China’s infatuation with luxury and the possibilities that lie ahead
Content
Page
1.0 Preface
3
1.1 Research question
4
1.2 Limitations and validity
4
1.3 The structure of this project
4
2.0 Methodology: designing the project
5
2.1 The ontological and epistemological position of this study
5
2.2 Research Strategy: The qualitative study
6
2.3 Interview
6
2.4 Ethical implications
7
2.5 Finding information
8
3.0 Theoretical framework
3.1 The history of luxury
8
8
3.12 Luxury in the 19th and 20th century
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3.13 The four drivers of growth
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3.2 The concept of luxury
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3.21 Defining luxury
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3.22 Luxury defined in a socio-economic framework
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3.23 The concept of luxury: in an Asian context
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3.24 Defining luxury for this specific research paper
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3.3 Veblen’s theory of Conspicuous consumption
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3.31 Critique of Veblen’s theory of conspicuous consumption
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3.32 A defense of Veblen
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3.4 The spread of luxury in Asia
3.41 The limitations of the Spread of luxury model
4.0 Analysis
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19
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4.1 Linking conspicuous consumption to the consumption of luxury
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4.2 Incorporating China into the Spread of Luxury model
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China’s infatuation with luxury and the possibilities that lie ahead
4.3 The political factor
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4.3 The economic factor
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4.4 New money, fast money
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4.5 The cultural factor
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4.6 Suggestions to luxury companies operating in the Chinese market
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5.0 Conclusion
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6.0 A perspective of the future of luxury
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7.0 Bibliography
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8.0 Appendix A: Interview with Anne Wedel-Wedelsborg
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China’s infatuation with luxury and the possibilities that lie ahead
1.0 Preface
The twentieth century was a time of massive change in China. There was great upheaval on both
the political, economic and social front. During the last 100 years China has seen such great
changes as a thousands of years old empire being overthrown, a civil war, a communist
dictatorship and massive economic reforms. As Chadha, R and Husband, P puts it:” Old ways of
defining who you are and your places in the world around you were systematically dismantled
… In all the systems the common thread was a division of society by profession, or membership
of a certain class determined by worth, and movement along social classes was rarely allowed
(Chadha and Husband 2006:65) During Chairman Mao Zedong’s communist rule being wealthy
and flaunting this wealth was frowned upon. An interesting aspect of this communist society was
the class that made money, the merchants, entrepreneurs and craftsmen, ranked very low on the
social hierarchy. Wealthy people were usually sent out into the countryside to be re-educated.
This entailed leaving the city for months or even years to perform hard labor alongside the
farmers. (Ebrey 1996)
In the late 1970s Deng Xiaoping, Mao’s successor started to bring forth economic changes and
began the opening-up policies and the liberalization of the Chinese economy. Suddenly, the
merchant class was propelled to the top of the social pyramid and started making money and was
now able also to enjoy them without repercussions. (Chadha and Husband 2006) This sparked a
great interest in luxury goods and as a consequence the market exploded and well into the 21st
century the market is in continuous growth. The luxury market has seen growth rates of up to
30% and China recently became the world’s second largest market for luxury good, even
surpassing Japan. (Lu 2010) During the next five years China’s luxury consumption is forecast to
increase to $ 14.6 billion and become the worlds largest consumer market for luxury goods. (Bain
& Company 2010) In a country with 1,3 billion inhabitants this forecast proposes immense
possibilities for luxury companies.
Having a bachelor in Chinese studies gives me a well-rounded understanding of the history of
China along with contemporary Chinese culture and politics. Also having taken numerous trips to
China, some educational, work related or simply just leisure trips, have sparked an interest in this,
it seems, almost rampant economic development along side with massive cultural changes. Many
of these massive changes are expressing themselves in an immense craving for luxury goods.
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China’s infatuation with luxury and the possibilities that lie ahead
1.1 Research question
The overall objective of this research project is to historically and culturally examine the Chinese
luxury consumer behavior and then try to provide an answer to the question of - what are the
motivating factors behind this seemingly sudden explosion of the luxury consumer market in
China? It is my general assumption that the socio-economic development in China has been the
major driving force behind this explosion but perhaps also a combination of traditional and
modern values has had an acute influence. The overall aim of this project is to answer the
previous research question, but it is also to provide foreign companies and marketers with a
general understanding of the Chinese luxury market and thereby assist them in their advance in
the market in China.
