What Drives Chinese to Buy Luxury Goods in the 21st Century - Essay Example

Research Proposal What Drives Chinese Into Buying Luxury Goods in the 21st Century? Table of Contents Table of Contents Introduction 2 Background of the Study 2 Statement of the Problem 3 Research Hypothesis, Aims, and Objectives 4 Hypothesis 4 Aim 4 Objectives of the study 4 Significance of the Study 4 Review of the literature 5 Luxury Consumers 6 1.Rich People 6 2.Parvenu 7 3.Middle class 7 3.1Government Leading Officers 7 3.2High self-employed people 8 Scope of Brands in China 8 Economic growth of China 9 Methodology 10 Method and Design 11 Data Analysis 11 Ethical Consideration 12 Conclusion 13 Gantt chart 13 References 14 Appendices 16 Appendix 1: 16 Appendix 2: 17 Appendix 3: 18 Introduction China already has become the world’s second largest luxury goods market which has turned into a lucrative business over the recent years. Chinese mainland consumers are shopping at Hong Kong, London and Paris and becoming more brand conscious, becoming shrewder in their tastes, and making better exertion in order to comprehend the traditional brands a trend that several Chinese change over the 21st century. According to (Vickers & Renand, 2003), China is amongst the top three largest markets especially for luxury goods within the global economy. The Chinese economy is growing day by day, and Chinese consumers are buying expensively priced, branded commodities. Chinese consumers buy the products within China and 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, according to a report from McKinsey&Co (2011). 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 a large amount in the luxury market day by day and Chinese are becoming more dynamic and active buyers in the market (Lu, 2012). Background of the Study China has emerged as the biggest purchaser of luxury goods in the world market. Chinese consumers are showing considerable interest in buying luxury goods these days, and this has not been left unnoticed by the global luxury market (Frank, 2013). 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 (Lu, 2012). 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? Research Hypothesis, Aims, and Objectives 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 This research aims at identifying factors that influence patterns of buying decisions making 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 find out if the consumption of luxury goods is dominant among the high, medium or low incomes earners. Significance of the Study A lot of work is done on the luxury and China. In this research, the main aim is to identify specific factors that influence patterns of buying decisions making Chinese consumers to increased level of luxury goods consumption over the years. Other than assisting in identifying the factors for the purposes of informing various stakeholders within the market, the results and findings of this research will significantly contribute to knowledge on luxury products and various economies within the globe courtesy of Chinese economy. One of the contributions to knowledge that the results or findings of the research would bring is to enlighten stakeholders and concerned parties on the factors behind huge spending on luxury goods. Such knowledge will be useful in enabling the world economy to identify potential economies exhibiting the identified characteristics so as to increase the supply of the same. The most serious challenge in every economy is excess demand. In order to avoid excess demand, there is need for the economy in question to understand some of the factors that will affect the demand of a particular product and possible areas hence produce enough products. Another contribution to knowledge that this research will have on the economies and in respect to consumption of luxury products is the understanding of growing economies. China is one of the fastest growing economies in the world. By understanding how China’s economy is responding to luxury products, it would be easier to estimate or predict how another economy, which is at the same economic level with China, is likely to behave towards such goods. As a result, such knowledge is fundamental in respect to production of adequate luxury products so that overproduction and underproduction is avoided thus eliminating the possibility of having a disequilibrium economy. Lastly, the results or findings of this paper will create a basis of foundation for further studies on either China, higher, or lower economically rated nations. Research is an important aspect in understanding particular existing phenomena. In this perspective, the results or findings of the research will provide a background or foundation that enhances further research either to prove the findings or come up with other hypotheses on either China or other nations. Indeed, this paper will contribute immensely to knowledge on various economies or nations and their behaviors towards certain goods. Review of the literature According to Heine (2012), luxury products are synonymous to luxury brands like leather goods, carter watches, prada clothes, cars, and vacations among others. He characterized luxury brands as having “a 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 significant disposable income and therefore, its purchase is normally associated with those with high income since they are quite expensive and beyond the reach by ordinary wage earners (Adam, 2010). 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 a tribute to his rule (Xiang, 2006). This drove up the production for gold and another precious metal, silver, during the ancient Han Dynasty (Xiang, 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 (2009), 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. Luxury Consumers Luxury goods are defined as those that an individual can do without. There are different categories. In China, luxury consumers are categorized as follows: 1. Rich People According to Wang & Song (2011), 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 discriminatory 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 Chevalier, Lu and Toledano (2009), 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 a 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 Wang & Song (2011) assert that China is soon developing to be a market leader for just about everything, becoming the most viable customer for many companies, especially in this time when many other countries are scrimping (Kapferer, 2012). 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 were up by 39 percent, Bottega Veneta’s sales was more than 80 percent (Demick, 2012). Prada is reported 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 (Jones, 2012). As reported by Wang and Song (2011) in the Journal of business-to-business marketing, 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 (Lu, 2012). 