The dangerous rise of the luxury bargain hunter in China
Key points to remember:
More than 63% of Chinese respondents admitted they were “on show,” meaning they use their phones to check prices while browsing a store.
It is a common misconception that bargain hunters only look at the lower end of the income spectrum, as bargain hunting sentiment resonates with higher income consumers as well.
Tools like discount codes increase sales revenue by incentivizing trial products – a method that also boosts long-term loyalty.
A paradox of the flourishing luxury market in China is that the opportunity to own a luxury branded product has created a whole new segment of luxury consumers – the luxury bargain hunter. This trend has largely gone unnoticed, as brand leaders are likely to have a more idealized view of their target customers. This vision is probably not someone scrolling through their web search results for the best deal.
Nonetheless, the reality is that the democratic aspirations of a larger class of consumers are attracting both brand-conscious and price-sensitive buyers. Many Chinese consumers with limited financial resources are younger and will buy luxury goods for the first time. To give context, the GDP per capita in China was around $ 11,000 in 2020, compared to $ 63,200 in the United States. Still, some consumers don’t want to miss out on living at least part of the luxury dream.
That’s where the price comes in. According to a 2019 McKinsey study, 63% of Chinese respondents admitted they were a “showroom.” Ask any salesperson at a luxury store, and they’ll confirm how shoppers use their phones to check prices while browsing a store.
A luxury bargain is just one way for these consumers to enter the world of luxury brands. Yet, it’s a common misconception that bargain-hunting consumers only look at the lower end of the income spectrum, as bargain-hunting sentiment resonates with higher-income consumers as well.
This phenomenon is not entirely new. The motivation of Chinese travelers flocking to Paris, Milan and other international shopping destinations before COVID-19 was primarily to save money on luxury purchases while enjoying foreign travel destinations. And if that was not possible, they could always hire a “daigou” (a professional cross-border buyer) to get a desired luxury item at a lower price than at home.
But what has definitely changed today is the ease of finding a luxury bargain, both closer to home and with the click of a button. Shopping festivals like Singles’ Day and 618 allow collective savings on luxury goods. Unsurprisingly, McKinsey reported that the biggest buying factor for Singles Day was the size of the price discounts. This study also proves that consumers have become accustomed to researching and buying luxury brands at a discount. In this way, discount has become a pervasive feature in the luxury landscape in China.
Sephora, for example, wants to use discount codes, increase revenue by incentivizing product testing – a method that also boosts long-term loyalty. Luxury discount opportunities continue to flourish and range from luxury and Tmall Luxury Soho live broadcasts to a host of luxury discount ecommerce platforms.
As a result, luxury offers have become the accepted standard or the “new standard” of luxury shopping. Also, there is no sign of this trend waning as domestic duty-free shopping continues to develop as an alternative shopping wonderland for price-conscious shoppers. According to the latest customs data from Haikou, total sales at Hainan duty-free shops amounted to $ 7.2 billion (RMB 46.8 billion), up 226% from July 1, 2020. cosmetics, watches and jewelry accounted for 71.5% of the total. duty free sales. And Bernstein Research predicts that Hainan’s duty-free sales are expected to exceed $ 200 billion by 2030.
Luxury brands face the looming dilemma of how to navigate this surrender minefield. The theory is that discount is not part of the luxury experience. Media reports of leading luxury brands like Gucci, Louis Vuitton, Chanel and Dior raising their prices for the Chinese market are a simple but effective tactic to elevate a brand’s status and control consumer demand.
But in practice, many luxury brands fall into the discount trap, often to get rid of excess inventory or reach new consumers. For example, the recent opening of Florentia Village Chongqing offered shoppers 60% discounts on selected Prada items. Of course, any delivery strategy will need to be managed with caution. Promotions, flash sales, and other price-driven sales tactics are not brand building tools. Coach’s case in the US shows us that discounts can not only reduce margins, but also impact long-term brand equity.
It is no understatement to say that there is an increased risk that Chinese consumers will buy with the expectation of buying a luxury brand at a discount. But every luxury brand manager should answer this question as honestly as possible: Do I need discounts to sell my luxury brand? If so, you are most likely playing the wrong game.
Glyn Atwal is associate professor at the Ecole Supérieure de Commerce de Bourgogne (France). He is co-author of Luxury Brands in China and India (Palgrave Macmillan).