In the following paragraph I intend to clarify this project limitations and the matter of validity.
Following this will be an overview of the general structure of this project.
1.2 Limitations and validity
Due to the mere size of China and the fact that it has the world largest population, differences in
consumption behavior are inevitable. There is a giant gap in the per capita income between the
nations regions North, South, East and West and the East, with its coastal cities, are by far taking
the lead. The Pearl River delta, located on the southeast coast, is home to some of China’s
wealthiest people compared to the west that has some of the countries poorest areas.
When examining the factors that have had an impact on the expansion of the Chinese luxury
market I am exceptionally aware of the generalizations that may occur and that this might
question the validity of my findings. One cannot expect each and every consumer to practice the
same behavior and have the same reasons and motives when it comes to consuming luxury
products. However, I will argue that the analysis and the conclusion will illustrate some general
tendencies that can be further investigated if found necessary.
1.3 The structure of this project
This project consists of five parts. The first part contains the preface, research question,
limitations and validity and the description of the projects structure. The second part has the
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China’s infatuation with luxury and the possibilities that lie ahead
methodological approach and the third part the theoretical framework is presented. The fourth
part consist of the analysis, here I will analyze the different motivation factors that has
contributed to the seemingly sudden explosion in the Chinese luxury market. Based on these
findings I will give suggestions as to what luxury brand companies should take into consideration
when entering the Chinese market.
2.0 Methodology: designing the project
To understand the reasons behind this research design, I begin with identifying a research
problem. Subsequent, I will make the ontological and epistemological position of the study clear
as a means to understand the background for this research. Following that, an introduction to a
qualitative study is made. Finally, I will reflect upon the problematic of the possible ethical
implications and the limitations of the study.
First I will conduct a literature review of the field of luxury culture and luxury consumerism in
China. I will employ the hermeneutic approach. The central idea of hermeneutic is that the analyst
of a text must seek to bring out the meanings of a text when it comes to the social and historical
context. “ The approach is likely to entail the collection and analysis of data that will allow an
understanding in context to be forged.” (Bryman 2008: 533) When looking at the research
design and scope of interest of this literature I find inspiration and guidance to the design of this
research project.
2.1 The ontological and epistemological position of this study
Ontologically this research project will be conducted from a constructivist position. Broadly
speaking social ontology is described by Bryman as the following;” the central point of
orientation here is the question of whether social entities can and should be considered objective
entities that have a reality external to social actors, or whether they can and should be
considered social constructions built up from the perceptions and actions of social actors.”
(Bryman 2008:18) Bryman further describes constructivism as a view of the social world where
“social phenomena and their meanings are continually being accomplished constructed by
social actors” (Bryman 2008:19). This view of the world has very interesting implications for
this research project. Instead of seeing culture as an external reality that constrains and limits
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China’s infatuation with luxury and the possibilities that lie ahead
people in acting, as the positivistic paradigm set view of the world states, culture can be seen as in
a continuous state of construction and reconstruction. Constructivism invites the researcher to
consider the ways in which social reality is an ongoing construction of social actors. (Bryman
2008:20). I am not expecting to find just one specific answer to my research question, what is
more important is the understanding of the complexity of the culture surrounding the Chinese
luxury market.
As a consequence of choosing the ontological position of constructivism the epistemological
stance of the research project will be interpretivism. Epistemology is concerned with the question
of what is (or should be) regarded as acceptable knowledge in a discipline. Bryman underlines a
central issue as:” the question of whether the social world can and should be studied according to
the same principles, procedures, and ethos as the natural sciences.” (Bryman 2008:13)
When choosing this paradigm one must be aware of the implications and the potential impacts of
one’s own stance. As a scholar from the West who has grown up in a capitalistic society I am
very aware of the constraints, due to my understanding and perception of the world, this may
have on this research. Reviewing a large span of the literature will help me maintain an open
mind and will continue to minimize the influence that my subjective understanding of the world
has on this research. Also the fact that I am aware of it, will assist in reducing the influence my
subjective understanding has on this research project.
