How Consumers Perceive Luxury Brands in China March 2012

Why Brand Tracking Studies are Critical in China China is the world’s second largest market for luxury goods. While it is attractive due to size and growth, a combination of environmental, economic and cultural factors also make it challenging China Factors Size and Segments

 China is not a single homogenous market for luxury and is showing increasing signs of segmentation and differentiation  It has a wide range of consumer segments from aspirational middle class to mature/ sophisticated buyers Rapid Changes

 Upward economic mobility and extensive access to luxury products are driving the creation of a new set of luxury customers  Increasing exposure to luxury through travel, the Internet, and prior experience has led to rapidly changing attitudes and perceptions of luxury brands

Challenges Faced by Luxury Brands How to position offerings and cater to different segments?

 Identify the right consumer segment

 Recognize the differences and identify underlying commonalities – geographic and cultural trends in variation  Strong need for localization – brands need to reach out to consumers through relevant local messages/media while maintaining their global image  Quick response time and ability to react appropriately to changes in consumer perceptions and needs

Counterfeiting

 Counterfeit goods are widespread and readily available • Endangering the association of luxury brands with quality

March 2012

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Luxury brands need to keep a close watch on the pulse of customers’ perceptions and brand health

Brand Dilution

 Maintain exclusivity/brand uniqueness/desired image with limited control on the external environment

2

Brand Monitor® can help brands succeed in China

About Brand Monitor® Brand Monitor® is based on a tested conceptual framework, which, in the last decade, has been used by more than 100 clients across the world

A Brand is Built of “Rational” and “Emotional” Beliefs “Product” Associations

 Set of tangible brand associations

Summary Beliefs

 Summary dimensions customers and “Personality” Associations

 Set of intangible, symbolic brand associations

managers can use to synthesize/interpret brand information and outline strategic choices, respectively • Stature • Affiliation • Scope • Differentiation

Brand Preference

   

Favorite brand Consideration set Purchase/usage intention “Attitudinal” relevance

Brand Presence (Familiarity)

 Unaware

March 2012

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 Aware • Top-of-mind • Unaided • Aided • Advertising Recall 3

 Familiar • Not at all • Somewhat • Very

2012 Luxury Consumers Survey in China As part of our brand tracker, we surveyed luxury customers in 4 cities across China to understand the current situation and consumer perception of a selected number of luxury (apparel and accessories) brands

 Surveyed ~260 Chinese consumers about a variety of topics – from their motivation behind purchasing luxury goods to their perceptions of key luxury brands in China

 Respondents were spread across 4 cities in China (Beijing, Shanghai, Chengdu, and Dalian), and were above the age of 18 years

 Of the respondents, 15% were18-25 years old, 34% 26-35 years, 36% 36-45 years, and 15% 46 years and above

 All respondents had shopped for a luxury brand at least once in the last 6 months and had spent more than CNY 5,000 (~$800) in the same period

March 2012

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Key Motivations for Luxury Purchase A large proportion of the consumers buy luxury products as a form of self reward, indulgence, and relaxation, and this seems to be a growing trend. The implication for brands is to deliver on this emotional experience rather than focusing on exclusivity and status enhancement Motivations Behind Luxury Purchase

36%

To feel pampered

have been aspirational and believed that owning luxury products demonstrates success and social status

31%

To cheer me up 26%

To boost my confidence

 Traditionally, Chinese consumers

 The aspirational element, however, To celebrate a success / big event

21%

To stand out from the crowd

21%

To relax/ relieve stress

 Luxury as an experience – the feeling of reward and indulgence – is becoming more important than the “status factor”

21%

To express my individuality

 This need for experiential luxury

20%

can be an opportunity for brands if they can provide such an experience in their retail stores and other points of contact with customers

14%

To impress others Others

8% 0%

March 2012

is decreasing with more consumers having a direct experience with luxury

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10%

30%

20%

5

40%

Brand Performance/Product Associations (1/2) The changing desires of consumers is also reflected in their stated expectations of tangible attributes of a brand. Quality (comfort, fit, well-made) wins over other factors tested, such as exclusivity, uniqueness, and recognition from others Desirability of Performance Attributes

Comfortable

6.2

More affordable

6.1

Well-made

5.9

High-quality reputation

5.9

experience quality and comfort as demonstrated by their choice of brand performance attributes

 Though affordability was mentioned as important

5.8

Stylish design

(to varying degrees) by the majority of consumers, only a small percentage rated this as the most important factor. Given that those of the emerging upper middle class are also luxury consumers, affordability will continue to play a part in their brand purchase choice

