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In the Year of the Horse, there is no letting up in China’s passion for luxury horsepower. Despite concerns over economic slowdowns and government regulations, the number of new manufacturers and new models competing in this sector continues to grow. In ‘Auto insights: the luxe edition’, we’ll take you on a tour of the high-end of the auto market and the changing meaning of luxury itself, including:

TRANSCRIPT

Page 2: Automotive insights: The luxe edition

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Contents

As the luxury market in China shows no signs of stalling, we look at what motivates luxury customers – and how the automotive industry needs to respond.

www.tnsglobal.com

From the editor

Mapping a new route to luxury auto success

Why luxury auto brands need a precision playbook

Controlled acceleration

Network management in the driving seat

The forum: How can auto brands drive success with luxury buyers?

Luxury is mass

Luxury brands in China: The cross-category view

A promising road ahead: Skilled drivers needed

3

4 - 7

9 - 15

16 - 19

20 - 23

24 - 29

30 - 35

36 - 39

40 - 41

Get in touch42

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Page 3: Automotive insights: The luxe edition

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Dear fellow auto lover,

In the Year of the Horse, there is no letting up in China’s passion for luxury horsepower.

Despite concerns over economic slowdowns and government regulations, the number of new

manufacturers and new models competing in this sector continues to swell.

The 2014 Beijing auto show saw no less than 45 luxury vehicles on show, with 15 of those

models making their world premiere at the event. And premium vehicles represented

the undeniable centerpiece of the show for both critics and consumers. The One1 from

Koenigsegg was voted the highlight with attendees, with the McLaren P1 in second place.

On the floor, nobody could get near to the BMW Vision of Future Luxury whilst the Lincoln

MKX was one of the event’s best-reviewed vehicles. Between them, these standouts show just

what a diverse place the luxury auto grid in China has become. This is a category that offers

consumers comfort, excitement and exhilaration. For manufacturers of all shapes and sizes it

still appears to offer an exceptional growth opportunity, but it is an opportunity that must be

navigated with increasing skill.

In this report, we’ll take you on a tour of the high-end of the auto market as revealed in

Beijing, fuelled by TNS’s years of observation, expert views on network management and

brand differentiation, and the changing meaning of luxury itself within China. We’ve also

sought out the perspectives of pioneers in other luxury sectors for additional insight on how

to build relationships with a new generation of luxury consumers.

Enjoy the ride – and please get in touch if you would like to discuss any aspect of the auto

industry in China or beyond.

Yours Faithfully,

[email protected] +86 21 2310 0870

Guillaume SaintManaging Director

Automotive Practice, TNS APACFrom the

editor

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The established markers of luxury in the premium car market comprise a ‘savant mélange’ of popularity, heritage, extravagance, quality, innovation and performance.

At the same time though, our studies also identify the emergence of new differentiated

needs in China. If brands can develop offerings which speak to these needs, they are

likely to be able to increase their influence at the point of purchase and help seal the deal

with customers. The consumers influenced by these new emerging lifestyle needs can be

categorised into three groups:

Connoisseurs, fascinated by engineering and the technical details of car design that

promise enhancements to performance, control or driving safety. These are true believers in

the capacity of advanced technology to improve the driving experience. They are discerning,

seeking out innovation and comparing technical details across brands.

Easy-going, self-focused customers, who prioritise comfort and personalisation.

They want a car that functions as a luxury cocoon: comfortable and easy to handle. They are

less constrained by others’ opinions and put their own feelings at

the forefront of their decision criteria.

Their car must be a convenient and enjoyable place to be. The growing importance of

personalization through options, accessories, and customer service reflects brands’ responses

to this group.

Fashionistas are the early adopters of new trends, determinedly expressing

individualism and self-assuredness. Their need is to be the focus of attention – they display

their individual taste through their car choice, and they won’t compromise to fit in with

public opinion. They are more influenced by Western value and small, fashionable cars -

which contrast with the traditional codes of luxury - may attract them. Co-branding with

fashionable apparel brands can reinforce appeal amongst this group.

As Guillaume Saint explains, the emergence of new lifestyle

needs is creating opportunities for challenger brands

The mechanics of premium brand success for auto are inherently

similar to those of the other luxury sectors like jewellery, luggage,

cosmetics or apparel. Customers are most likely to consider luxury

brands that convey values they identify with, make a clear promise,

and project an immediately recognisable badge of success. However,

the nature of the promise and values they seek may be starting

to evolve.

