Luxury Retail Development in Hong Kong and Macau - Assignment Example

This present paper focuses on the Luxury retail sector in Hong Kong and Macau regions, which are located within China. Primarily, the paper seeks to address five different questions of which the first one is how luxury retail has evolved from 1990s to 2013 in Hong Kong and Macau region. Secondly, the paper will seek to address how marketers influence consumers to purchase their products. Thirdly, it will state how marketers introduce new products and services, and even how marketers ensure modified products remain competitive. Fourthly, the paper will answer why marketers encourage consumers to be loyal to their and on the last section it will state how marketers influence consumer behaviors. Overall, the paper highlights on the significant role that marketers play and even some of the tactics that they apply to meet their objectives. Introduction In the next five to seven years, China is expected to overtake Japan and become the world’s largest luxury market according to a report by Lu (2013).Two administrative regions of China, that include Macau and Hong Kong are the key indicators of the current surge in luxury retail market in the country. Demand for luxury goods in these two cities have been observed to be on the rise despite economic slowdown, which had severe effects on major markets in the world including China. Lucrative market in Hong Kong and Macau in addition to consumers’ increased buying power has lured international luxury companies to make investment in these two markets. This essay will provide an assessment of luxury retail development in Hong Kong and Macau in relation to evolution of luxury retail market in these two cities and marketing strategies, which are being employed by businesses parties in the industry. Evolution of Luxury Retail Market from 1990s To 2013 Early 1990s marked the development of luxury retail market in China. Prior to 1980s, government restrictions hampered introduction of western goods and services in the country. Consequently, internationally established luxury companies could not be able to penetrate the Chinese market. However, through the institution of major economic reforms in 1980s, which included the implementation of the open door policy, offered incentives to western luxury brands that had gained interest in two cities. From 1990 to 1999, the market slowly began to develop simultaneously with the introduction of western brands by companies such as Armani, Dunhill, Hugo Boss, and Ermenegildo Zegna. These pioneer luxury brands experienced relatively unstable and slow market. Majority of households in the country including those in Hong Kong and Macau had lower purchasing power. In addition, the period marked the transition of the Chinese economy from a dominantly planned government system to an open market driven system. The existing middle class lacked sufficient disposable income that could stir the growth of the luxury market in the two cities. The newly adopted socialist system led to economic growth in the country from 2000 to 2010. Increased economic growth led to improvement of consumer’s social wealth and widespread expansion of the middle class in major cities of the country. Financially favored with the thriving economic status of the country, the middle class gained purchasing power and were further motivated by their desire for western fashion trends. The emergence of Macau and Hong Kong as centers of tourism also offered alternative market for luxury goods from the Chinese mainland. The increased consumer purchasing power and expansion of luxury retail market in Macau and Hong Kong prompted the entrance of the second generation of luxury brands in the two regional cities. These brands included Prada, Dolce & Gabbana, Chanel, and Loewe. Luxury brands, which had dominated the market, began to expand and diversify into the vast luxury market presented by the cities. Major brands opened numerous outlets in shopping malls and lavish residential estates within and outskirts of Macau and Hong Kong central business districts. Chevalier and Lu (2010) observed that the major drivers of luxury market growth in Macau and Hong Kong included the following factors, growth of the China’s nominal GDP and disposable income, growth of the middle class, continual urbanization and enhanced antipiracy laws and regulations. The period from 2010 onwards marked the shift from productivity of luxury goods in the two cities to expansion and diversification of luxury products in the country. Marketing strategies are currently being focused on the control of the largest luxury market share in the world. This has led to increased competition between all players in the industry, both local and international providers of luxury goods and services. How Marketers Influence Consumers to Purchase Their Products In comparison to non-luxury goods, luxury products and services present major challenges to developers in terms of marketing. Marketers are forced to strategize beyond conventional sales and marketing techniques. According to Kapferer and Bastien (2012), consumers of luxury goods are majorly driven by self-assertion, uniqueness, and utmost appreciation for originality. Consequently, marketers of luxury goods employ the knowledge of these facts in their formulation of marketing strategies. Luxury goods marketers utilize the following techniques to influence consumers to purchase their products. Product Endorsement by Public Figures Internationally, luxury products have always been associated with local and international celebrities. One of the key marketing tools employed by luxury retail marketers in Hong Kong and Macau is the use of local celebrities and public figures. In these strategy, local celebrities agree on contract to endorse a given luxury product. Public figures endorsing luxury products in Macau and Hong Kong range from radio and television personalities, film actors, athletes and musicians. Majority of consumers are influenced into purchasing luxury products in order to be identified with their idol celebrities. Use of Pedigree Majority of international luxury brands have been linked to successful ancestry. Luxury goods are often branded the names of their legendary creators. The use of a given lineage fosters identification of a luxury product with an accomplished personality in the society. Consequently, these characters become inseparable with the given products. Consumers of luxury goods are thus influenced by marketers to purchase their products motivated by given historical lineage, achievement and brand excellence. These include internationally recognized brands such as Armani, Dolce & Gabbana and others. Paucity of Products and Services Sales of luxury goods are significantly driven by their scarcity in the target market. It is thus essential