5.7

Suitable for work

5.7

Expensive materials Brand not widely known

5.4

Exclusive

5.4

Current / en vogue

5.4

Unique

5.4

 The reputation of the brand continues to be an important criteria

 Brands can focus on promoting their heritage and

5.3

Discreet

March 2012

 Function over form: They choose brands to

5.9

Timeless

4.5

luxury goods through the Internet, international travel, and prior luxury purchase experience. As a result, they have become more discerning in their taste

6.1

Fits well

Recognizable Brand

 Chinese consumers are increasingly exposed to

track record of craftsmanship to capitalize on these trends

4.8 5.0

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5.5

6.0

6.5

6

Brand Performance/Product Associations (2/2) We tested 10 key brands with consumers to understand their association of brand performance attributes. The distance between the brand and the attributes indicates how closely the respondents associate the trait with the brand Performance Attributes Perception Map

 Ermenegildo Zegna is Armani Comfortable Polo Ralph Lauren Gucci

 Prada is considered to be

Versace

Stylish design Ermenegildo Zegna Well-made Timeless

most associated with “Fits well” and “Timeless”

Fits well

 Brands perceived as the Prada

closest to meeting consumer expectations of being “More affordable” are Burberry and Coach

Suitable for work High-quality reputation Burberry

Coach More affordable

Brand

Performance Association Appeal

Note: performance attribute association with brands tested only for these 10 brands March 2012

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 Hermès is considered to be associated with “Well-made” and “Stylish design”

Louis Vuitton Hermès

associated with several traits such as “Stylish design”, “Timeless”, “Well-made”, and “High-quality reputation”

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 Polo Ralph Lauren and Armani are the least associated with the top 8 traits

Brand Personality Associations (1/2) The most important personality (intangible) attributes consumers would like to see in a luxury brand are “sexy”, “elegant” and “fashionable” Desirability of Personality Traits Sexy

6.1

Elegant / Chic

5.9

Fashionable

5.7

Relaxed

5.7

Reliable

5.7

Practical / Sensible

5.7

elegant/chic, sexy ,or fashionable is their most important reason for purchasing a luxury brand

5.5 5.3

Hedonistic / Opulent Sophisticated

5.2

Western Style

5.1

 Functionality: At the same time, a secondary set of attributes that are more functional and practical in nature emerge a close second to the previous group of attributes

5.1

Cutting-edge Feminine

5.1

Traditional

5.1

 It is interesting to note that there are no significant differences between the type of people (age, gender, income, or location) choosing “relaxed”, “reliable” or “practical” vs. “sexy”, “elegant”, or “fashionable”

4.9

Minimalist / Simple Demure / Understated

4.9

Young / Playful

4.9 4.5

Masculine 4.2

Bold / Loud

March 2012

 Nearly half of all consumers feel appearing

5.5

Modern

3.0

elegant/chic, sexy, and fashionable, indicating a strong desire for haute couture fashion

5.6

Glamorous Celebrity Association

Irreverent

 Consumers strongly desire a brand to be

3.7

4.0

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5.0

6.0

7.0

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Brand Personality/Product Associations (2/2) We also tested the 10 key brands to understand consumer association of brand personality attributes. The distance between the brand and the attributes indicates how closely the respondents associate the trait with the brand Performance Attributes Perception Map

 Hermès and Louis Vuitton Relaxed Coach Armani Gucci Versace

are closely associated with the most desired traits – “Sexy” and “Elegant/chic”

Fashionable

Practical / sensible

Glamorous

 Gucci is strongly associated

Louis Vuitton Elegant / chic Sexy

Reliable Burberry

Hermès Ermenegildo Zegna

Polo Ralph Lauren Celebrity Association

Personality Association Appeal

Note: Personality attribute association with brands tested only for these 10 brands March 2012

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 Burberry is strongly associated with the trait “Reliable”

 Polo has the weakest

Prada

Brand

with “Relaxed” and is also associated with traits such as “Fashionable” and “Practical/sensible”

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associations with key personality traits

Meta Perceptions – Stature and Trajectory Hermès is seen by consumers as having both the highest stature as well as trajectory of all brands. Louis Vuitton, Prada, and Armani are next based on their stature, though Prada seems to have a slower trajectory than Armani

