Culture's Influence on Luxury Consumption in China and the United States - Term Paper Example

Culture’s Influence on Luxury Consumption in the China and USA Introduction China and the USA are arguably the two biggest markets for luxury goods. Collectively, they take more than 40% of the global luxury market (Scholz 13). The other large markets for luxury goods include Japan, France, Italy, the UK, Canada and Brazil. Studies have indicated that culture has a significant bearing on consumer’s attitude and consumer behavior (Russell and Valenzuela 17). The luxury goods, especially, is significantly influenced by the consumers’ cultural background. This paper will try to examine this influence of culture on luxury consumption in China and the US, considering both the psychological and behavioral aspects. In order to accomplish that endeavor, the paper will examine the consumer’s characteristics in these two markets and make marketing recommendations. The paper will also give an example of some corporations and brands that have capitalized on these unique characteristics through their marketing strategies to capture the luxury market. Influence of Culture on General Goods Consumption The recent researches conducted on consumer behavior have shown a direct correlation between the people’s culture and consumer behavioral patterns (Henry 122). Each culture has its own values that it upholds. These values are the ones that affect the consumer’s attitudes towards certain products, which ultimately affect the consuming patterns and behaviors. The cultural identity affects the choice of products by affecting the perceptions and judgments of the consumer. Once these perceptions and judgments have been made consistent such that they are predictable, the consumer can said to have formed a consuming behavior. Multinational companies use these customers’ behaviors and preferences to design their marketing strategies so that they can optimize their sales and maximize their profitability (Hostede 32). As Russell and Valenzuela (87) aptly captures it, “Cross cultural value systems will influence consumer tipping behavior, product evaluations, value-attitude relations, persuasion effects, consumer innovativeness and behavioral intention models”. Figure 1 shows how culture influence consumer behaviors. Figure 1: The process through which cultures influence consumer behavior (Source: Funggroup.com) However, culture has also been found to affect only the consumption of certain goods. There are, thus, some exempted cases whereby the culture of a certain place barely has a bearing on the consumer behaviors of a certain product. A good example is a global product, which blurs any existing cultural differences. A consumer of such a product is known as a global consumer who is not dependent on a culture to make consumption decisions in so far as that global product is concerned (Wieldmann and Hennigs 34). An example of such a product is Coca-cola soda products. However, for products that do not have a global outlook, for example luxury goods, the cultural differences hugely affect the decision making and consuming patterns. The Concept of Luxury Goods There is no one universally accepted definition of luxury goods because it is a highly subjective concept. The concept is different and continuously changing in every society. For decades, researchers and scholars have grappled on several definitions, but all have fallen short. Some researchers have simply defined luxury goods as those goods that are set aside exclusively for a certain class of people, usually the upper class, by virtue of their higher pricing (Frank). Some scholars categorize luxury goods as those goods that are rare, excellent and promote exclusive lifestyle. Such products are characterized by high prices and rarity (Henry 125). However, contemporary researches show that this may not be the case. They argue that the suggestion that luxury goods are a definite type of products is faulty. Such scholars observe that all products can be considered a luxury good if it belongs to a higher priced-tier of that commodity, or even services. These scholars, therefore, categorize luxury goods and services based on their prices, accessibility and value addition. As long as the consumer can get the basic product or services at a cheaper price, the expensive one can be considered a luxury since the lower class can live without it yet still derive satisfaction from the basic product or service (Lu). As more and more researches are being conducted, the concept of “mass luxury” was developed. The proponents of this concept suggest that the wealth or income of a consumer is barely sufficient in determining a luxury good. Such scholars cite the increase in the population’s income and, thus, spending power as the factors that disprove the use of income as criteria. Of late, even the middle class are able to procure those products and services that were once exclusive to the upper class; that is, those that were formerly considered as luxury goods because the lower class could not purchase them. According to the economists, a luxury good is the opposite of a necessity good. The demand for the product and the income of the consumer has a positive correlation, but this relationship is not proportional (Henry 22). The demand increase is usually more than the income increment. Economists observe that such goods have a high income elasticity of demand. Majority of luxury goods have a negative price elasticity of demand. The law of demand directs that the customers will be able to buy more products as the prices of the commodity decrease. According to the law of demand, therefore, the higher the price, the less the demand. However, this law does not apply to most luxury products as the higher the price of the products, the higher the perceived value and, consequently, the higher the demand (Henry 25). There are many reasons why people purchase luxury goods. One of the most common reasons is as a show of high status in the society. The consumption of expensive products communicates to the society that that particular consumer is wealthy. Others are not after status but rather in the desire to purchase goods that are of higher quality, have