Market study: Luxury brands In China

10Mar2013

Chinese counterfeits hurt Lafite

Some brands are finally beginning to fail in the Chinese market. The Lafite case is pretty typical. Enthusiastic pursuit towards Lafite in China began in the year 2000 and continued for the following 10 years as the price kept rising by 30% every year. Lafite became a sales legend in China but in July of 2011 , Lafite’s price started to fall. Looking into statistics, although its price experienced a small rebound, the overall decline was still more than 20% this year. What caused its recent failure? One is the existence of counterfeits on the Chinese market. Some media outlets reported that Lafite once produced 200,000 bottles of wine every year. Inexplicably however, the consumption of Chinese market was reported to be about 600,000 bottles a year. The other factor is sometimes inexplicable consumption behavior of Chinese consumers. A lack of knowledge of red wines resulted in a common perception of ”the higher the price, the better quality.” Among imported wines, the prices of once highly touted wines plummeted in recent years and some red wine prices dropped more than 40%.

Foreign Luxury Cars

The idea also applies to the Chinese luxury car market. The thought that “the more expensive the car, the more appealing” is common in the Chinese luxury car market. A survey by the market research institutions—HIS Automotive—shows that, in 2010, China’s consumption of high-end car was 727,227 cars with this year’s number expected to reach 909,946. On the 2011 Shanghai International Auto Show, luxury cars were the hottest products. Despite the startling prices, nearly all luxury cars got sold out in a short time. Within just a day, several customers requested to purchase a package priced at $150 million. Recently, Bugatti promoted a new luxury car under the cooperation with Hermès : Bugatti Veyron Fbgpar Hermès. The 24.5 million yuan luxury car was sold within two hours after its appearance on The Beijing Auto Show this year. The situation shows that in Chinese market, luxury cars should emphasis how to appeal to top customers instead of worrying about social awareness.

Chinese-Foreign Partnerships

Finding a Chinese enterprises to purchase their brands is another way for luxury brands to enter Chinese market. Once facing bankruptcy, Italian yacht maker Ferretti Group has become the latest purchase by Chinese investors with a taste for luxury. However, this relationship comes with a challenge: preserving the brand’s mystique as financial backing is provided by owners from a country with little reputation for luxury. Ferretti’s new owner is China’s state-controlled Shandong Heavy Industry Group Co., whose businesses include making bulldozers.The solution is to focus on what each side knows best, says Lamberto Tacoli. At the same time, he said, the company is aware of Ferretti’s historical value and intends to preserve its Italian culture. ‘They know logistics very well, and we know how to sell yachts and a luxury lifestyle that people want,’ Mr. Tacoli said.

For a complete research on yachts in China (in French)

Daxue Consulting Market Study

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Picture: China wine