More Reputable/Positive Change

Stature and Trajectory Stature 6.10

5.97

5.86

5.82

5.78

5.65

5.60

5.54

5.48

5.31

5.33

5.37

Burberry

Ermenegildo Zegna

Coach

5.86 5.67 5.54

Hermès

Louis Vuitton

Prada

5.64

Armani

5.58

Trajectory

5.41

5.50

Versace

Gucci

5.23

Polo Ralph Lauren

 Hermès is perceived by consumers as having the highest stature among the 10 key brands tested – an indication of its perceived quality and prestige. This is highlighted by its strong association with the brand attributes that consumers termed as most important (top 5): • Product attribute: closely associated with “well-made” • Personality attribute: closely associated with “sexy” and “elegant/chic”

 It is also rated as having the strongest trajectory – the belief about how up-and-coming a brand is  Burberry, despite being perceived as of a higher stature, is also considered as less up-and-coming brand than Zegna and Coach. Burberry is most closely associated with the attributes of “affordable” and “reliable”, which may be partly responsible for this

 Polo Ralph Lauren, which was not closely associated by consumers on the top 5 brand attributes (either performance/product or personality attributes), is lagging behind all other key brands on stature as well as trajectory March 2012

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Awareness and Familiarity of Brands Armani, Louis Vuitton and Gucci have the highest awareness levels, with both LV and Armani (in that order) scoring the highest on top-of-mind awareness. Levels of familiarity with the brand are mostly related to the awareness levels with only a few surprises Awareness and Familiarity (Top 10 brands) 100% 90%

89%

87%

85%

84%

84% 80%

75%

Aided Awareness Unaided Awareness Top-of-Mind Awareness PC Very Familiar With/Own Brand

77%

76% 72%

29% 35%

48%

49%

50%

56%

44%

42%

50% 34%

34% 36% 25%

43%

28%

26%

26%

32%

28%

28%

31%

32% 22% 31%

24%

10%

24% 13%

9%

0% Armani

Louis Vuitton

48%

64%

39%

Gucci

30%

16%

4%

7%

Hermès

Burberry

11% 4%

7%

4%

5%

Dior

Chanel

Versace

Prada

2% Alfred Dunhill

 For brands such as Burberry, Valentino, and Coach, familiarity with the brand is higher than unaided awareness, indicating that a portion of consumers exist who are familiar with or own these brands, but are unable to recall it without prompting. The reasons could be: • These brands are popular as gifts, therefore consumers are more familiar with the brand • The brands’ advertising spend may be lower leading to lower spontaneous recall, though more people may be purchasing them

 For brands such as Gucci or Hermès, the unaided awareness is high, but the familiarity of consumers with the brand is lower – not in comparison to other brands, but compared to their own awareness levels

March 2012

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Purchase Intention Prada, Gucci, and Versace have the most people claiming they are likely to purchase the brand in the next 6 months. Louis Vuitton and Armani round off the top 5, though both these brands have a higher percentage of people saying they “will definitely buy” (as compared to the first three) Likelihood of Purchase

 Brands such as Hermès, Zegna and Prada

82%

Gucci

82%

Versace

81%

Louis Vuitton

80%

Armani

80%

Burberry

76%

Ermenegildo Zegna

76%

Coach

75%

Polo Ralph Lauren

67% 0%

20%

40%

60%

80%

Likelihood of Purchase Will buy

March 2012

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Will Definitely buy

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 Versace is among the few brands that have lower familiarity but are seeing a high percentage of people willing to buy

 Another interesting case is Prada, which has relatively lower awareness and familiarity levels as compared to Armani, Gucci and Louis Vuitton, but has a high percentage of people willing to buy it

 Though Hermès has the lowest percentage of people saying they are likely to buy it, the proportion of those that say will definitely buy is relatively high

71%

Hermès

PRL that have lower familiarity also (not surprisingly) have fewer people that intend to buy the brand

Uniqueness Louis Vuitton and Hermès are considered the most unique brands compared to others. Prada, Gucci, Louis Vuitton, and Armani are considered more “unique” by people in higher income groups Uniqueness

Louis Vuitton

5.7

Hermès

5.7

Prada

5.5

Armani

5.5

Versace

5.5

Gucci

5.5

Burberry

percentage of people that are likely to purchase the brand in the next 6 months, it rates at par with Louis Vuitton in terms of uniqueness

 In terms of different customer segments, Prada is considered as the most unique brand by people in the age group 18-25 years, while Louis Vuitton is considered most unique by people in the age group 36-45 years

5.3

Ermenegildo Zegna

 Brands such as Armani, Burberry,

5.2

Polo Ralph Lauren

5.2

Coach

5.1 0.0

1.0

2.0

3.0

4.0

5.0

Most Unique

March 2012

 Though Hermès has the lowest

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Gucci and Polo Ralph Lauren are considered less unique by people in the 46 and above age group