The established markers of luxury in the premium car market

comprise a ‘savant mélange’ of popularity, heritage, extravagance,

quality, innovation and performance. These are traditional values

that bestow customers with symbolic wealth and status - belonging

to a higher social class - and a self-confidence boost. And a great

many premium car customers still adhere to them when making

their final choices. ‘Face’ is still a critical factor for them so they

take peers’ opinions into serious consideration. With many luxury

customers intrinsically less knowledgeable about vehicles than their

peers in other markets, choice of model is first and foremost an

expression of social status.

Guillaume SaintManaging DirectorAutomotive Practice, TNS APAC

successMapping a new route to luxury auto

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These three emerging auto

audiences are still relatively small,

but growing in size and influence.

And amid the increasingly

crowded luxury auto market they

offer new entrants an opportunity

to compete on the basis of

design, features, equipment

and services, rather than relying

upon existing popularity or brand

heritage.

We foresee that the increasing

influence of these new auto

buying needs will lead all

manufacturers to put forward

complete car experiences that

move luxury vehicles from

transport tool to a holistic

experiential endeavour. This is a

recipe for innovation and pushing

boundaries – and for an exciting

future for luxury auto in China.

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For luxury auto brands, as for almost any other type of car maker,

China is starting to resemble a gold rush. Growth of 22% between

2012 and 2013 has ensured that every possible premium brand

is not only present in the market, but moving to strengthen that

presence – and this despite forebodings around slowing GDP

growth and regulations against conspicuous consumption. As this

year’s Beijing auto show demonstrated, most are putting their

faith in ever-expanding product lines to retain and grow share, and

ensure entry points for the next wave of first-time luxury buyers.

But in an increasingly crowded market, the time is coming to apply

some precision to how they manage their portfolios, and how they

manage their brands.

The line-up keeps growing

China’s luxury market is currently dominated by the big three

German brands, with Audi, BMW and Mercedes-Benz commanding

a combined share of 75% in 2013. However, the challengers

are arriving. Lexus, Land Rover, Volvo and Cadillac have already

launched. The revived Red Flag introduced the L5 limousine at the

Shanghai Auto Show last year, and Ford is looking to launch the

Lincoln brand during 2014.

Anthony LauResearch Director TNS Automotive China

playbookprecision

Why luxury auto brands need a

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Customers are taking significantly longer to make decisions because navigating all of the options is becoming intimidatingly complex.

The variety of luxury models is expanding

every bit as rapidly as the variety of brands.

Just 20 years ago, the luxury auto market

consisted almost entirely of sedan models

such as the Mercedes-Benz E-Class and

BMW 5 Series. Now BMW boasts a China

line up with every Series number from 1 to

7, including the recently launched 2 Series

and 4 Series. And that’s before we start

on X Series SUVs, Z Series sports cars or

electric models from its new i sub-brand.

The luxury grid becomes more crowded

still when we take the increasing number

of localised versions of these marques, sold

alongside them in dealerships and offered

to buyers as an alternative choice. Localised

versions of the Mercedes-Benz GLK, BMW

X1, Audi Q3 and Cadillac’s XTS and ATS

are already helping their manufacturers to

avoid heavy import taxes whilst potentially

appealing to more price-sensitive buyers.

A crowded market demands

differentiation

This rapid proliferation of luxury brands

seems at first glance to be a sign of a

market in robust health. But it is in fact

creating significant challenges for both

car-makers and their customers. We see

the impact in the increased consideration

process for luxury auto buyers. Customers

are taking significantly longer to make

decisions because navigating all of

the options is becoming intimidatingly

complex. Luxury auto dealers meanwhile

are struggling to find space in showrooms

for all of the models on offer. And these

challenges of distribution are only just

beginning.

Manufacturers face another challenge

that is arguably more significant still. The

immense difficulty of differentiating a

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luxury brand in an increasingly crowded marketplace

– especially when Chinese auto buyers’ first

experience of their brand involves such a huge

variety of models. Traditionally, car manufacturers

have always been successful in differentiating

themselves from competitors through their products.

BMW had their rear-wheel drive sedans; Audi had

Quattro technology; Porsche has rear-engine sports

cars. However, maintaining differentiation via the

product is becoming increasingly challenging as the

portfolio of each manufacturer continues to grow.

Western auto brands must also recognise that their

brand heritage will not translate automatically into

the Chinese market. Ask a Chinese auto buyer

about the type of vehicles that they associate with

Porsche and they will talk about 4-seater Cayennes

and Panameras rather than iconic 2-seater 911s.

