The Rules of Consumption

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The Rules of Consumption

Post  Anand on Sat Aug 16, 2008 3:16 pm

Radha Chadha, managing director, Chadha Strategy Consulting, is one of Asia's leading marketing and consumer insights experts. After working with leading advertising agencies – JWT, Ogilvy & Mather, Grey Worldwide, and Bates Asia – Chadha established her own brand consultancy in 2000 in Hong Kong.
During her advertising career Chadha held senior strategic planning positions, and led the thinking on global brands such as HSBC, American Express, British Airways, Glaxo SmithKline, and Mandarin Oriental. She has, over the years, worked across a variety of Asian markets: China, India, Japan, South Korea, Hong Kong, Taiwan, Singapore, Malaysia, Philippines, Vietnam and Cambodia. She is also a faculty member of the prestigious Tsinghua Ogilvy Branding States Program, a collaborative effort between Beijing's Tsinghua University and Ogilvy & Mather.
Chadha, who along with Paul Husband is the co-author of the treatise The Cult of the Luxury Brand – Inside Asia's Love Affair with Luxury, spoke to Nupur Chakraborty on the nitty-gritty of creating the rules of consumption in India, on why comparisons with China are inescapable as India's young market lays the ground and ground rules for global luxury brands, and on how the future of retail spaces can make or break India's luxe dream.
Asia is now the world's largest market for luxury brands, accounting for as much as half of the $80 billion global luxe industry. That's a stunning statistic!
It sure is. When I say half the world sales are contributed by Asians, it includes sales made in Asian stores – accounting for 37 per cent – as well as purchases made by Asians in overseas markets. In short, Asian retailers and shoppers make up close to US$40 billion of luxury product's sales worldwide.
The primary driver of the phenomenon is surely the two decades of the Asian Economic Boom that has changed the psyche and character of the inhabitants of countries in the Far East and Southeast Asia especially. Incomes have risen, but what has risen even more significantly, is a consumer's place in society.
What you carry on your person, in your homes and offices, reflect your place in society. For instance, in Japan, the traditional class systems have gotten diluted – now your status is defined by how much money you make.
Over these years of the boom, what emerged was a 'luxury brand class order', if I may call it that. This ‘class order' now defines your identity, who you are, and also symbolises your achievements in life.
Definitions differ as per purchasing power and a country's economic well-being. How does a luxury brand define itself in a virgin territory?
Certainly, a luxury brand communication involves image, perception and aspiration. This is where communication is extremely important. Educating consumers is a must-do, especially in a virgin territory as the Indian market is at the moment. One needs to define what I term as ‘the pecking order'.
And, it is largely the media that carries forward brand values to consumers. In both China and Japan, hundreds of fashion and lifestyle magazines carry extensive information on luxury brand products and their values, and offer details to consumers. This may be surprising, but China alone has close to 300 fashion magazines that literally create and promote the market for these brands!
In Japan, there are magalogs cataloguing the character and product launches from these brands along with where-from and how-to details on shopping and usage.
What are the biggest glitches that luxury retailers face in India?
Naturally, as the cliché goes, space is the biggest crunch. To some extent, the immaturity of luxury retail spaces is natural – India is, after all, still a very young luxury market, as compared to, say, China.
The comparison is inevitable because the heightened interest in India today is because of the unprecedented success of luxury brands in China. A decade ago, China hardly looked like a destination a luxury brand would consider. Today, the Chinese consumer is the darling of the luxe world – this booming market now accounts for 10 per cent of global luxe sales.
How is the Indian market delineated?

India today looks a lot like the China of 1996. The companies that have prospered most in China are the ones that entered early. For instance, there is Louis Vuitton, whose global strategy is about entering future markets early, and waiting for the market to blossom. Unlike many other brands that prefer to enter when a market is more ready, LV believes in digging in early and staying for the long haul.
In effect, LV lays the 'rules of consumption' – both for the market and in terms of benchmarks for all following brands.
India's luxury market is still small – an estimated US$100 million at best. However, it is the next China in terms of eventual market size.
In the India of the 21st century, there are two distinct consumer categories as far as a luxury brand in concerned. One is the 'old money' group, and the other, the 'nouveau riche'. The first segment was always there – industrial families of long standing, passing the mantle and the wealth from one generation to the next. Luxury for this set transcends material acquisition of high-end branded goods.


