Gap is Narrowing Among the Mainland Luxury Markets
The 2009 China Luxury Forecast, jointly conducted by Ruder Finn Asia and Albatross Global Solutions, shows that the gap between the tier 1 and tier 2 luxury markets is narrowing. Consumers in tier 2 cities are becoming more mature in areas such as consumer perception and purchasing power. The survey interviewed 1,000 luxury consumers with an average annual income of RMB 240,000. Respondents from tier 2 cities in East, South, West and North China accounted for nearly half of the total sample.
Consumer confidence and purchasing power
Luxury consumption confidence on par: Despite the current economic situation, consumers in tier 2 cities show a strong capacity for luxury consumption, with 54.6% saying that prices have little impact on their optimistic view that their purchasing power will increase. This is only 4.3% lower than the proportion in tier 1 cities. When asked how confident they were about purchasing power over the next year, 36.6% of the respondents in tier 2 cities expressed confidence compared to 38.9% in tier 1 cities.
Smaller gap in purchasing power: In tier 2 cities, 74.9% of the respondents are likely to spend less than RMB 20,000 a year on luxury fashion and accessory items, which is slightly more than in tier 1 cities. Almost a quarter (23.5%) said they would spend between RMB 20,000 and RMB 100,000 a year on luxury fashion and accessory items, which is only 10% less than the number in tier 1 cities. The percentage of respondents spending between RMB 100,000 and RMB 200,000 a year is nearly the same in tier 1 and tier 2 cities.
When it comes to luxury watches and jewelry, 19.1% of respondents in tier 2 cities will spend between RMB 20,000 and RMB 100,000, only 3.7% less than those in tier 1 cities.
Purchasing triggers
Luxury goods as gifts for business: More than 80% of the respondents buy luxury goods for personal use. A small number or respondents purchase luxury goods as business gifts and this is three times more in tier 2 cities (7.6%) than in tier 1 cities (2.2%).
Brand comes first when considering a purchase: The level of luxury brand awareness is narrowing between tier 1 and tier 2 cities. Among all the measured factors, “Brand Reputation” was named as the most important factor by 75.3% of respondents in tier 2 cities, followed by “Brand Heritage”. In addition, some 46.6% of respondents in tier 2 cities said that they are loyal to certain brands, which is close to the percentage in tier 1 cities (47.2%), while Eastern tier 2 cities top the national list with 51.7%. As there are fewer luxury brands in tier 2 cities than in tier 1 cities and Hong Kong, the faster brands tap into the tier 2 markets, the easier it will be for them to build brand loyalty.
Point of Sales
Luxury department stores are the main channel for getting information: 64.5% of respondents in tier 2 cities said they sourced their information on luxury goods from leading department stores, 15% more than in tier 1 cities. The highest incidence of this is in East China where 70% are more likely to obtain information from salespersons in stores. In addition, 61% of the respondents said that a salesperson’s attitude would influence their purchasing decision while 54.6% said they would make a decision after carefully listening to the advice of sales staff.
Information Channels
Use of information channels similar: The results show that whether in tier 1 or tier 2 cities, the majority of the respondents get brand information from print media articles. Nearly 82% of tier 2 city respondents prefer to learn about new trends among the brands by reading about them in print publications, while some 20% say they get their information from television. Figures are similar for tier 1 city respondents.
