SIMON-KUCHER & PARTNERS Luxury Goods
Chinese Luxury Goods Buyers Survey 2013 Changing tides: Catching the next profit wave
The results presented in this document cover all the brands surveyed. Brand-specific results are available upon request.
Paris office 17 Square Edouard VII 75009 Paris - France Tel: (33) 1 56 69 23 90 Fax: (33) 1 56 69 23 99 e-mail:
[email protected] Internet: www.simon-kucher.com
Introduction: The knowns and unknowns of the Chinese luxury goods market
This study reveals the potential of the next Chinese profit wave
The Chinese market is continuously evolving, not only spurred on by the fast-growing level of wealth, but also by changing consumer mindsets and consumption patterns It is becoming clear that many inland areas are very quickly catching up with the more developed coastal zones, and that China’s provinces overall are becoming even more interconnected with the outside world Monitoring such macro-economic trends is highly important to firms for which the Chinese market is a key source of growth and profitability; however, much remains to be explored In particular, Chinese consumer price sensitivity and willingness to pay are still poorly understood today, with pricing strategies generally defined at distant headquarters Access costs and taxes have historically led to products in China being priced around 40% above prices in home markets, depending on the category, but this strategy is reaching its limits In order to raise profits sustainably in China, luxury goods firms must be able to accurately measure Chinese consumers’ willingness to pay as well as to closely monitor its fast-paced dynamics -1-
Executive summary: Chinese Luxury Goods Buyers Survey 2013 (1/2) Our study reveals that Chinese luxury goods buyers have changed in terms of: Maturity Luxury product value drivers have evolved from a pure mirror of social position to an indication of fashion and expertise: Product style, product quality and comfort are now Chinese consumers’ main purchasing drivers
Profile Spending among men has strongly increased in all product categories, resulting in an average spending level that is higher than for women: Men are the future growth drivers of luxury goods in China
Habits Online shopping has become a privileged buying channel, even for luxury goods. Shoppers are seduced by convenience, permanent product availability and simplicity: Luxury goods digital strategies must be rethought
Loyalty Higher maturity among luxury goods consumers has increased their loyalty for favorite brands
Price sensitivity and price knowledge Purchases abroad account for more than half the money spent by recurring luxury goods buyers. Yet the willingness to pay remains untapped in China: Price knowledge has increased, and the perceived fairness of luxury goods prices in China seems as important as the absolute price level Source: Simon-Kucher Chinese Luxury Goods Buyers Survey 2013
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Executive summary: Chinese Luxury Goods Buyers Survey 2013 (2/2) With each change comes a strong call for action: Maturity Customer segmentation must be enriched to better reflect Chinese customer value drivers and developments in luxury goods consumption. Current sales and marketing actions (brand communication, sales experience, loyalty rewards/recognition, …) must be adjusted accordingly
Profile Men are the future growth drivers of luxury goods in China. Thus it has become essential for luxury goods firms to be able to accurately measure men’s willingness to pay as well as to closely monitor this segment’s fast-paced dynamics (needs, expectations, …)
Habits Rethink digital strategies (pricing, category management, animation) to better utilize Chinese consumer’s Internet savvy by providing adapted services and an improved purchasing experience. Move from a pure brand website to a real distribution/e-commerce channel
Loyalty Tap brand loyalty by developing new product categories such as perfumes and cosmetics
Price sensitivity and price knowledge Implement dynamic tools to monitor competitor prices around the world, assess price sensitivity per customer segment and note changes in purchase areas
Source: Simon-Kucher Chinese Luxury Goods Buyers Survey 2013
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The maturity of Chinese luxury goods buyers has changed Value drivers have evolved from a pure mirror of social position to an indication of fashion and expertise: Product style, product quality and comfort are now essential for Chinese consumers. Purchasing criteria* Product features Quality of overall product
Ranking of criteria by importance Men
Overall 74
72
71
Style of product
Add. VIP services provided by brand
73
68
67
Quality of service by sales people
71
65
66
66
68 66
Price
65
65
66
Visibility of brand logo
65
65
65
Ability to purchase products online from official store
65
Purchasing experience
65
74
69
69
Overall brand image
76
70
70
Comfort of use
Women
62 63
67 66
Source: Simon-Kucher Survey, Question: What factors are most important -4when you are deciding on which product or brand to purchase? (Scaled to: 0 = not important at all, 100 = extremely important) * Ranked by importance
Chinese luxury goods buyers are essentially looking at product features when purchasing luxury products Prices are less important than might be expected The visibility of the brand logo is no longer crucial to them