6.0

7.0

Favorite & Brand for Me Although Louis Vuitton emerges as the overall favorite brand, Burberry is the favorite among females. Prada and Versace rank among the top brands people can associate themselves with, though only a few consider these as their favorites Favorite and Brand for Me

20%

5.2

5.3

5.2

5.0

5.2

5.2

5.2

4.9

 Louis Vuitton is the

6.0

most favorite brand and Armani emerges as the brand people can associate themselves with

5.1 4.8

10%

5.0

4.0 17% 14%

3.0 11%

5%

8%

7%

6%

6%

2.0 5% 1.0

0%

March 2012

Armani

Burberry

Gucci

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 People in the age group 18-25 years associate themselves more with Versace and comparatively less with Armani, Zegna and Prada

 Brands such as 7%

3% Louis Vuitton

Brands For Me

Favorite Brand

15%

7.0

Hermès Ermenegildo Prada Zegna

14

Versace

Coach

Polo Ralph Lauren

Burberry, Hermès and Versace are comparatively less associated with people in the age group 36-45 years

Recommendation Armani is the brand most likely to be recommended by people to their friends and family, closely followed by Louis Vuitton, Prada, and Versace. Gucci is less likely to be recommended even though it has highest amount of people claiming that they are likely to purchase it in the next 6 months Recommendation

Armani

5.6

Louis Vuitton

5.5

Prada

 In line with their high awareness and familiarity, Armani and Louis Vuitton emerge as the brands that people are most likely to recommend to their family and friends

5.5

 Though Hermès is perceived to have Versace Coach

5.4

Hermès

5.4

Polo Ralph Lauren

5.3

Gucci

5.3

Ermenegildo Zegna

5.3

Burberry

5.3 0.0

1.0

2.0

3.0

4.0

5.0

Most Recommended

March 2012

the highest stature and trajectory, it falls behind Armani, LV, Prada, and Versace as the brand most recommended by people

5.5

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 Though Polo Ralph Lauren ranks comparatively lower in terms of overall potential recommendation, it is the most recommended brand by people in lower income groups (Under CNY 400,000, ~$65K)

 Among the higher age segment (46 years and above) Burberry is more likely to be recommended than Coach, Polo Ralph Lauren, and Gucci 6.0

7.0

Source of Information & Purchase Behavior Louis Vuitton, Armani, Gucci, and Burberry are the most recently purchased brands , which is an extension of their status as the four most favorite brands. “Brand’s Official store” is the top source of purchase for luxury brand products, with magazines as the top source of information Most Recent Purchase and Source of Information Most Recent Purchase

Armani

12%

Gucci

12%

respondents refer to magazines as a source of information. Nearly onethird of the respondents use the internet as a source of information • Nearly 73% of the respondents use the Internet only for browsing luxury clothing, while 27% use the Internet for both browsing and purchasing purposes

9%

Burberry Coach

8%

Versace

8%

Ermenegildo Zegna

7%

Prada

7%

Chanel

5%

Hermès

5% 0%

March 2012

 More than two-thirds of the

17%

Louis Vuitton

5%

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 The lower and middle age groups (18-35 years) also prefer information from friends, whereas the higher age groups mainly concentrate on window shopping to gather information

 Both males and females consider magazines and friends as their major source sof information 10%

15%

16

20%

How will the Brand Tracker Support You? Using a robust approach, the Brand Tracker framework helps brands answer some key strategic questions

Consumers    

Channels  What channels do our high-value consumers use to make

Who are your target consumers? What motivates your target consumers? Where do your target consumers get their information? Where do we lose consumers along the “conversion curve”?

their purchases?  What do the channels tell consumers about your brand?  What additional information do the channels need about your brand?

Brand  Does the positioning of the brand in China match global positioning? Does it need to be repositioned?  How do we localize while at the same time remain international?  Do consumer perceptions of our brand match our positioning and marketing?

Longitudinal

Competitors

 How has the market changed on a year-on-year basis?  How are attitudes and needs changing?  What can we learn from the trends and how do we forecast key trends?

March 2012

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   

Who are their key customers? What is their value proposition? What can we learn from them? What are their strengths and weaknesses?