higher durability, and are inherently superior to its competitors. Such consumers are often after better product performance or aesthetic effects of the product (Doran). Motivation behind purchasing luxury products in China and USA Cultural differences in the US and China markets There are many reasons why people buy luxury products. There are significant differences between the US and China markets. Most of these differences are brought about by the differences in the US and the Chinese luxury markets. These cultures tend to align the luxury consumers as either materialistic and superficial or otherwise. The US culture is largely individualistic while the China market is characterized as rooted in collectivism. In the US, most of the consumers are after the social advantages of luxury goods. In an individualistic culture, the consumers value variety in addition to Hedonistic tendencies (Russell and Valenzuela 87). Most of the American luxury consumers purchase luxury goods to portray impressions of their position in the society. Such consumers are, therefore, mainly after their own satisfaction and making a communication. They want to display their status and make evident the difference between them and others in the society. The China market, on the other hand, operates in a collectivist cultural dimension. As such, most of the consumers value group orientation and reputation. Those who purchase luxury products are motivated by factors that are geared towards benefiting the community in general, for example, saving face. According to Russell and Valenzuela, “Collectivism dimension tries to use a brand to promote social values (87). A culture based on collectivism advocates for conformity as well as group-centered behaviors unlike individualistic dimensional culture, which emphasizes self-reliance and independence. Collectivism promotes conformity whereas individualism promotes self-actualization. Hofstede summarizes these characteristics by stating as follows: “Individualism pertains to societies in which the ties between individuals are loose: everyone is expected to look after himself or herself and his or her individual family. Collectivism, as its opposite, pertains to societies in which people from birth inwards are integrated into strong, cohesive groups, which throughout people’s lifetime continue to protect them in exchange for unquestioning loyalty” (51). Due to these differences, the US luxury spending is slightly different from the China market one. The US market tends to buy luxury products that reinforce independence and personal gratification (Russell and Valenzuela 87). These are products like expensive handbags, watches and perfumes. The China market, on the other hand, purchases luxury products and brands that promote affiliation with the masses. These cultural influences affect the four most important values in the luxury market, including the financial value, functional value, individual value and the social values of products. The financial value affects the premium price and the perceived relationship between the prices and value of the luxury product. The functional value focuses on the quality of the product, its inherent uniqueness and usability. In social utility, a culture may influence the feeling of prestige and conspicuousness. Lastly, the cultural dimension influences the individual value utility by influencing the perception of importance of identity and the materialistic value that comes with it. Figure 2 summarizes the influence of culture on the perceived consumption values. Figure 2: The interaction between cultural influences and perceived consumer values (Source: Funggroup.com) Motivating factors and Differences in Consumer Characteristics A study conducted by KPMG in 2012 established that most of the consumers in the US asserted that they purchased luxury products to reward themselves for their achievements in creating wealth. Fifty eight percent of the luxury products consumers were buying to reward themselves in the US in comparison with 44% of the Chinese market (Fleischer 56). Fifty two percent of the luxury market consumers stated that they only bought products when they have formal important occasions. This was also a prominent motivation behind purchases in the Chinese market but to a lesser extent than in the US market. Both markets cited pursuing fashion trends as one of the major factors that motivate spending on luxuries (KPMG 33). The China market recorded a higher percentage of people who purchase a luxury as a result of being fashion sensitive. The US topped in purchasing a luxury product to represent their perceived social status and wealth. This can be attributed to the individualistic nature of the US culture as opposed to the collectivism dimension of the Chinese culture (Ricca and Robins 41). A significant percentage of consumers also bought luxury products to reflect their own personality (KPMG 23). Again, the US market was more person-centered with more than a third agreeing that they bought the products to reflect their personality. The other reasons for purchase of luxury products in the US and the China markets included gaining a luxurious experience, to acquire quality products, to gain confidence, to pursue classics, to enjoy the ownership of the luxurious product, to fit in certain luxurious social circles and, lastly, some bought the luxury just to assemble a collection (Lu). Figure 3 gives a summary of the comparison between the motivators in the US and China markets to spend on luxury goods. China US Figure 1: The main motivators behind the consumption of luxury goods in the US and China (Source: kpmg.com) Views of Consumer on Luxury The consumers in the US and China markets had almost similar perceptions on luxury consumption. The differences evidenced were attributed to the differences in their cultural dimensions which made them to uphold certain values and attitudes. The values and attitudes influenced their perception and spending patterns (Henry 127). There were both positive and negative views on spending on luxury. The majority of the Chinese people viewed luxury spending as enjoying quality life, a view that was also shared by the US consumers. In the China market, for