This is not to say that there is anything particularly

inappropriate about Cayennes and Panameras in the

Chinese market – but they must compete against

a broad range of other powerful 4-door vehicles

without the immense brand heritage advantage that

comes from association with the 911.

Time for precision portfolio management

Increasingly, the success of luxury brands in the China

marketplace will depend on their applying far more

precision to the development of their portfolio. They

must prioritise models based on the features that

genuinely appeal to China’s luxury buyers, but also

based on intelligent analysis of the models that will

most effectively differentiate their brand position. At

the same time, they must prioritise the distribution

and the promotion of those vehicles that will deliver

the greatest sales volume – and the greatest revenue.

How can luxury auto brands set about refining their

portfolios to drive sustainable growth and protect

share through brand differentiation?

...the success of luxury brands in the China marketplace will depend on their applying far more precision to the development of their portfolio.

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Now the real luxury brand battle starts

In all of these areas, the manufacturers behind luxury auto brands must identify the gap

between their intended global positioning and local realities. They must set clear guidelines

for delivering differentiation on the ground that can generate the local positioning that they

seek, and ensure that this is delivered consistently across all touch points and over time.

However, these guidelines also need to be flexible enough to allow for local interpretation

and adaptation. As brands battle to build new, relevant positions for the Chinese market,

we are about to witness one of the most exciting phases in one of the most dynamic auto

markets in history.

1

3

2

Base product differentiation strategy around a full

understanding of functional and emotional needs

Catering to the tastes and preferences of Chinese customers

Prioritise on multiple levels

Brands must interrogate how the emotional needs of auto buyers align with the

social image and functional benefits of their brand, and they should prioritise

vehicles and product features that reinforce this connection.

Chinese car owners have different driving habits formed in a different driving

environment and on different road conditions to those experienced in many other

markets. For the most part, they also have significantly less experience of owning and

driving vehicles. As a result, they have very different expectations and priorities when

it comes to the features of a luxury car, and a different level of willingness when it

comes to paying for them. Many luxury auto brands are already establishing design

centers in China to understand and cater to the tastes and preferences of Chinese

car buyers for both exterior and interior features. Brands such as Audi, BMW, Volvo

and Land Rover have already launched long wheelbase versions of classic marques in

order to appeal to Chinese drivers’ preferences.

To maximise resources efficiently, brands must determine which models will most

effectively create brand differentiation and support the overall communications

strategy, and which models will need to be present at the dealership as display

or test-drive vehicles to support on-the-ground sales activities. This may involve

vehicles for different roles: high-profile models to attract premium car buyers, as

well as entry-level vehicles that may prove the strongest source of sales amongst

China’s high proportion of first-time buyers.

Three steps for sustainable growth:

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Ferrari’s Edwin Fenech has been evolving the brand’s age-old

scarcity strategy for China

Enzo Ferrari famously stated that his company would “always sell

one car less than what the market requires” As Edwin Fenech,

Greater China President and CEO of Ferrari explains, 50 years on, it’s

this philosophy that steers the brand’s strategy for China.

“We are not here to sell volumes – if we sell a car, we have to sell

it in the proper way and make people understand what they are

buying: our heritage, our values and the technology that we have in

our cars,” he says.

While Fenech acknowledges that China is likely to be the company’s

largest market further down the road (it is currently second only to

the US), his focus isn’t on racing to get there. Brand guardianship is

key: nurturing an “evolution of the mindset of people”, and keeping

the brand true to the DNA of Ferrari.

Exclusivity is crucial to Ferrari’s global strategy. After 2012, its best

ever year, the company actually decided to reduce the number of

cars that it sold in order to maintain exclusivity and brand value. The

number of cars delivered to the network dropped to 6,922 (down

5.4 per cent) in 2013, yet Ferrari was able to leverage brand value to

increase revenues by 5 per cent, eventually

reaching an unprecedented €2.3 billion. At

the same time though, Ferrari has focused

on maintaining distribution in markets such

as China, which are experiencing extremely

strong demand.

Ferrari’s exclusivity-focused business model

may seem like a hard sell in a country where

status buyers are unaccustomed to waiting

for luxury items – but Fenech is confident

that an emerging category of auto buyer

is very much in-tune with the Ferrari

philosophy. “People want to differentiate

themselves in different ways,” he says. “The

most wealthy want unique products. That’s

why I think a lot of brands in China are

making limited editions.”