2.2 Research strategy: The qualitative study
Due to the interpretivistic approach to the study, which corresponds well with obtaining a deep
understanding of the Chinese luxury consumer culture, a qualitative study is a natural choice
because it emphasizes a deeper understanding of the research problem.
2.3 Interview
I will conduct an interview with a Danish professor from the University of Aarhus Mrs. Anne
Wedel-Wedelsborg. She holds a degree in Sinology and her field of specialty is Chinese culture.
Besides being extremely capable as an expert she has, first hand, experienced China before and
after the economic changes that came during the late 1970’s following Mao’s death. She will
provide an insight into how the Chinese physically used or not used luxury. Also, due to her
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China’s infatuation with luxury and the possibilities that lie ahead
status as an expert she will be able to give answers or suggestions to what motivating factors has
helped fuel this massive growth of the market for luxury goods in China.
During this interview I will be using a semi-structured interview form in its more loose sense and
more towards an unstructured interview. Bryman underlines that unstructured and semi-structured
interviews are both extremes in their category, and there is a lot of variability between them
(Bryman 2008:438) “the research interview is an interpersonal situation, a conversation between
two partners about a theme of mutual interest. It is a specific form of human interaction in which
knowledge evolves through a dialogue. (Kvale: 2006) This interview is done to get a better
understanding of the Chinese consumer culture both the modern and the historic aspects of
China’s relationship with high-end luxury products. Choosing the semi-structured interview will
allow me to receive an in-depth insight into personal constructions of meaning of the professor in
regards to why the Chinese choose high-end luxury goods.
2.4 Ethical implications
Ethical considerations are always important when conducting a research study. When doing an
interview, Kvale provides three guidelines namely informed consent, confidentiality and
consequences (Kvale 1996:153) Through briefing and debriefing the interviewee should be
informed about the purpose and procedure of the interview and it may be preferable to get a
written agreement thereby obtaining the informed consent and allow future use of the interview
(Kvale 1996: 154) When doing research about China one must be aware of the political situation
at the current time. Doing research on consumer behavior is not the most sensitive area but one
must still consider certain situations. Giving ones interviewee confidentiality by giving them a
pseudo name may allow them to speak more free and open about any political meaning they may
have on the economic situation. It can also allow them to make critical remarks about the current
government and communist party without fearing for any consequences. Again, the economic
situation is not a high-risk topic and because this is an expert interview, the expert is aware and
knows what not to say in order to not possibly damage any relations she may have with the
government. For the outsider this may sound exaggerated but it is still very relevant when doing
research on China.
The interview with Professor Anne Wedel-Wedelsborg went very smoothly. Her and I had had a
small meeting leading up to the interview where I introduced the topic and my expectations for
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China’s infatuation with luxury and the possibilities that lie ahead
the interview. She pointed out that she was not an expert in the field of economy but more in
terms of Chinese culture. The interview has been transcribed and can be found as an appendix.
It was my intention from the beginning to do one or two more interviews with marketers from
Danish luxury producing companies doing business in the Chinese market. My intentions with
these interviews were to gain their insight into the motivating factors behind the growth in their
own line of business. This has, however, not been made possible due to, according to the
companies, very busy times. Therefore, I will be using other sources that have done interviews
with different luxury companies and as a result still receive their perspective.
2.5 Finding information
The consumption of luxury, as you will see in this research project, has been around for centuries.
As mentioned in the preface China has seen explosive growth during the last thirty years and has
turned into a billion dollar market. Therefore, I did not expect to find so little academic material
about this subject, as I did. There has been very few in-depth books published and many of these
have been more how-to books than researched academic books. As a result of this, I have chosen
to incorporate both fields in this study. I intend to combine and analyze the academic theory of
Veblen with the Spread of luxury model presented in a more business- and marketing- oriented
book. In a field where there is a scarcity of material, combining these two fields will provide me
with the information I need to answer the outlined research question.
