Luxury’s next Frontier
By : | May 13, 2013

In this exclusive extract from a presentation at the Harvard Business School on the book The Luxury Market in India: Maharajas to Masses, which he co-edited, Glyn Atwal writes about how China and India’s luxury maps are being redrawn to include new pockets of consumerism. The battle to capture the luxury consumer may have started in Shanghai or Mumbai, but will be won in Changsha or Ludhiana.

Ranjeet Singh is a 51-year-old farmer who lives in the north Indian state of Punjab. He is wearing a kurta pajama and is sipping chai at a roadside tea stall. First impressions can, however, be deceptive. Mr. Singh is, in fact, a member of India’s growing affluent class.

A closer look reveals an Omega watch that is worn with pride on his wrist, while the recently acquired Audi Q3 is parked just a few meters away. The Punjabi farmer symbolizes a wave of new affluent consumers, not only in India, but also in China, who are changing the dynamics of luxury consumption patterns.

These are consumers who may not appear to be as cosmopolitan or sophisticated as their metropolitan peers in megacities like Shanghai, Beijing, New Delhi or Mumbai, but share the desire to express their social identities through conspicuous consumption. They can be categorized as luxury novices, who are willing to trade up and buy luxury brands for the very first time. They have reached the first rung on the luxury ladder.

Tier II and III cities in China and India represent a significant and untapped source of growth for international luxury brands. For instance, the GDP growth is slowing down in Shanghai and Beijing, but is expanding in smaller cities in regions that do not typically appear on the luxury radar. This phenomenon is underlined by a Boston Consulting Group study, which reported that 75 per cent of the new affluent consumers with an annual disposable income of $20 to 40K in China will originate from the lower tier cities by 2020. This has important and long-term implications for strategies used by luxury brands. It raises the question: how can luxury brands win over the new affluent in countries as vast and diverse as China and India?

First, brands need to understand the source of aspiration inherent to the new affluent consumer. For example, Volvo in India has followed a luxury positioning to connect with the rising aspirations of consumers in second tier cities. Interestingly, it is reported that Volvo’s sales exceeded Audi and Mercedes in Hyderabad in 2012.

Second, luxury brands need to expand their distribution network in order to reach out to the under-served consumers. According to McKinsey, the sales of luxury cars in China is expected to more than double by 2020, but Morgan Stanley reported that 111 large Chinese cities do not have a premium car dealership. Moreover, luxury brands need to support a physical presence with a digital platform. Social media can be effective in targeting customers who are otherwise difficult to reach.

Likewise, a robust e-retailing strategy will help luxury brands, particularly fashion brands, to reach out to new and potential customers in Tier II and III cities. This is of particular relevance in India, given the poor retail infrastructure that is hindering retail growth.

Third, luxury brands need to identify and cluster consumers who are at different stages on the luxury experience curve. This is probably the most subtle challenge facing international luxury brands. Luxury consumers cannot be seen as a homogeneous group, and marketing approaches need to be adapted to their differing needs. For example, first time luxury consumers have greater information needs and are more likely to favour a logo strategy. In contrast, mature luxury consumers, who are more experienced, will tend to search for luxury brand experiences.

The luxury maps in China and India are being redrawn to include new pockets of consumerism. The battle to capture the luxury consumer may have started in Shanghai or Mumbai, but will be won in Changsha or Ludhiana.

(Glyn Atwal is an Associate Professor of Marketing at Burgundy School of Business, an international graduate school of the French network of Grandes Ecoles. His teaching and research expertise includes luxury marketing and emerging markets. Prior to academia, Glyn worked for Saatchi &Saatchi, Young & Rubicam, and Publicis. He is the co-editor of The Luxury Market in India: Maharajas to Masses (Palgrave Macmillan).)