Ferrari has shown its respect for Chinese

culture. During 2012, the Year of the

Dragon coincided with the 20th anniversary

of its first sale in the country. The brand

marked the occasion with twenty 458

Italia China models, each incorporating

traditional Chinese ‘long-ma’ (dragon-

horse) elements and craftsmanship such

as calligraphy in the interior and golden

dragon insignia adorning the bonnet. Now,

to mark the Year of the Horse, the brand

has created a ‘Year of Prancing Horse’ logo,

aligning its historic pursuit of excellence

with the Chinese zodiac’s symbol for

persistence and success. The logo itself

incorporates Chinese traditions in text and

calligraphy with the nobility and heritage of

the Ferrari brand, echoing the Imperial Jade

Seal of Chinese dynasties.

At the same time as maintaining exclusivity

and aligning its brand with Chinese culture,

Ferrari has focused on driving up service

quality. The brand has opened an employee

and dealer training centre in Shanghai

(the brand’s first outside Italy). And it

has invested in building multi-channel

Edwin FenechGreater China President and CEO Ferrari

accelerationControlled

The most wealthy want unique products. That’s why I think a lot of brands in China are making limited editions.

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experiences around its brand: a Ferrari Myth exhibition

in the former Shanghai Expo Italian pavilion, the Ferrari

challenge series, which enables owners to race on an

F1 circuit, extended warranties and virtually unlimited

customisation options. “These are all things that are quite

unique to Ferrari,” says Mr. Fenech. “We sell the cars,

but being present for the after-sale services is

absolutely the key.”

There are challenges to building an infrastructure around

a brand with such high standards. Finding centrally

located dealership locations is difficult given space

requirements, technological needs and competition

among luxury brands. Mr. Fenech adds that “the right

location today is not necessarily the right location of

tomorrow” and that assessing the evolution of each city

in China is important. Retaining high-quality employees

is another challenge. “In this booming situation in China,

talented people are solicited by every other company –

especially because Ferrari is a benchmark,” says Fenech.

Social media is a key element in this luxury brand

experience. Ferrari has focused on Weibo, attracting

385,334 followers in China by May 2014. “Especially now

in China, social media has become a must,” says Fenech,

though here as elsewhere careful management of the

brand is essential.

Yet for this contender in the luxury auto sector, the

quest for brand differentiation makes all such challenges

worthwhile. Many consumers have yet to differentiate

between the various high-end sports car manufacturers

– and this gives a valuable advantage to the first brands

to demonstrate values in practice. “That’s why we are

working on branding in order to create a difference,”

says Fenech. “It’s to put Ferrari in its deserved position,

which is leadership.” He plans to get there at

Ferrari’s own pace – always one car less than

the market demands.

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Lou Tao of Sinotrust explains how effective network management will be vitally

important in phase two of China’s super luxury auto market

Economic headwinds and government regulation may have slowed growth for super luxury

auto brands in China recently, but those brands haven’t taken their foot off the accelerator

when it comes to building their distribution networks. By the end of 2013, Porsche, Bentley

and Maserati had built 57, 36 and 45 dealerships respectively in mainland China.

drivingNetwork management in the

seatLou TaoAutomotive Marketing Solutions Sinotrust

57 3645Porsche

BentleyMaserati

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Amid the fast network expansion and sales growth, service quality

has become a problem that threatens to hinder the development of

these brands. To rectify this and drive growth, they must prioritise

rational and effective network management.

The network management challenges for super luxury auto brands

can be summarised as follows:

Imperfect management system: Most super luxury

auto brands haven’t built a perfect network management system

suitable for the Chinese market so they cannot effectively control

the dealers within their networks. Huge variations in the level of

management experience and the limits of the current network

management systems have largely held back their efforts to improve

services.

Lopsided management: Most super luxury auto brands

are focused on driving sales, but they have not been able to enforce

standards in after-sales management and are therefore weak in this

area. Super luxury car owners who have paid a hefty sum for their

cars have very high requirements and expectations on product and

service quality. When experience fails to meet these expectations, it

undermines satisfaction with the product and the brand.

Unsophisticated management measures: As their networks grow, many super luxury auto brands rely on

mystery shopping and customer satisfaction surveys to evaluate

management standards and service compliance. But this kind of

evaluation stays at the level of customer experience, and cannot

offer a comprehensive picture of how dealers are implementing the

automakers’ standards and requirements. Brands need to introduce

dealer audits to check performance, and then use the results to help

their dealers improve.

We believe that network management standardisation is inevitable

for super luxury auto brands in China. But to meet the individualised

needs of picky super luxury car owners, standardised network

management is not enough. Super luxury auto brands should also

create distinctive management control systems based on their own

brand character.

Amid the fast network expansion and sales growth, service quality has become a problem that threatens to hinder the development of these brands.