3.0 Theoretical framework
In the first part of this project I will commence by giving a brief overview of the history of
luxury. I will then define the concept of luxury and provide a brief outline to some of the drivers
behind the luxury market leading up to the 21st century.
3.1 The history of luxury
Luxury is not only a trade that is restricted to some cars, fashion accessories or clothes; rather it is
a different and global way of understanding a customer and of managing a business. It is believed
that the concept of luxury is as old as mankind itself. (Kapferer and Bastien 2009: 1) Some may
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China’s infatuation with luxury and the possibilities that lie ahead
believe that luxury came to be with the invention of the Luis Vuitton bag but many scholars
believe that the idea of luxury goes all the way back to the early Egyptians, Mesopotamians,
Chinese and Amerindians. Therefore before one can understand and define luxury it is important
also to understand the history of luxury and how this may or may not have affected the perception
of luxury today. I will only touch upon briefly the early history and then move on to the 19 th and
20th century.
Since the dawn of humanity there have been organized societies, leading groups and connected
with them objects, symbols and lifestyles. (Kapferer and Bastien 2009: 6) The case of the ancient
Egypt is in fact the most spectacular, for the dessert climate of the Nile Valley has miraculously
preserved almost everything and this is for great benefit of future generations. Findings so far
have been the remains of a highly hierarchical and stable society, with its own very precise and
extremely sophisticated codes and rules for living in luxury. They apparently invented many
things and new techniques for doing this, one of the best known being the discovery of glass to
protect perfumes. (Kapferer and Bastien 2009: 7) Luxury came in two forms in ancient Egypt: the
present life and the afterlife. In the present life, luxury was expressed by every available means
spurred the gods, the Pharaoh, the High Priest and those around them. In death everything became
even more spectacular: The building of pyramids, the tombs in the Valley of Kings and in the
Valley of the Queens was a very costly affair and for very obvious reasons this form of luxury
was reserved to a very small elite. According to Egyptians beliefs, it was the survival of the body
that guaranteed the survival of the soul. (Kapferer and Bastien 2009: 7) In China the most famous
tomb was that of the first Emperor of China. The tomb has not been fully excavated but so far
thousands of life-sized individually handcrafted terracotta warriors along with precious metals,
pottery etc. have been discovered. The warriors served as the dead emperors personal army for
the afterlife. (Ebrey 1996)
It is now safe to conclude that luxury is not a modern concept and that it has been around for
centuries. Luxury is also historically not connected to any specific region or country. Having
looked back on the origins of luxury, I will now move forward examining a period in time that
has influenced the way that luxury is viewed upon and consumed today, namely the 19th and 20th
century.
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China’s infatuation with luxury and the possibilities that lie ahead
3.12 Luxury in the 19th and 20th century
“Luxury is in fashion, and the fashion is for luxury” (Kapferer and Bastien 2009: 1)
We have established that historically luxury was not restricted to one specific part of the world
but more to a reserved elite of a given society. But to understand how luxury functions today it is
important to examine how luxury became available for others than the ruling elite.
The consequences for luxury of the philosophical and social upheavals of the 18th century became
apparent in the 19th century. Liberalism was very favorable to trade and therefore to luxury
serving as a driver of economic growth and therefore provided the first true economic rationale
for luxury as a means of creating wealth. Also the general democratization towards the end of the
18th century gradually made luxury more accessible. After the Industrial Revolution, which
brought about a considerable rise in living standards, more and more individuals found
themselves with the financial means to afford luxuries. (Kapferer and Bastien 2009: 10)
As mentioned earlier luxury was reserved for a very small elite and has been virtually isolated
from the rest of the population for centuries. “From the 20th century onward, this world of luxury
gradually ceases to be a world apart. An ever-growing slice of the population is beginning to
have access to it … (Kapferer and Bastien 2009: 11)
3.13 The four drivers of growth
Kapferer and Bastien list, in their book "The luxury strategy" from 2009, four different economic
growth-drivers for the luxury marked in the 20th century. These four drivers are: democratization,
increase in spending power, globalization and finally communication. They describe
democratization as being the most important driver and the one that explains luxury’s current
success. Compared to ancient times where luxury was reserved for an elite, everyone now has the
possibility to gain access to luxury, as to say luxury is not just restricted to the class one may be
born into. Increase in spending power is one of the more obvious drivers of the growth in luxury
goods during the 20th century. Increased spending power means increased availability of money.