The maturity of Chinese luxury goods buyers has changed The trend, visible in all product categories, has shifted away from status and towards fashion and expertise. Purchasing criteria
Ranking of criteria by importance Men
Women Bags and Small leather luggage goods
Bags and luggage
Watches
1
1
1
1
Style of product
2
3
4
3
Comfort of use
3
2
2
2
Overall brand image
4
4
4
4
Quality of service by sales people
5
7
10
7
Add. VIP services provided by brand
6
5
6
10
Purchasing experience
7
7
3
7
Visibility of brand logo
8
6
8
9
Price
9
10
7
6
Ability to purchase products online from official store
10
9
9
5
Product features Quality of overall product
Source: Simon-Kucher Survey, Question: What factors are most important when you are deciding on which product or brand to purchase? (Ranked from most to least important)
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The profile of Chinese luxury goods buyers has changed Spending among men has strongly increased in all product categories, resulting in an average spending level that is higher than for women: Men are the future growth drivers of luxury in China. Average expenses in the past two years (¥ ‘000) Women
Overall 57.3
Jewelry
48.8
Watches
29.7
Bags & luggage
18.4
Small leather goods
16.4
Shoes
14.4
Accessories
Men
48.2
Source: Simon-Kucher Survey. -6Question 4: How much money did you spend on Western-brand luxury products in the past two years? Note: €1 = ¥8
75.7
42.7
60.8
34.1
21.3
20.6
16.2
13.6
14.3
17.0
16.0
The habits of Chinese luxury goods buyers have changed 27% of the respondents plan to shop for luxury goods online. Simon-Kucher has tested innovative services that steer online sales. Elements encouraging online purchasing*
Ranking of potential drivers by importance Men
Overall Home delivery at preferred time with free return
67
Ability to easily view all product prices online
67
Online fitting room
64
Official group shopping
64 62
Source: Simon-Kucher Survey. -7Question 15: How strongly would the following elements encourage you to purchase luxury goods online? (0 = not encouraging at all, 100 = extremely encouraging) * Ranked by preference
66
65 65
64
Exclusive products available online only
67
66
65
Invitation for special events
68
66
65
Ability to personalize products for free
68
66
66
Special loyalty program for online purchase
70
67
67
Add. services such as free maintenance and extended product warranty
Discount available online only
66
67
Online availability of all sizes incl. specific sizes
Women
65
62
65
62
65 64
61
67
64 63
The loyalty of Chinese luxury goods buyers has changed Higher maturity among luxury goods consumers has increased their loyalty for their favorite brand. Louis Vuitton and Hermes are by far the two most preferred brands. Brand *
Customer distribution Overall
Men 24.3%
Louis Vuitton 21.3%
Hermès
14% 8%
5.3%
Bottega Veneta
3.6%
Burberry
3.0%
18%
0%
8.9%
Christian Dior
28%
9%
9.5%
Chanel
5% 4% 3%
11% 5%
4% 4%
Céline
1.8%
0%
3%
Tiffany & Co
1.8%
0%
3%
Cartier
1.2%
IWC
1.2%
0%
4%
Mont Blanc
1.2%
0%
4%
Omega
1.2%
0%
4%
Rolex
1.2%
0%
4%
1%
2%
Bulgari
0.6%
0%
Jaeger-LeCoultre
0.6%
0%
2%
Patek Philippe
0.6%
0%
2%
Salvatore Ferragamo
0.6%
Ermenegildo Zegna
0.6%
0% 0%
Source: Simon-Kucher Survey, Question: What is your favorite luxury brand? * Ranked by attractiveness
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32%
9%
11.8%
Gucci
Prada
21%
1%
1% 1%
Women
The loyalty of Chinese luxury goods buyers has changed For bags and luggage, Hermès and Louis Vuitton are spontaneously mentioned as the favorite brands. 1st choice among 10 listed brands
Spontaneous answer
Brand *
Louis Vuitton
39%
Hermès
42%
25%
18%
2nd choice among 10 listed brands
12% 4%
Gucci
12%
Chanel
4%
5%
Christian Dior
4%
6%
Giorgio Armani
4%
Not listed **
Not listed **
Burberry
4%
3%
1%
Bottega Veneta Christian Dior Salvatore Ferragamo Others
1%
9%
1%
8% 15%
12% 17%
2% Not chosen
Not cited 4%
Source: Simon-Kucher Survey, Question: What brands do you find most attractive? * Ranked by attractiveness ** Not listed in the brands list proposed on the survey
26%
15%
1%
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4% 2%
Knowledge of prices has changed among Chinese luxury goods buyers Purchases abroad currently represent more than 50% of the money spent by regular luxury goods buyers. Purchasing location China and abroad*
Amount spent per location
Only China
China
Only abroad*
Abroad*
Accessories
71%
18%
12%
Shoes
50%
50%
Bags and luggage
69%
21%
10%
Jewellery
50%
50%
Shoes
69%
22%
10%
Small leather goods
47%
Small leather goods
66%
17%
Jewellery
64%
24%
Watches
56%
20%
17% 11% 24%
44%
Accessories
43%
Watches
% of the sample
40%
56% 57% 60% % of total amount spent
Reading example: 71% of the sample has purchased Western-brand luxury accessories in the past two years both in China and abroad, 18% in China only and 12% abroad only Source: Simon-Kucher Chinese Luxury Goods Buyers Survey 2013 *Abroad includes Hong-Kong and Macao
Bags and luggage
53%
Reading example: 50% of the money spent on Westernbrand luxury shoes in the past two years was spent in China and 50% was spent abroad - 10 -
Knowledge of prices has changed among Chinese luxury goods buyers Even for accessories or shoes, regular luxury goods buyers spent 50% of their amount abroad.