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What luxury strategies will deliver success for auto brands in the Year of the Horse?

We asked three of the industry’s key players for their predictions.

Allen Lu (AL)

Managing Director, Asia and Oceania OperationsInfiniti Motor Company Ltd.

Simon Chen (SC)

Deputy General Manager, Acura Business Division of Honda Motor (China)Investment Co, Ltd.

Dong Fang (DF)

Interactive Marketing DirectorAudi Sales Division, FAW-VW

TNS: How would you define luxury for auto brands?

Expression of identity“Luxury is about social identity, status and recognition. It is a reflection of individual opinion, taste, and value.”

Convenience and time-saving“Luxury saves your time. For example, a good quality car has less chance to break and better quality service, which saves you waiting time.”

Future-facing“Luxury for me is a mixture of future-orientation, high-technology and product innovation.”

AL:

SC:

DF:

luxuryThe Forum: How can auto brands drive success with

buyers?

Page 15: Automotive insights: The luxe edition

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TNS: How can auto brands grow the luxury market?

TNS: What will be the keys to customer loyalty and retention?

The right product line-up has a key role to play “A wide-ranging product line-up is vital. Brands need a combination of entry level, mass and high-end products. They also need to pay proper attention to customer relationship management. Finally, luxury brands must acknowledge the impact of Corporate Social Responsibility (CSR) on brand value. This is a valid source of intangible competitive advantage, and can help to establish recognition amongst consumers.”

Interest and convenience “The keys will be: launching new products, high-quality service, and reliable and convenient dealerships.”

Luxury service levels “You’ve got to offer customers an exclusive high-end service and effective relationship management services.”

Address rational and emotional needs “Most Chinese consumers are still motivated to demonstrate social status and success by consuming premium brands. The pricing of luxury goods must therefore reflect the brand’s luxury perception and feeling. Brands must also establish their position and status with the market – perhaps through recruiting well-known celebrities or opinion leaders. And finally, the product itself must serve multiple functions. It must satisfy consumers’ rational and emotional needs.”

Be unique and high-end, but also competitive “The keys to attracting more high-end customers are: having a unique brand image, competitive pricing, and high-end technology.”

Deliver premium innovation “Product innovation is of course important: you’ve got to have a market-leading product. Then you need to have a prestigious brand and offer customers a premium experience.”

AL:

SC:

DF:

AL:

SC:

DF:

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TNS: What are the luxury brands with a DNA closest to your own?

LV and Apple

“LV, because it’s the root of premium and luxury goods from Europe. LV combines

genuine products, legacy and fashion in their brand. Apple, because of the iPhone,

their cutting-edge technology, and their new product concepts. They have left

competitors behind with their new lifestyle products.”

IWC, Zegna, Rimowa

“IWC for its unique and leading technology. Their watches are low-key yet full of

substance. Zegna for its sporty luxury feeling in menswear – it’s a kind of celebrity

athletic. And finally, Rimowa suitcases for their renowned workmanship, and trendy

design. All three brands reflect Acura characteristics: leading technology, unaggressive,

sporty, dynamic, old money.”

Apple, Park Hyatt, Prada

“Firstly, I’d have to say Apple, for consistently offering customers user-friendly

technology, outstanding design and interactive experiences. The lesson to learn from

Apple is never to stop innovating and to remain future-focused. These values are

quite similar to Audi’s Vorsprung Durch Technic. Then I’d have to say the Park Hyatt

for its level of personalised service and focus on progress. In these respects they are

streets ahead of the competition. What’s more, their version of luxury feels especially

contemporary due to design by famous architects and interior designers. Finally, I’d

choose Prada, which has similarly cutting-edge styling and is capable of setting new

trends with sophisticated design, production techniques and quality.”

AL:

SC:

DF:

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Michael GriffithsGlobal Expert, Cultural Insight & Strategy, TNS China

Luxury is

TNS’s Michael B. Griffiths explains evolving attitudes to

luxury in China

Luxury brands have become mass in China. Once upon a time

everyone wanted to own a Hugo Boss product. Then it was Rolex,

Burberry, LV and the rest. Today, China’s shopping malls are

saturated with luxury brand advertising and the average Zhou can

fluently discuss the relative attributes of different label offerings.

Today, merely recognising a luxury brand is enough to partake in

its narrative and luxury consumption has become commonplace.

As a result, luxury can no longer be defined simply by exclusivity.

Consumers are demanding an innovative, new approach to social

distinction.