When it comes to globalization it plays an important role in accelerating spending power; for
example reducing prices of most manufactured goods due to increased efficiency and
outsourcing. Globalization also offers accessibility to new exotic products and cultures.
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China’s infatuation with luxury and the possibilities that lie ahead
Communication stands as the last of the four major drivers that have an impact on the growth of
the luxury marked according to Kapferer and Bastien. With the development of global mass
media including television, mobile phone, and the Internet most people now have access to the
whole world. Finally they mention, the growth in international travel, both individually and group
travel, opened the masses to the richness of the different cultures and diversity that this planet has
to offer.
Leaving the 20th century and entering the 21st does not come with any apparent changes in the
different economic drivers of the luxury marked. Though, during the 00’s mass communication
has just continued to evolve and expand its reach. We now saw social networks like Facebook,
Twitter and MySpace set the agenda and their relevance have not lessened. Twitter and Facebook
are even said to have had an instrumental influence on the riots and revolutions that has taken
place in Northern Africa followed by riots and demonstrations in the Middle East that began in
the beginning of 20111.
3.2 The concept of luxury
Before being able to provide an answer to this papers research questions, I find it especially
relevant to define the concept of luxury. This is then followed by an examination of the different
relevant scholars contribution in trying to conceptualize and explain the various ways that
consumers experience luxury. Finally, the concept of luxury is then entered into an Asian context.
3.21 Defining luxury
“Luxury is a culture, which means you have to understand it to be able to practice it with flair
and spontaneity.” (Kapferer and Bastien 2009: 5)
The concept of luxury has evolved throughout the centuries. Looking back at the previously
mentioned ancient China and Egypt, there was a clear-cut line between the different social
stratifications; luxury constituted what the poor could not have, to what the ruling elite could
have. Today the picture is more blurred especially with the previously explained democratization
of the world in the 20th century. And spoken in a broad sense luxury is technically now available
1
http://thefastertimes.com/mediaandtech/2011/02/13/facebook-twitter-and-the-egyptian-revolution/
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China’s infatuation with luxury and the possibilities that lie ahead
to all and not necessarily restricted to any specific social stratification. In an attempt to get a
clearer picture of what luxury is this project commences by reviewing the literature with respect
to definitions of the concept of luxury.
The word “luxury” stems from the Latin term “luxus” meaning; lavishness, treat, extravagant,
indulgence, sumptuousness, bonus or opulence.2 Luxury is not a “normal” thing it is something
extra - now does that mean that having a Mercedes S class car or simply being able to, once in a
while, have a soft drink? In the poorest regions of the world having access to clean water may
even be deemed a luxury, while people in countries in for example Northern Europe would not
even consider the possibility of not having full access to clean water.
A few scholars have attempted to provide a definition to the concept of luxury. Luxury is an
expense that goes beyond what is necessary. “Luxury defines beauty; it is an art applied to
functional items… luxury items provide extra pleasure and flatter all senses at once”(Kapferer
1997: 253) Berry states that:” labeling a consumption good or a service as a ‘luxury’ is also to
make a claim about its ‘desirability’ and at this superficial level there seems to be a definite
connexion between a good being a luxury and it being an object of desire. (Berry 1997) Most of
these scholars agree that it is complicated to define luxury since it appears that luxury can be
defined at many different levels. “Luxury is a particular slippery to define. A strong element of
human involvement, very limited supply and the recognition of value by others are key
components.” (Johnson & Vigneron 2004: 485)
3.22 Luxury defined in a socio-economic framework
During the literature review it became apparent that there still exists a considerable amount of
confusion in terms of defining luxury and there also is a scarcity of empirical work available.