The Complete Brand Study is Available upon Request The complete set of findings from our luxury brand study includes the following:

Market Reports                       

March 2012

Brand Reports          

Favorite Luxury Brand Clothing or Accessories Considered Luxury Brand Clothing or Accessories Intensity of Preference Behavioral Intention Recommended Luxury Brand Clothing or Accessories “Luxury Brand for Me” Unaided Awareness Awareness and Familiarity Charisma Experience Acceptability Satisfaction Recommendation Impact of Familiarity on Purchase Intention Stature Trajectory Uniqueness Association Appeal Brand Performance Associations Brand Personality Associations Perceptual Map Additional Questions Respondents Profile

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Armani Burberry Coach Ermenegildo Zegna Gucci Hermès Louis Vuitton Polo Ralph Lauren Prada Versace

Illustrative Brand Report

March 2012

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Brand Scorecard These charts provide an overview of the luxury brand’s health

Luxury Brand Preference 0%

10%

Meta Perception

20%

Favorite Brand

30%

Stature

5.8

14% Trajectory

Purchase Intention

5.4

Brand for Me Recommend to Family and Friends

5.6 5.5

Affiliation

5.3 5.6 1

2

3

4

5

6

1

2

3

4

5

6

Performance Associations

7

Comfortable 100%

90% 13%

90% 13%

28%

28%

Top-of-Mind Unaided 57% 4% 15%

48%

48%

37%

Brand X

Highest

Average

7

Aided

6.1

Fits well

5.9

More affordable

5.8

Suitable for work / professional settings

5.8 5.6

Well-made

0% 1

2

3

4

5

6

7

Personality Associations Sexy

6.0

50% 27%

0%

Satisfaction

Fashionable

5.8

Relaxed

5.8

Reliable

5.8

Elegant / chic

5.8

30%

Recommendation 1

March 2012

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20

2

3

4

5

6

7

Gap Analysis — Performance Associations This chart shows how a luxury brand performs along key performance associations. Those furthest away from the diagonal line are extreme in their under or over-performance Extremely Desirable 7

More affordable

Comfortable

Well-made

High-quality reputation Fits well Never goes out of style Suitable for work Stylish design Made of luxurious materials Unique Exclusive Only those that appreciate the brand can recognize it

6

Desirability of Attribute (Mean Desirability on a 1–7 Scale)

Current Discreet 5

Everyone can recognize the brand

Under performers Over performers 4 4

5

6

Brand Performance of Attribute (Mean Rating on a 1–7 Scale)

7 Describes Extremely Well

 Personality Desirability: When you think about the luxury clothing or accessories that you tend to buy, how desirable are the following brand characteristics?  Personality Associations: In your opinion how well do the following properties describe this brand? Base your opinion on anything that you have seen or heard, or your overall impression of this brand March 2012

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Gap Analysis — Personality Associations This chart shows how a luxury brand performs along key personality associations. Those furthest away from the diagonal line are extreme in their under or over-performance Extremely Desirable 7

Reliable Sexy Elegant / chic Relaxed Practical / sensible Celebrity Association Glamorous Fashionable Hedonistic / Opulent Modern Western Style Sophisticated Feminine Traditional Cutting-edge / avant garde Minimalist / Simple Demure / Understated Young / Playful

6

Desirability of Attribute (Mean Desirability on a 1–7 Scale)

5

Masculine Bold / loud 4 Irreverent Under performers Over performers 3 3

4

5 Brand Personality of Attribute (Mean Rating on a 1–7 Scale)

6

7 Describes Extremely Well

 Personality Desirability: When you think about the luxury clothing or accessories that you tend to buy, how desirable are the following brand characteristics?  Personality Associations: In your opinion how well do the following properties describe this brand? Base your opinion on anything that you have seen or heard, or your overall impression of this brand March 2012

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Consideration Set These charts show who competes for the luxury brand’s customers and who the luxury brand competes with for customers Consideration Set Percent of Other luxury brand Considerers Who Also Consider Brand X**

Percent of Brand X Considerers Who Also Consider Other luxury brands* Brand A

Brand A (n=xx)

33%

33%

Brand B

20%

Brand D (n=xx)

25%

Brand C

20%

Brand C (n=xx)

25%

Brand D

19%

Brand G (n=xx)

Brand E

19%

Brand E (n=xx)

21%

Brand F

19%

Brand F (n=xx)

21%

Brand G

16%

Brand B (n=xx)

Brand H

16%

Brand H (n=xx)

Brand I

10%

20%

30%

40%

Based on respondents who consider Brand X (n=xx)

March 2012

20% 18%

Brand I (n=xx)

6% 0%

24%

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23

11% 0%

10%

20%

30%

40%

For More Information Contact: Grail Research  [email protected]

Copyright © 2012 by Grail Research, a division of Integreon No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, or otherwise — without the permission of Grail Research, a division of Integreon