Luxury in China is no longer simply about the logic of possession

and status but about what the consumer stands for. China will still

have enough newly rich consumers to fuel luxury as we know it for

some time, but there is already evidence that, in the future, beautiful

will always win out over big.

A powerful display of discretion

Luxury in China today is increasingly about

the ability to differentiate within categories,

to mix styles and blend collections, and

to fashion personalised statements from

the range of available materials. Of course

this has led to some dubious experiments

– like the black Lamborghini with the

Batman figurine stuck on its bonnet down

by the Bund – but in the future, personal

statements will be increasingly understated.

Less will be more. We are already seeing

luxury brands downplay the iconography

that made them successful, with discreet

patterns and small logos have become

vogue. The success of independent luxury

brands and handcrafted products are

further evidence that consumers want

luxury to return to what it was always

supposed to be – niche, special.

In other ways too, luxury has become

about the person so much as the product

or brand. The hotel industry has discovered

luxury as experience – about the journey

so much as the destination. The same

will be true of automotive, which will

become less about the car than the drive.

Increasing numbers of luxury customers say

they buy luxury goods as a way to reward

themselves, rather than for ostentatious

reasons.

Of course, consumers have always taken

great pains to deflect any suggestion of

ostentation by claiming that this form of

consumption was appropriate or even

necessary for their position or title. Their

mass

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need has been to avoid being judged crass,

uncultured, venal or corrupt, yet within

these parameters, ostentation has been

proudly on display. Such is the nature of

consumerism though, that as soon as

ostentation has ceased being a taboo-

transgression, it has also ceased to be

desirable.

Luxury in China today, is increasingly about

vision: not just about the recognition of

prestigious marks but the right to appraise

objects and vistas as worthy. It is not about

seeing so much as being seen to see, with

a gaze which demonstrates that you have

a total mastery of your environment. The

explosive rise in high-end camera purchase

and photography is a case in point: the

apparatus functions primarily to frame

subjectivity.

Details are another case in point: the

demise of the luxury overstatement is

paralleled by a new appreciation for

intricate design and striking, artistic

simplicity. In luxury auto, consumers now

find perfect stitching and body-work lines

as appealing as big engines and over-sized

chassis.

The tuhao generation

Clues to the overall macro-trends

driving luxury in China can be found in

everyday speech and culture. One of the

most popular terms to emerge into the

mainstream during 2013 was ‘土豪tu3hao2’.

Coined for the gold version of the iPhone

5s smartphone, ’tuhao’ is comprised of two

characters: ’土tu3’ meaning soil or earth, ’

豪hao2’ meaning grandeur. The term has

become a parody for fusions of rustic roots

with crass ambitions and gaudy expressions.

It was a predictable irony that brands would

release ‘tuhao’ versions of their existing

products and that these would perform

well as consumers rushed to buy into the

latest craze. More significant, however, is

everything else ’tuhao’ demonstrates about

the evolution of luxury in China.

The Chinese have always had derogatory

terms for the rich and unsophisticated.

‘Tuhao’, however, evinces a new capacity

for Chinese to laugh at themselves – to

not take themselves so seriously – because

the term parodies not only shamelessly

extravagant luxury but also the social

discourse which made those forms of luxury

desirable in the first place. For consumers

in China’s higher-tier cities at least, ’tuhao’

represents a tongue-in-cheek satire of

China’s breakneck pursuit of material

affluence in the get-rich-quick era. Usage

of the term doubtless involves disdain for

lower-tier city nouveau-riche types, yet

there is also an element of fond nostalgia

for the days when big bars of gold were

also all that higher-tier city consumers

aspired to.

The emergence of ’tuhao’ as a popular

meme represents the morphing of the

prototypical Confucian ego from status-

oriented functionalism towards new post-

or counter-materialist ideals. It heralds a

future where face-driven materialism will be

less obviously paramount in consumption.

Related trends can be seen in voluntarism,

charity and philanthropy, in CSR and

environmentalism, in the pursuit of natural

ideals through ’authentic’ rural tourism, in

press stories of Chinese families concerned

that the next generation doesn’t have

the appropriate ’spirit’ regarding wealth,

and in online scorn for the way that gross

inequalities of wealth have loaded China’s

already imbalanced gender-ratio dynamics

in favour of ’gold-digging’ young women

who date big-spending ‘sugar-daddies’

twice their age.

Here are three things brands can do to

stake a claim in this evolving, complex

future for luxury in China:

In luxury auto, consumers now find perfect stitching and body-work lines as appealing as big engines and over-sized chassis.