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, much attention has been paid to 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 & Leung, 1987). When China came into existence in 1949, the country was down because of the world war inflation and civil war. China 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 (Gabriel, 2006). 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” (Gabriel, 2006). The whole country was converted into an industrial zone, and steel furnaces were installed throughout the country in order 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 also luxurious items. Their income has grown to the point that they can now choose to buy commodities with expensive brands over those that are considered to be cheap and 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 be attracted to luxury goods that are available not only locally but also outside China. 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 hundred (100) respondents, which will be distributed in a random manner. The filling of questionnaires will take place in large fashion and design shops, boutiques among other large markets dealing with luxury brands. Here, customers who are willing will be issued with questionnaires forms to fill after which information will be compiled. In addition, more forms will be available in soft copy which will be posted in various business websites dealing with luxury brands. This will be in form of internet online surveys. All the information will be gathered, tabulated and data analysis will be done, and a report given, which will either approves or disapproves the hypothesis. 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. Otherwise, the main method of acquiring information will be through conducting questions to customers in form of questionnaires. The selection will be based on random criteria from different larger luxury markets either in China or abroad. This will ensure collection of reliable information from a distributed area that is not generalized from just a few individuals from a single place. 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. Also, a slight difference in the set questionnaires will be made available for the purpose of different gender and different tastes and preference that exist in the field. Q. no.1: Where do you go for shopping, in China or abroad? Q. no.2: What is the level of your income, low, medium or high? Q. no. 3: What are your occupation and your age? Q. no. 4: How much do you spend on shopping and do you have any luxury brand with you? Q. No. 5: How often do you go for shopping? Q. no. 6: How many people around you who lived difficult life while consuming luxury goods or considered as luxury addicted people. Q. no. 7: How do you get information about luxury goods? Q. No. 8: Have you ever regretted not to have bought an item after buying a particular luxury item? Q. No. 9: If you are travelling, do you prefer to buy luxury goods abroad? Q. No 10: Currently what is considered luxury for you? 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. Evidently, with the increase in Chinese interest for luxury goods, there are more luxury brands entering into the country. 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 Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8 Wk 9 Developing Proposal Literature Review Methodology drafting Collection of data Analysis of Data Compiling the first draft Editing the first draft Presentation of the first draft Corrections on First draft Compiling final draft References Books: Chevalier, M., Lu, P.X. & Toledano, S. (2009) Luxury China: Market Opportunities and Potential. USA: John Wiley & Sons. Gabriel, S.J. (2006) Chinese Capitalism and the Modernist Vision. London: Taylor & Francis Group. Jao, Y.C. & Leung, C.K. (1987) Chinas Special Economic Zones: Policies, Problems and Prospects. New York: Oxford University Press. Park, J.D. (1997) The Special Economic Zones of China and Their Impact on Its Economic Development. Westport, CT: Greenwood Press. Perry, J.E. & Wong, C. (1985) The Political Economy of Reform in Post-Mao China. Cambridge: Harvard University Press. Spence, J. (1991) The Search for Modern China. New York: WW Norton & Company Publishing. Wemer, S. (2001) Luxus und Kapitalismus. Shanghai: Shanghai Peoples Publishing House. Xiang, Z. (2006) The Story of Gold. Beijing: Foreign Language Press. Journal Articles: Tsai, S. (2005) ‘Impact of personal orientation on luxury-brand purchase value - An international investigation’. International Journal of Marketing Research, Vol.47, (4): 429-454. Vickers, J.S. & Renand, F. (2003) ‘The Marketing of Luxury Goods: An exploratory study - three conceptual dimensions’. The Marketing Review, Vol. 3, (4): 459-478(20). Wang, R. & Song, J. (2011) ‘Business marketing in China : review and prospects’. Journal of business-to-business marketing. London: Routledge, Taylor & Francis Group. Vol. 18, (1):1-49. Electronic Sources: Adam, S. (2010) ‘China May Surpass U.S. by 2020 ‘Super Cycle’, Standard Chartered says’. Bloomberg Businessweek. [Online] Available at: http://www.bloomberg.com/news/2010-11-15/china-may-surpass-u-s-by-2020-in-super-cycle-standard-chartered-says.html (Accessed: 4 March 2013). Atsmon. Y., Dixit. V., Leibowitz, G. and Wu, C. (2011) ‘Understanding China’s growing love for luxury’. McKinsey&Company. [Online] Available at: http://csi.mckinsey.com/Knowledge_by_region/Asia/China/chinaluxury2011.aspx (Accessed: 4 March 2013). Demick, B. (2012) ‘Chinese are up to speed with life in the fast lane’. Los Angeles Times. [Online] Available at: http://articles.latimes.com/2012/jan/02/world/la-fg-china-luxury-20120103 (Accessed: 1 March 2012). Ernst & Young. (2009) [Online] Available at: http://www.ey.com/CN/en/home (Accessed: 2 March 2013). Fabian, F. (2008) ‘Redefining luxury: a review essay’. [Online] Available at: http://openarchive.cbs.dk/handle/10398/7765 (Accessed: 4 March 2013). Frank, R. (2013) ‘Wealthy Chinese Shift Their Luxury Buying Overseas’. [Online] Available at: http://www.cnbc.com/id/100491304 (Accessed: 12 March 2013). Heine, K. (2012) The Concept of Luxury Brands. NetLibrary. [Online] Available at: www.luxury-brand-management.com (Accessed: 1 March 2013). Jones, H. (2012) ‘Investing in emerging luxury’. [Online] Available at: http://www.money-marketusa.com/Banking/investing-in-emerging-luxury.html (Accessed: 1 March 2012). Kapferer, J.N. (2012) ‘Luxury after the crisis: Pro logo or no logo? ’ [Online] Available at: http://www.europeanbusinessreview.com/?p=2408 (Accessed: 3 March 2013). Lu, P.X. (2012) ‘Luxury is a necessity in People’s Republic of China: Social Rejection of New Wealth in the Socialist Market Economy’. [Online] Available at: http://www.europeanbusinessreview.com/?p=8247 (Accessed: 3 March 2013). Appendices 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