Vickers and Renand describe in the article The Marketing of Luxury Goods: An exploratory study
– three conceptual dimensions that:” … it could be expected that the luxury goods product
marked would be regularly examined and analyzed. However, a review analysis of both the
business press and the academic literature would suggest this is not the case and that it is limited
in its scope. A conclusion that can be drawn from both literatures is that a general confusion
exists amongst marketers about the subject area of the marketing of luxury goods… (Vickers
2
Politikens store engelskordbog and WORD Theasaurus
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China’s infatuation with luxury and the possibilities that lie ahead
and Renand 2003) It is noticeable that there is a lack of agreement among academic researchers
on the definition of luxury goods products. It is widely supported that products cannot be divided
into simple categories of luxury and non-luxury just by appearance or built-in qualities, not
saying that when it comes to luxury, product and quality does not often go hand-in-hand.
Defining the term is rather complicated and the perception of the luxury concept takes on
different forms and depends greatly on the social context. It is suggested that they be put into a
socio-economic framework. (Vickers and Renand 2003; Veblen 1899)
“Luxury is, and has always been a major sociological issue in any society, because is has to do
with: social stratification, the notion of practical use and waste and distribution of wealth. The
concept of luxury is not a socially neutral one it is society that defines what luxury is.” (Kapferer
and Bastien 2009: 9) Kapferer and Bastien explain that the concept of luxury is not socially
neutral and that it is society that defines what luxury is. Social stratification is, as mentioned
previously, not a solely determining factor in today’s society but it still plays a role in the sense
that there still exists e.g. royalty. The notion of practical use and waste comes down to what is a
necessity-good and what is essentially a waste-good meaning a good that is not a necessity.
Wealth and the distribution of it, as you will see later on, is a critical factor when it comes to
luxury. Who has the money to spend on these goods? When society constructs and defines what
luxury is, luxury is not neutral, and thus making it very difficult to create a definitive definition,
because it all depends on the context it is set under. A number of scholars also argue that the
socio-economic context also needs to be defined within the context of a country’s framework
(Vickers and Renand 2003). “A luxury product is rooted in a culture. In buying a Chinese luxury
product (silk, let us say), you are buying not just a piece of material but a little bit of China as
well – a luxury product comes along with a small fragment of its native soil.” (Kapferer and
Bastien 2009: 14) With the famed British Burberry slowly closing its factories around England
and outsourcing production to China protest has been made not only from former employees,
unions and politicians but also from loyal customers ranging from British royalty to famed
celebrities. The famous British actress with Oscar aspirations Emma Thompson is perhaps one of
the more intense critics: "Burberry must not do so, or they will be labeled 'greedy', 'no integrity'
label, More importantly, the entire company's brand image will no longer have the luxury British
mystery, product design is no longer genuine."3 This is very much in tread with what brand
analyst say:“ This does of course mean that a luxury brand has to stay absolutely true to its roots
3
http://www.burberryoutletsetin.com/burberry-news-1 seen on May 9th 2011
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China’s infatuation with luxury and the possibilities that lie ahead
and be produced in a place that holds some legitimacy for it: by remaining faithful to its origins,
the luxury product offers an anchor point in a world of cultural drift, trivialization and
deracination.” (Kapferer and Bastien 2009: 14)
Vickers and Renand also points out that the field of psychology has another approach to the
definition of luxury goods products namely, that for instance when examining mass consumption
and personal identity, and the relationship between necessity and luxury, two persons with equal
intelligence and equal frames of reference can have different attitude to the meaning of luxury.