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Give it a story

In the future, meaningfulness will

matter more than the size of the

statement. Consumers will crave a story

to ground their personal appreciation

of the brand in its source. This means

that authenticity, heritage, provenance

and uniqueness will be absolutely key

– but they are not only defined against

counterfeits. Brands should find ways

to bring consumers into the brand

narrative, since authenticity is ultimately

a discourse of authorship.

Digital forums are amongst the most

obvious channels for achieving this,

but it could equally be about group

membership and shared activities

around the brand. In Beijing, we found

consumers who had set up a BMW

driver’s association. Membership wasn’t

just about VIP ownership but about

car sharing and weekend drives to

Inner Mongolia. The group would visit

orphanages and retirement houses,

and even drove to the earthquake site

in Sichuan to visit victims who are still

rebuilding their lives, since this gave

their lives significance. The association

wasn’t about BMW as we know it:

consumers had written themselves

and their ideals into the brand and

fashioned the brand meaning anew.

Give it an ethos

In the future, luxury will say more about

what you do with your money than

how much you have. The difference

between ’big’ and ’great is one of social

and moral ideals, and ethics are back in

vogue in China in a way that plays well

with the state’s latest crackdown on

excessive gifting and banqueting. Luxury

brands can stay ahead of these evolving

consumer sensibilities by emphasising

morality and sacrifice as much as elitism.

Brands that can weave an ethical story into

their production, perhaps by employing

impoverished groups, and demonstrate real

social feedback from their profits, stand to

be particularly successful. Give consumers

a chance to do good at the same time as

making luxury purchases, and sales should

rocket since this resolves any residual moral

tensions regarding self-seeking behaviour.

The purchase is legitimate due to its

contribution to society.

Make it Chinese

Consumers overwhelmingly seem to believe

luxury is European in origin and have very

specific ideas about luxury provenance:

Switzerland for watches, Germany for cars,

Italy for shoes. China’s romance with its

‘Occidental Other’ is evolving, however,

and in the future China will not necessarily

think of its own products and designs as

cheap or inferior. China pride has been a

factor in luxury consumption for a while

now and consumers of the future will

appreciate overseas players who find

ways to pay homage to Chinese cultural

status. Shanghai Tang is a great example

of a luxury brand that has harnessed

traditional Chinese aesthetics to forge a

delicate balance between mythical past and

modern, globalising future. Overseas brands

seeking an edge in the China market can do

likewise by making use of Chinese cultural

resources in design and marketing, perhaps

not as part of their core brand identity but

tactically, for specialised product lines or

during important seasons. As the success

of Shanghai Tang demonstrates, branding

with Chinese characteristics increasingly

appeals to consumers in overseas Western

markets too.

Conclusion

In the final analysis, Chinese consumers’

expectations of luxury are evolving. Luxury

was a category with its roots in the rigid

structure of power in the Confucian family,

in anxieties about China’s role in the

world during the “Open Door” era, and

in the status-seeking behaviour that new

money brings. Now that a certain extent of

material affluence has been sustained over

time, the conception of luxury is expanding

to include all manner of more “spiritual”

pursuits.

As we usher in the year of the horse,

the logic of possession, display and

covetousness increasingly appears vulgar

and common. Luxury market watchers can

therefore expect to see the main areas of

growth come in high-end, experience-

oriented products that provide consumers

greater scope for personal choice and

expression; and just as significantly, brands

which offer consumers the opportunity to

indulge the pursuit of ’higher’ moral virtues.

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Christina Leung (CL)

Marketing Director, Champagne, wine and other spirits, LVMH

Paul Pairet (PP)

Founder, Partner and Chef de Cuisine Mr & Mrs Bund, Ultraviolet

Sandra Cheng (SC)

Marketing Director,Benefit cosmetics

TNS: How do you capture the attention of high-end consumers in China?

The price tag matters “Be the most expensive, obviously. This goes a long way by itself. But there are other factors, such as design by leading designers, production with rare materials, or quality built up over time by artisans etc. All this works. And then you’ve got endorsement by the celebrities that high-end customers look up to, such as Jack Ma (Founder of Alibaba) and Eric Li (CEO of Baidu).”

Be specialist and creative “You’ve got to have a product with a story to tell, and not just a marketing story built to dress-up a product. Your creativity must be genuinely original, as opposed to just drifting along with other people’s ideas. And you’ve got to be niche, because the real high-end is really specialist.”

Enlist advocates “For me, peer group recommendation is key. Great PR and advertising is the start but then it’s about consumers’ word-of-mouth.”