The new generation of 'old money' is a sophisticated lot – they have schooled at Harvard and Wharton, Cambridge and London Business School. What is most interesting about them is that despite their immense international exposure, they retain Indian nuances. They do samosa s and chai as effortlessly as they do wine and cheese.
The 'nouveau riche' set, on the other hand, is new to luxe. The newly prosperous in India – a product of India's liberalisation of the ‘90s – include entrepreneurs from fields as diverse as IT and pharmaceuticals, as well as wealthy farmers from states like Punjab. Not all of them are in a hurry to acquire luxury, though. There are entrepreneurs like Infosys founder NR Narayana Murthy who travels economy-class despite heading a highly successful IT business, and there are others who symbolise “high living, limited thinking” – like the rich classes from Haryana, Punjab and Delhi, for whom the price of possession is a tool to brand themselves in society.
Unlike the wealth of the ‘old money' set, new money in India is not necessarily sophisticated. Understanding of the product or brand is not important – what is, is the bling tag. A $4,000 Gucci bag, which will brand its possessor immediately to society at large, is what will speak. This is especially true of Delhi society, where showing off has always been the rule of consumption.


How does India compare against luxury shopping stops like Dubai and Hong Kong? Does the higher duty structure affect sales?

Import duties and tax structures are certainly difficult in India, which translates to higher prices for Indian consumers. However, what is significant is that luxury products are not any cheaper in other Asian markets. On average, the price of a luxury product in Japan is about 40 per cent higher than in Europe. In China, it is about 25 per cent more than, say, in Paris. Ultimately, it boils down to market characteristics – consumer education, evolution and retail spaces that draw in the aspirational sets to take home a piece of that luxury. Whatever the price.
What is your take on luxury retail spaces in India?Ironically, it's a case of water, water everywhere, but not a drop to drink! None of the 350-odd malls that will be operational in India by the end of this year, have the necessary class and ambience for luxury retailing. India's high streets are not available and are, in any case, tacky and chaotic.
Space developers need to understand that luxury brands always like to be in control of their environments. A good example is presented by how Ashish Chordia, the entrepreneur behind the super-luxurious Thanks multibrand store in Mumbai, went as far as to extensively touch up the store's immediate neighbourhood and landscape it into a driveway and a swank valet parking facility.
For the short term, at least, five-star hotels are the answer. However, there are no five-star properties in India which offer the volume of space to house a differentiated luxury retail ‘zone'. Which is why, a luxury brand does not have a specific retail destination in India to target. In New Delhi, for instance, Valentino is open at the Shangri-La hotel; Louis Vuitton, Hugo Boss and Bulgari are at The Oberoi; Mont Blanc and Aigner are at Maurya Sheraton; and Chanel sits in solitary splendour at The Imperial.
Now, contrast this with China's current environment. There are highly defined luxury retail addresses. The Palace Hotel in Beijing, Three on the Bund, or the Plaza 66 in Shanghai, all have large-enough tranches of retail space to house scores of luxury brands in a much-differentiated ambience.
Again, you must remember this – China's luxury retail business is well over a decade old. They were in pretty much the same state as India is now, as far as retail space was concerned. The market has evolved in the intervening years, and so have the retail spaces, education, discernment… everything.
India's retail scene is looking up. DLF is opening Emporio, a 300,000 square feet luxury mall in New Delhi's Vasant Kunj area anchored by Saks Fifth Avenue, while the Citywalk Dome – also in New Delhi – aims to top a premium-end mall quite literally with a dome housing luxury brands – it has signed up Ferragamo, Ferretti and Aigner, among others.

Anand

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