Comments
Average expenses in the past two years (¥ ‘000) China
Overall 57.3
48.8
Jewelry Watches
Abroad*
33.8
34.4
25.3
36.7
29.7
Bags & luggage
18.4
Small leather goods
10.7
16.4
Shoes
10.6 10.7
14.4
Accessories
15.4
9.0
Source: Simon-Kucher Survey. - 11 Question: How much money did you spend on Western-brand luxury products in the past two years? *Abroad includes Hong-Kong and Macao Note: €1 = ¥8
19.7 11.7
11.8
The respondents spent more money abroad* than in China in all categories Even more so for watches: The average expenses abroad are 1.5 times larger than those in China However, shoes and small leather goods purchases are balanced between China and abroad
Knowledge of prices has changed among Chinese luxury goods buyers Price and product availability are the two main obstacles to luxury goods purchases in China. Obstacles to luxury goods purchases in China*
Customer distribution Overall
The newest products are made available too late in China
The products I want are not available at all in China
The service quality is better abroad
Men 84%
64%
64%
Women
80%
73%
The price is higher in China
Comments
68%
56%
61%
Source: Simon-Kucher Survey, - 12 Question: What prevents you from buying more luxury goods in China (mainland) rather than abroad? * Ranked by preference
90%
83%
68%
65%
The biggest obstacle is the deferred launch of products in China Even if respondents do not seem to see price as essential, nearly 75% of them mention it as an obstacle to purchases in China (more than 80% for men) Respondents also mention lack of availability and a poorer service quality Other obstacles include concerns about fake products, lack of after-sales services and fear of poor product quality
The price sensitivity of Chinese luxury goods buyers has changed Despite higher Chinese prices, there is an untapped willingness to pay for some products/categories. Relative Value Perception, by quartile Bags
Illustration ¥25,000
¥24,000
25% of the respondents were willing to pay more than ¥ 24,000
¥23,000 ¥21,000 ¥19,000 ¥17,000 ¥15,000
¥18,900 ¥17,600 Bag price presented as reference to respondent
¥15,800
50% of the respondents were willing to pay over ¥18,500, more than the actual price of ¥17,800
¥13,500
¥13,000 ¥11,000
¥20,000 ¥18,500 ¥17,800
P75 ¥11,000
P50 P25
¥9,000
Actual price* ¥7,000 Bag 1
Bag 2
Source: Simon-Kucher Survey, - 13 Question: If the current price of bag 1 is ¥ 11 000, what prices do you expect the following two products to have? * Actual price = price as of June 2013 Note: €1 = ¥8
Bag 3
The price sensitivity of Chinese luxury goods buyers has changed Precisely measuring the price sensitivity helps to optimize prices.
