48 3.43 1995 6,079,400 8.35 91 2.17 5.44 2000 9,921,500 8.27 100 2.69 6.75 2005 18,308,500 8.19 106 4.05 9.61 2010 25,506,956 6.97 112 6.23 15.9 Read More