example, the perception has been recording an increase positive view as time goes by. More people are viewing luxury spending as enjoying life, a view that is been attributed to an increase in the customers’ bargaining power. The US and China have had significant increase in the number of millionaires (Lu). A significant number of respondents in the study viewed this spending as a show of having a successful life. Though this view has been shrinking in both markets it was still significant with the China market recording 42% (KPMG 30). Some people viewed the spending as having a good taste. Comparing the two markets, the US showed great appetite towards good taste recording 30%, one more than the Chinese people’s views (Lu). Finally, there is an increasing view that purchasing luxury products is fashionable. Both markets shared this view in equal measures. Figure 4 shows the trend in views in China showing enjoying a higher quality of life, having a successful life, having a good taste and being fashionable in their order of ranking in the Chinese market. Figure 2: The popular positive views on luxury consumption in China (Source: kpmg.com) There were also negative views in both markets. The major negative view was that most of the people purchasing luxury products were actually just showing off their wealth. In China, 18% held that view, but in the US that number was significantly lower with only 6% (Doran). The US and China population was also of the view that luxury goods consumers are just misusing their money. The rest thought that purchasing luxury goods is for those who have just become rich and are eager to spend their new found wealth. Figure 5 summarizes China’s market views showing being flashy, wasting money, new rich and being superficial as the main negative views. Figure 3: The negative views on luxury consumption in China (Source: kpmg.com) Trends and Examples The luxury market has been expanding. Its net worth in 2013 was US $325 with the US and China taking up more than 40% of the market (Fleischer 65). These two markets are slowly edging out Brazil, France, Italy and the UK. The luxury goods consumers are also increasing their spending. In 2012, US $1.2 trillion was spent in all markets on luxury products (Doran). One trend that has been encouraging to the brand marketers is that there is an increased knowledge of international brands. More people are also considering the international reputation of brands when they are purchasing (Funggroup.com). Therefore, corporations that have successfully internationalized their brands have a competitive advantage. Companies such as Louis Vutton, Gucci, Dior, Burberry, Armani and Prada have managed to capitalize on their international fame to sell more products in the US and China. Figure 6 shows how the market is gradually shifting towards internationally well-known brands. In 2008 very few consumers considered the extent of the awareness of a product as a deciding factor when making their purchasing choices. By 2010, all these views had changed as demonstrated in Figure 6. Figure 4: The change in priorities in the key buying factors when purchasing luxury products (Source: Funggroup.com) Some brands such as Dior have made it big in the US market because of its individualistic culture. Burberry and Armani have tapped into the China market that is shifting its attitude towards showing wealth. Armani, for example, has increased its number of stores in China in the last two years from 30 to 40 in more than 36 cities (Doran). In the US, it has more than 100 stores, 25 of them having been established in the last three years (Scholz 101). More consumers are of the view that expensive brands are the best. Lastly, both the US and China market exhibit high brand recognition. The major brands are find it easier to sell than upcoming ones in the US and China (Wieldmann and Hennigs 35). Conclusion The concept of luxury products has not been fully defined let alone being understood. These different definitions have, however, not influenced how people spend their money on perceived luxury goods. The cultural dimension of the society where one lives influences the consumption behavior of that individual. The culture starts by influencing the values upheld, the values then affect the attitude and interpretation of luxury products and their importance and, lastly, the consumption behavior is determined. The US and China are the two largest markets in the world. Even though they have different cultural dimensions they still provide large markets. This shows that most luxury products are becoming global products. And with the increase in the per capita income of the US and Chinese citizens the luxury sales can only increase in the near future. Work Cited Doran Sophie. Renewed optimism in the US luxury market. Luxury Society, 9th July 2013. Web. 27th February 2014. Fleischer Friederike. Suburban Beijing: Housing and consumption in contemporary China. Minnesota: University of Minnesota Press, 2010. Print. Frank Robert. Luxury’s hottest growth market: The US. Inside Wealth, 28th October 2013. Web. 28th February 2014. Funggroup.com. Luxury market in China: Huge potential growth ahead. Fung Business Intelligence Center, 1st April 2013. Web. 1st March 2014. Henry Warren.”Cultural values do correlate with consumer behavior”. Journal of Marketing Research 16.9 (1979): 121-127. Hofstede Geert. Cultures and organizations: Software of the mind. London: McGraw Hill, 1991. Print. KPMG. Global reach of China luxury: A KPMG study. KPMG, 10th October 2012, Web. 1st March 2014. Lu Pierre. Luxury consumer behavior in Mainland China: What exists beyond the façade of new health. The World Financial Review, 28th February 2014. Web. 28th February 2014. Ricca Manfredi., and Robins, Rebecca. Meta-luxury: Brands and the cultures of excellence. London: Palgrave Macmillan, 2012. Print. Russell, Cristel., and Valenzuela, Ana. How does culture matter? San Diego: San Diego University Press, 2005. Print. Scholz, Lucie. Brand management and marketing of luxury goods. Berlin: Diplomica Verlag, 2014. Print. Wieldmann, Klaus-Peter., and Hennigs, Nadine. Luxury marketing: A challenge for theory and practice. New York: Springer, 2012. Print. Read More