Shoot for the Stars or the Sun?: Marketing to Chinese vs. Japanese Luxury Consumers

While brands and retailers alike continue to fixate on China’s appetite for luxury consumption, they’re simultaneously underestimating that market in Japan—a country with an economy that’s seen a comeback over the last two years. Now, slowly but surely, Japan’s luxury-goods market is starting to heat up, too. Lost among China’s nonstop growth news is the fact that Japanese consumers spend roughly 33 billion (JPY 3.6 trillion) each year on luxury goods, making it 2017’s second largest luxury market in the world (still ahead of China’s 7.4 billion, according to consulting firm McKinsey). Though many like to compare China’s present consumption habits to Japan’s fabled market growth in the 1980s, Erwan Rambourg, an analyst at HSBC, sees more similarities between that previous Japanese luxury boom and China’s current spending spree. “The Japanese dominated luxury consumption ten years ago, and the country represented half of Louis Vuitton's business in 2003,” said Rambourg. “Now, the Chinese do that." And while the Japanese consumption trend may seem to be repeating itself in China, Rambourg argued that, unlike Japanese consumers, the profiles of Chinese consumers are much more diverse because of a wider demographic and the greater resultant social and cultural trends. So what exactly are the big differences between Japanese and Chinese luxury consumers? Here’s what you need to know: Rational vs. Experiential Buying Japanese consumers share a very rational mentality; they seek quality and durability in products. They are most likely to associate the concept of luxury with “expensive” and “high quality” (54 percent) and less likely to associate it with an emotional response or social influence/status, according to a report from Agility Research & Strategy on Affluent Insights from Japan, which came out in July of this year and surveyed 317 people with an annual household income of more than 119,237 (JPY13.5 million). Those consumers’ three top motivations for buying are craftsmanship (56 percent), design/style (40 percent), and service (26 percent). Meanwhile, there might be a stereotype that Chinese luxury consumers are impulsive shoppers who splurge to stand out, but that profile has shifted somewhat. China’s GDP has grown at an annual rate of 6-7 percent since 2012, which is a similar rate to Japan’s from 1975 to 1985, and the consumer market has experienced something called a “consumption upgrade”—a relatively stable stage of consumption when consumers transition into mature spenders. In short, it means that Chinese consumers have progressed from just buying pure products to investing in luxury lifestyles (which includes expanding their interests into the health, travel, and art arenas). Another significant difference between the two countries is their interest in social media and KOLs (Key Opinion Leaders). In contrast to China, where word-of-mouth on social media is a key factor to influencing consumers’ purchasing decisions, Japanese consumers place very little significance on social media and KOL opinion when making their luxury brand choices. Japanese consumers’ top sources for information come from direct interactions with brands (33 percent), online ads and content (excluding social media), and traditional media, including TV, radio, print and outdoor ads (20 percent). Digital Laggards vs. Early Adopters Aside from pricing, intangible qualities like quality service are valuable criteria for Japanese consumers when deciding on purchases. This is perhaps why e-commerce hasn’t taken off in Japan’s luxury market yet. In-store interactions are still vital for Japanese luxury consumers, and they have high expectations for point-of-sales service. Customer service professionals that are “kind and easy to talk to” and have “strong product knowledge” are the top two factors behind in-store satisfaction for Japanese consumers, according to McKinsey. In addition, Japanese shoppers appreciate receiving personal and exclusive treatment in stores. The lack of a developed e-commerce market in Japan reflects consumers’ payment habits there. Credit cards (93 percent) are still the preferred payment method in Japan, while WeChat Pay accounts for only 1 percent of sales. Many affluent Japanese consumers prefer purchasing luxury goods offline, but some goods sell online at a healthy rate. Personal beauty products like makeup and skincare, for instance, are more frequently purchased online by Japanese consumers than other types of luxury goods. China perspective differs on e-commerce and online payment, and those consumers have quickly grown to rely on internet-based channels for efficiency and an established amount of security. Total e-commerce sales in China skyrocketed to 598 billion in 2016, a number that’s larger than the e-commerce markets of the United States and the United Kingdom combined, and Chinese buyers see mobile payments as more secure than in-store purchases. Pessimistic vs. Optimistic Consumers Looking ahead, Japanese consumers displayed a rather pessimistic view of their wealth, according to Agility’s report. Only around one in three Japanese consumers think they will have more disposable income and are confident the value of their primary residence and investments will increase over the next 12 months. In addition, only one in four Japanese consumers plan to purchase more luxury goods in 2018—a significantly lower rate than other Asia-Pacific markets in Agility’s study (the report speculates that Japan’s future primarily relies on whether the success of “Abenomics,” which is Prime Minister Shinzō Abe's economic strategy, can continue to raise inflation and boost GDP growth.) In China, one of every two affluent consumers expected to spend more this year, and, in fact, McKinsey projected incremental spending from existing wealthy consumers will produce over half of the anticipated growth in Chinese luxury spending from 2016 to 2025. This positive momentum is hard to beat, or as Rambourg put it, “Chinese consumption is now compensating for the fact that [Louis Vuitton] is not as dominant, has grown older, and is not being replaced in Japanese society. One nationality has replaced the other.” In today’s economic and political context, luxury spending in China is likely to gain momentum, and the Chinese government is now encouraging more domestic consumption of luxury goods as a strategic move to prevent capital flight.

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Shoot for the Stars or the Sun?: Marketing to Chinese vs. Japanese Luxury Consumers