“If one examines a luxury product in the context of the degree of convenience that it gives to its
user, a car is generally not regarded as a luxury in rural areas, with poor or non existent local
transport … However, it can definitely be considered a luxury by people living in … a large
city where most things are … within walking distance.” (Vickers and Renand 2003)
3.23 The concept of luxury: in a Chinese context
When investigating what the motivating factors behind the seemingly sudden explosion of the
luxury marked in Mainland China is, it is relevant to explain what luxury means for the Chinese
people in general. In the above conceptualization of luxury the perspective has been made from a
Western point of view. Thus meaning that a majority of the scholars writing the academic papers
and books have been born, raised and educated in the West. A Chinese scholar Pierre Xiao Lu has
a Ph. D from ESSEC Business School Paris and is also a visiting professor at Louis Vuitton Moët
Henessy group (LVMH). His current position is at Fudan University Shanghai as an assistant
professor at the School of management. Lu stresses that most research done and literature written
on the field of luxury originates from the West (Lu 2008) In Chinese, the word luxury, consist of
two characters, when combined they form a word indicating extravagant and a wasteful use of
wealth. (Lu 2008) The reason for this negative connotation of the word is the teaching of the
social morals of the different Asian philosophies (Confucianism, Taoism and Buddhism) A
general theme of these teachings are that life should have no recklessness, arrogance and no
showing-off. In my interview with Professor Anne Wedel-Wedelsborg she underlines that
extremes are never good in Confucianism, it is never good to stand out. Also in Confucianism it is
the inner qualities that counts. This could be seen as an old way of viewing things but what is
interesting is that in 2005 the Chinese government introduced the socialist concept of honor and
disgrace promoting modern socialist values such as: “Know plain living and hard struggle; don’t
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China’s infatuation with luxury and the possibilities that lie ahead
indulge in luxuries and pleasures” (Lu 2008: 28) Though, since China is close to becoming the
worlds largest luxury consumer market it does not seem as though they have been listening to the
government. I will investigate this further in the analysis.
3.24 Defining luxury for this specific research paper
In sum, when defining luxury one can roughly divide it into two levels: superficial and in-depth.
The superficial definition is regarding the monetary value that is afflicted upon artifacts and here
luxury goods fall under a category of very expensive. This category can range from Mercedes
cars to Prada shoes and Cartier watches. There are no calculations that give away how much a
certain item should cost for it to be a luxury good only that it has to be expensive and therefore
not easily accessible – it’s a symbol of wealth. The in-depth level is a more complex matter. A
luxury good has more meaning that just its monetary value. As mentioned earlier society
constructs and defines what luxury is and clean water could mean luxury for some people.
For this paper I define luxury as something strongly connected to its monetary value and its value
as a symbol of wealth. I have chosen this because it will help me explain why the Chinese are
consuming vast amounts of luxury as a means of displaying their status in society.
3.3 Veblen’s theory of conspicuous consumption
In 1899 Thorstein Veblen wrote the famed book Theory of the Leisure class (1899 1996)
Veblen developed a framework in which preferences are determined socially in relation to the
positions of individuals in the social hierarchy. Summarized, Veblen’s theory of conspicuous
consumption stresses that individuals emulate the consumption patterns of other individuals
higher up in the hierarchy. Conspicuous meaning the behavior whereby an individual can display
wealth through extensive leisure activities and luxury expenditure on consumption and services
(Trigg 2001: 99) Veblen’s theory of consumption was based on the research done on the leisure
class in America during the late 1800. This leisure class consisted of members that did not have to
work themselves but could profit from those who did work, namely the working class. Veblen
also argued that inherited wealth gives more status than wealth gained through efficiency:
“Wealth acquired passively by transmission from ancestors to other antecedents presently
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China’s infatuation with luxury and the possibilities that lie ahead
becomes even more honorific than wealth acquired by the possessor’s own effort” (Veblen 1899
1996: 29)
Trigg (2001: 100) argues that the key to the transformation of wealth into status lies in to social
performance of the members of the leisure class. Thus, status comes from the judgment that the
other members of society make of an individual’s position in the given society. To establish this
position there must be a display of wealth. Veblen indentifies two main ways of displaying
wealth: conspicuous leisure and conspicuous consumption. (Veblen 1899 1996: 35, 68) Though
Veblen argues that when society becomes more differentiated and mobile and when the individual
becomes exposed to more people - these people: “who has no other means of judging of his
reputability than the display of goods (and perhaps of breeding) which he is able to make while
he is under their observation.” (Veblen 1899 1996: 86) Therefore, conspicuous consumption is
when people spend money on artifacts of consumption that gives an indication of their wealth to
other members of society. “This search for status through consumption is never ending. What at
one time may confer status may later be acquired by all and confer no status. (Trigg 2001:101)
As a result, people must always find new artifacts that can enable them to maintain or reach the
desired status.