When asking ourselves what role luxury plays for Chinese auto buyers, it’s worth asking how those consumers express themselves through luxury brands in other areas of life. We brought together three of the country’s top luxury marketers for a unique perspective on what motivates high-net worth consumers – and how auto brands can align themselves with these needs.

CL:

PP:

SC:

Luxury brands in China:

view

cross- category

The

Page 21: Automotive insights: The luxe edition

3938

TNS: What’s the key to brand loyalty amongst luxury consumers?

TNS: Can you define what luxury means to you?

“Luxury is at hand, but difficult to catch and impossible to retain. It passes, it moves, it lives, it is a feeling, an emotion: An exclusive experience that shall imprint the memory. Emotion is the quintessence of luxury and Memory its barometer.”

“Luxury to me is a complex fusion of top quality, trendy design, premium cost, and overall rarity.”

Haute Couture service “Haute couture is tailor made only for you. From fashion, to travel, to home design and cars, there is only one piece in the world for you, the only you. The same principle applies to service and customers relationships. One-to-one service can forge tangible and intangible bonds between the brand and the customer.”

Make brand memories “Quality of product and service is of course paramount. Being the best at something marks you out above all-rounders. And you’ve got to create lasting impressions. Memory is the best measure of value.”

Maintain momentum “To retain high-end customers we need to maintain our share-of-voice in the market, release exciting news every year, and deliver unique shopping and/or after-sales services”

“Berluti, Ferrari and Bvlgari vs Hennessy. All these brands have heritage, savoir faire,

artistic qualities, and a timeless nature.”

“The brands I want mine to share their DNA with are Hermes, for its atemporality; Fred

and Fari (FF) for their unconventional futuristic creative spin on communication; and

Aston Martin for its understated sexiness.”

“Diesel; smart; Apple.”

* These are the views of the interviewees and do not necessarily reflect those of their employer.

** Image of Chef Paul Pairet by Ball Chen of SOB

TNS: What luxury brands share the same DNA as your own?

CL:

PP:

SC:

CL:

PP:

SC:

“Timelessness, a piece of art, the ultimate savoir faire. Let time penetrate what the present cannot.”

CL:

PP:

SC:

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4140

I hope you have enjoyed reading our report on China’s luxury auto

market. With our many different perspectives and areas of expertise,

I hope that we’ve helped to reveal the secrets of a sector that is

becoming increasingly challenging but remains undeniably exciting.

Despite the recent sales drop following the state’s crackdown

on excessive gifting, the trend ‘Luxury for All’ continues. With

the accumulation of wealth, more and more Chinese consumers,

younger ones in particular, can afford to make statements through

luxury products, and auto is no exception. The luxury market will

become fragmented down the road, since more buyers will choose

vehicles based on their lifestyle preferences, instead of merely on

business needs. Brands have responded with broader product

offerings including SUVs and Cross-overs that meet their varied

needs and a retail network better aligned to their target customers.

Gary WUHead of Automotive, TNS China skilled A promising

road ahead:drivers needed

Luxury buyers are able to evolve faster

than most. They travel and shop frequently

outside China; they can access information

more freely, and have become increasingly

mature and sophisticated. We have

observed many consumers move from overt

to smart luxury, and even to experiential

luxury, shifting their emphases from flashy

designs and logos to finer details and

services. Customisation and personalisation

are increasingly popular.

Brands might find the prospect of enlarging

their customer base and expanding their

product portfolio irresistible, yet careful

planning is increasingly required to address

the threat of brand dilution. “Always sell

one car less than what the market requires”

is certainly a smart strategy.

Consumers are emotional, luxury buyers

included; but they are also rational. As

a matter of fact, consumers are quite

predictable, provided we understand the

driving forces that shape their behavior. We

at TNS are here to help you gain the insights

to steer your growth in this promising yet

challenging market.

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TNS is the world's leading provider of automotive marketing information and insights.

Our 800 dedicated consultants around the world are uniquely placed to provide precise

strategic direction: deepening customer relationships, developing new products, targeting

new markets and illuminating the road to growth through the entire customer-brand

relationship journey.

You can read more of our thinking on our blog at:

http://blogs.tnsglobal.com/tns_automotive/

Get in touch:

If you would like to

discuss any aspect of

the automotive industry,

please do get in touch

with our experts:

Gary WuHead of Automotive, TNS [email protected] +86 21 2310 0905

Guillaume SaintManaging Director Automotive Practice APAC [email protected] +86 21 2310 0870

Subhashish DasguptaDirector - South East Asia, Automotive [email protected] +65 6597 7371

Remy PothetAutomotive Global Sector Head [email protected] +33 1 40 92 28 02

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