Questions and Answers with Ms. Patriica Pao, president of the Pao Principle, a global business strategy consulting firm, that conducts studies of the emerging Chinese luxury consumer.

1. What are some key similarities between Chinese luxury consumer attitudes and those of Americans?

•Both mainland Chinese and Americans value individualism.  As a result, they look to luxury goods to help differentiate themselves from the crowd.  This is a fairly recent phenomenon in mainland China resulting from its “one-child” policy.

•Additionally, both groups value quality.  Until fairly recently, mainland Chinese were more concerned with the logo.

•And like Americans, mainland Chinese luxury buyers value selection.  Specifically, they want what is shown in New York, Tokyo and Paris brand boutiques. 

2. What are some of the key differences?

•Mainland Chinese love to bargain.  As a result, over 80% of panelists said that receiving a discount would motivate them to purchase more luxury goods.

•Unlike the U.S. where demand for watches is driven by both sexes, in mainland China, men account for the majority of watch sales.  Over 60% of our male panelists reported purchasing a watch over the past 12 months.  In contrast, only 30% of our female panelists reported purchasing a watch over this same time period.

•Mainland Chinese possess more limited knowledge of luxury brands.  Interviews with our panelists consistently resulted in the following question:  “Why is this [item] worth so much money?”

•Unlike the Americans who make most of their luxury goods purchases in the U.S., the majority of mainland Chinese purchase in Hong Kong due to lower prices/taxes and better selection.

•Magazines continue to thrive in mainland China as they are the number one source of information for luxury goods  

3. Among luxury product category, do Chinese consumers favor specific countries' products? i.e. which countries offer highest status?

Mainland China luxury customers tend to favor U.S., French and Italian brands for their handbags and fine jewelry purchases.  With regards to watches, they tend to favor Swiss, French and Italian brands.

4. How would you say American brands rank?

U.S. brands do well in handbags and fine jewelry.  Specifically, Tiffany was the top jewelry brand of choice with almost 30% share of panelists who had reported purchasing a piece of fine jewelry over the past 12  months and Coach tied for the #2 ranking (with Gucci) in terms of handbag purchases over the past 12 months.

5. Can you paint a picture of the fashion brands the Chinese luxury fashionista is now wearing?

The Chinese fashionista taste and style mirrors that of the New York fashionista.  Specifically, she wears brands such as Chanel, Miu Miu, Balenciaga, Yves St. Laurent and Louis Vuitton but  she is careful to “mix it up” as “head to toe” designer dressing is frowned upon.

6. What are some of the key mistakes luxury brands have made entering the Chinese marketplace?

•There is no such thing as “one china.”  Companies entering into mainland China assume they are serving a homogenous population when in fact tastes and habits differ tremendously by region.

•Not recognizing that there is a tremendous gap in their belief of what mainland Chinese luxury buyers want versus what they actually need

•Not investing in programs that facilitate knowledge and understanding of their brand

•Not understanding the impact the “one-child” policy has on the way mainland Chinese consumers view luxury goods

•Not effectively dealing with the language barrier.  Even in first-tier cities such as Shanghai and Beijing, most mainland Chinese do not speak English.

7. What advice can you offer these marketers?

•Hire people to work at headquarters who are fluent in Mandarin both written and speaking who have demonstrated true insider understanding of current mainland China cultural trends and shifts.  For example, regarding social media, brands such as Twitter and Facebook cannot be leveraged as these brands are not accessible to mainland Chinese.

•Maintain a close relationship with handbag buyers.  They are extremely brand loyal and purchase multiple pieces.  Of the almost 90% of panelists reported purchasing a handbag over the past 12 months, 46% said they would definitely purchase another handbag within the next 6 months.

•Those brands possessing beauty and fragrance brands need to identify and cultivate these buyers as today’s beauty buyer is tomorrow’s handbag buyer.  Of the 77.8% of beauty purchasers in our study who had not purchased a handbag, watch or fine jewelry piece in the past 12 months, 100% of these buyers said they would definitely purchase an additional item from the brand with handbags being the top choice.

•Creatively “tweek” the existing promotional program to make mainland Chinese buyers believe they are getting a deal.  This can take the form of gift-with-purchase, tickets to special events, frequent buyer clubs, etc.

•Don’t use mainland China as a dumping ground for excess inventory.  Instead improve selection by offering limited edition pieces and the same merchandise that is only available in New York, Paris and Tokyo brand boutiques (but not Hong Kong).

•Invest in programs that increase mainland Chinese’ knowledge of your brand.  Remember that education is key to conversion.