Illustration
Estimated value Bag 3 – ¥17,800
Estimated value Bag 2 – ¥17,600 Prices
Actual price*
¥50,000
¥50,000
¥45,000
¥45,000
¥40,000
¥40,000
¥35,000
¥35,000
¥30,000
¥30,000
¥25,000
¥25,000
¥20,000
¥20,000
¥15,000
¥15,000
¥10,000
¥10,000
¥5,000
¥5,000
¥0
¥0
Willingness to pay per respondent
Source: Simon-Kucher Survey, - 14 Question: If the current price of bag 1 is ¥ 11 000, what prices do you expect the following two products to have? * Actual price = price as of June 2013 Note: €1 = ¥8
Prices
Actual price*
The price sensitivity of Chinese luxury goods buyers has changed To optimize the current price strategy, it is necessary to precisely measure the perception of the brand’s value within customer segments. Perceived Value – Customer segment 1 Bag 1 – ¥11 000 Buying probability
90% 80% 70% 60%
Acceptable
Expensive
Too expensive
Target price range
Actual price*
100%
Too low
Comments
There seems to be an untapped willingness to pay for some products in China
50% Point of indifference: ¥12,500
40% 30% Point of marginal expensiveness: ¥15,000
20% 10% 0% ¥0
¥10,000
Respondents are ready to pay between ¥12,500 and ¥15,000 to buy a bag currently sold at ¥11, 000
¥20,000
¥30,000
¥40,000
Price ¥50,000
Source: Simon-Kucher Survey, - 15 Question: Please consider the following product. What price would you consider to be too low? Acceptable? Expensive? Too expensive? Note: €1 = ¥8
Chinese luxury goods buyers expect luxury brands to expand into new categories Luxury goods buyers are very interested in perfumes and cosmetics. Women are also interested in technology products and men in home interior design and yachting. Areas to expand in*
Customer Distribution Overall
Comments
Men
Perfumes
92%
89%
84%
Cosmetics Fine food, wine & spirits
81%
77%
Technology products (e.g. smartphones)
74%
Home interior design
74%
Hotels
74%
Automotive interior design
72%
68%
Spa / wellness SPA
52%
Yachting
50%
79% 77%
71%
81%
73%
75%
69%
79%
65%
67%
Travel
73%
66% 47% 45%
Source: Simon-Kucher Survey, - 16 Question: If your favorite luxury brand were to expand into the following areas, would you be interested? * Ranked by preference
93% 86%
76%
70%
Restaurants
Women
68%
55% 61%
Respondents would be very interested in new products in perfumes and cosmetics Men and women differ on some points: Men prefer fine food and wine, interior design and yachting whereas women prefer technology products and restaurants Other areas include articles for daily use, cars, clothes, computer accessories, entertainment, food, office supplies, real estate, sports and health products
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Contact us
Martin Crépy
Fan Oswald-Chen
Partner Paris office
Managing Director Greater China Beijing office
Martin Crépy is a partner in the Luxury Goods and Apparel competence center in France
At Simon-Kucher & Partners, Fan specializes in the development and implementation of pricing, sales and marketing strategies in Greater China
He graduated from Université Technologique de Compiègne (UTC) and Concordia University in Canada
She holds a Master's in Industrial Engineering from Karlsruhe and also studied psychology at the University of Mannheim and Freiburg
Martin has conducted project assignments in all luxury goods segments: watches, PAP , jewelry, bags & luggage, cosmetics
Fan’s extensive project experience covers pricing strategies for new products, portfolio optimization, new business model development, and pricing processes, with a strong focus on multinational firms looking to tap the Chinese market in the most profitable way
All these projects have the common ambition of boosting the profitability and pricing power of companies though reinforced and differentiated pricing strategies
Paris office 17 Square Edouard VII 75009 Paris - France Tel: (33) 1 56 69 23 90 Fax: (33) 1 56 69 23 99 e-mail:
[email protected] Internet: www.simon-kucher.com
Beijing Office Unit 508, Landmark Tower 1 8 North Dongsanhuan Road, Chaoyang District 100004 Beijing, PR China Tel: (86) 10 6590 0206, Fax: (86) 10 6590 0106 e-mail:
[email protected] - 18 -
The results presented in this document cover all the brands surveyed. Brand-specific results are available upon request.
- 19 -
Set-up and methodology of the Chinese Luxury Goods Buyers Survey The respondents are a representative sample of Chinese luxury goods buyers.
Gender distribution
Geographic distribution
Education
Other 1%
Men 34%
Graduat e degree 12%
Undergraduat e degree 88%
Beijing Shanghai 39% 60%
Women 66%
Seconda ry educatio n 0%
Income distribution (¥ ‘000)
Age distribution
34%
53%
22%
17%
4% 18 to 25
25 to 30
30 to 40
40 to 50
3%
1%
50 to 60
>60
Source: Simon-Kucher Chinese Luxury Goods Buyers Survey 2013 – 200 respondents
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10%
10%
25 to 30
30 to 35
16%
15%
15%
35 to 40
40 to 45
45 to 50
More than 50