that luxury product remain scarce and maintain their uniqueness. Luxury goods are highly characterized by the target consumers. Over production or distribution of these products may significantly damage character and emotions associated with it. Marketers influence consumers into purchasing these products by maintain their image as elite products. This is majorly achieved by limiting volume of production and tagging high prices. How Marketers Introduce New Products and Services, and Modified Products to Remain Competitive Use of Local Product Lines International luxury companies have diversified into local products in Macau and Hong Kong. These companies have resorted to the use of local line products and are producing brands that incorporate Chinese cultural and historical heritage. According to Zou and Fu (2011), Louis Vuitton designed Lantern Charm based on a local Chinese lantern .Although majority of retail marketers in Hong Kong and Macau are foreigners, their adoption of local lines seeks to create market image that reflects local relevance. The use of local line product serves two purposes for marketers in Macau and Hong Kong. First, local products enable western companies to counter stiff competition from local manufacturers of luxury goods. Second, local products lead to creation of local relevance and enhance public relations with the local surroundings Use of Diffusion Strategy Marketers of luxury goods may also employ the use of diffusion product line strategy to introduce a new product or modified an existing one. According to Okonkwo (2007), diffusion strategy mainly involves the introduction of luxury product lines, which target the less affluent clients in the market. Consumers of luxury goods are greatly entice by diffusion product lines and subsequently become full time consumers of luxury goods and services. In Hong Kong and Macau, this strategy is majorly utilized to target the younger bracket of the market with lower purchasing power. With increased competition in the Chinese luxury market, the use of diffusion strategy is likely to become a common marketing plan. Marketers Collaborating With Local Agencies Local partnership is another approach being implemented by marketers to when introducing their products into the Chinese market. Through partnership with local institutions, foreign marketers can be advised accordingly concerning competition, market dynamics and future trends. Local partners act as business agents for international brands pioneering the market. This strategy is best suited for small and medium enterprise, which do not have sufficient resources and work force for the vast luxury market of Hong Kong and Macau. Why Marketers Encourage Consumers to Be Loyal To Their Brand According to Kapferer and Bastien (2012), brand loyalty refers to the preference which a consumer develops for a given product or service. Brand loyalty is an essential component of marketing in luxury products and services. Sustainability of brand loyalty translates to guarantee of sales in the market. Consequently, encouragement of consumer brand loyalty by marketers leads to longer consumer tenure with a given brand and relatively decreases consumer’s sensitivity to changes in the price of luxury product. Sustained positive relationship between a consumer and a given luxury brands fosters consumer’s commitment to the given brand. As a result, continual creation of brand loyalty by marketers influence consumer’s attitude towards the given product and subsequently builds a repurchase behavior in consumers. Hence, marketers should encourage creation of brand loyalty in order to increase sales volumes. According to Zou, and Fu (2011), studies have indicated that consumer price sensitivity decreases with an increase brand loyalty. Due to their emotional attachment to products, consumers with higher brand loyalty are less sensitive to price increases as they are strictly driven by the unique value of the product. Consequently, marketers of luxury products could significantly gain from brand loyalty by increasing their profit margin without affecting volumes of sales. How Marketers Influence Consumer Behaviors Kapferer and Bastien (2012) wrote that commercial marketing is highly pegged on shaping consumer behavior. Marketers of luxury products use various strategies to exert external influence on consumers. Mechanisms employed to influence consumer behavior may target culture and subculture of the consumers, social class of the target market or a specific demography of the consumer. However, marketers of luxury products and services in Macau and Hong Kong rely on advertising as the ultimate tool for influencing consumer behavior. According to Economic Times, advertising is a means of communicating with the users of a product or service. Various forms of advertising used by marketers to manipulate consumers of luxury goods and service include the following, commercial advertising, radio advertising and infomercial advertising. The use of commercial advertising by marketers involves the creation of product awareness through branding. Branding of a luxury product or service may entail the development of a brand image, public education of brand functions, highlighting of brand identity and association of brand with relevant personalities or status. Similarly, the use of radio advertising and infomercial are aimed at developing a positive product image. Successful development of an image, which reflects efficiency, originality, uniqueness and higher social status, is likely to influence consumers’ perception of the products worth leading to increased sales. In addition to use of advertising as an agent of influencing consumer behavior, marketers in Macau and Hong Kong use rich cultural heritage of China to influence consumer’s behavior. Using symbolic and emotional association, marketers of luxury products have been able to use consumers’ social approval of their products by incorporating traditional techniques and methods in the manufacturing processes of their local products. These products are conspicuously labeled “Made in China.” The use of such labels is central to management of consumer behavior, as majority of locals will be enticed by the perceived image of patriotism in the products References Chevalier, M., & Lu, P. X. (2010). Luxury China: Market opportunities and potential. Singapore: John Wiley & Sons (Asia. Kapferer, J.-N., & Bastien, V. (2012). The luxury strategy: Break the rules of marketing to build luxury brands. London: Kogan Page.. Lu, P. X. (2013). Elite china: Luxury consumer behavior in china. Hoboken, N.J: Wiley. Okonkwo, U., & Palgrave Connect (Online service). (2007). Luxury fashion branding: Trends, tactics, techniques. Basingstoke: Palgrave Macmillan. Zou, S., & Fu, H. (2011). International marketing: Emerging markets. Bingley: Emerald Jai. Read More