Also an important part of the theory of the leisure class is the “trickle down effect” meaning the
downward spreading of taste and preferences from the higher status. These taste and preferences
trickle down through the classes below and those members begin to strives after that. When the
artifact has trickled down the members of the higher status again have to find new artifacts. This
is a continues linear occurrence.
3.31 Critique of Veblen’s theory of conspicuous consumption
Colin Campbell was among some of the first scholars to criticize Veblen’s theory of conspicuous
consumption. “The widespread popular use of the term conspicuous consumption, coupled with
the lack of scholarly assessment, has combined to create some confusion over the precise nature
of Veblen's concept.” (Campbell 1995: 38) Campbell also challenges Veblen’s view on the fact
that the consumption of goods is a way to depict one’s own level of wealth and as an indicator of
status. He argues that individual may not necessarily try to compete against each other due to
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China’s infatuation with luxury and the possibilities that lie ahead
envy but rather due to the fact that an improved living standard may be regarded as attractive in
its own right. (Campbell 2000)
A general critique of Veblen’s approach is that it is irrelevant and out of date in relation to the
contemporary society. Many of the social classes that Veblen researched for his theory has since
then disappeared. And society now reveals a more blurred class-divided society. Trigg (2001)
argues that individuals now have the freedom to project their own meanings into commodities,
with personal image being more important than the display of status and competition. “ Objects
and relationships have no firm origin, ground or foundation. Consumption is now the duty of the
individual: he no longer exists as a citizen or worker, but as a consumer.” (McIntyre 1992: 55)
Also, there is the argument that the “trickle down effect” is far to linear and must be
supplemented with the “trickle up effect” “The theory of conspicuous consumption is argued to
be too narrow with its one-directional focus on the transmission of tastes and preferences, a
restriction that limits the theory’s applicability to particular types of luxury.” (Trigg 2001: 103)
One of the more used examples of the “trickle up effect” is the case of the denim jeans. Jeans was
invented for the working class as clothes with long durability. This type of work clothes somehow
found its way to the top of the social class. Major European fashion houses started to make
designer jeans, denim jackets and so on. Yves Saint Laurent, a famed fashion designer, has even
stated that he wished he was the one that had invented the jeans.4
3.32 A defense of Veblen
In response to these critics it can be argued that to some extend there has been a misrepresentation
and over-simplification of Veblen’s approach. “The theory of conspicuous consumption is more
sophisticated and subtle” (Trigg 2001: 104) The critic of the theory not being viable anymore due
to the fact that classes Veblen researched for his theoretical framework has changed, is perhaps
slightly exaggerated. It is true that the type of classes have changed and is different from country
to country. But there are still classes present in society perhaps now more related to economy than
birth line. The much-criticized “trickle down effect” with the example of the Jeans can be seen as
the upper-class modifying and transforming a piece of work clothes for the lower-classes to
emphasize the upper-class superiority. There is nothing faulty about the “trickle down effect” it
4
Seen on the TV program Cowboybuksens historie på DR2 (The history of jeans)
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China’s infatuation with luxury and the possibilities that lie ahead
can just been altered and made into a non-linear model where “trickle up effect” can be included.
I believe that this hundred-year-old theory is still feasible because luxury consumption is stronger
than ever before.
3.4 The spread of luxury in Asia
In their book The cult of the luxury brand Chadha and Husband (2006) have developed a new
model that illustrates the spread of luxury in Asia. The book draws on over 150 interviews with
industry experts and 10 market studies done in different Asian countries. This model is based
upon that extended research. The figure consists of a five-stage linear process. The first stage is
subjugation meaning authoritarian rule along with poverty and deprivation. According to Radha
and Husband deprivation builds hunger however distant and unattainable it might be. When that
pressure is released the desire invariably bursts out and the hunger has to be fed. This leads to
stage 2 start of money. This entails economic growth and the masses start to purchase white goods
and this is also the stage where the elite start buying luxury products. The economy grows and
people now have money to spend. Stage 3 show of stage illustrates that fact that if people have
money they have the need to announce it. They start to acquire symbols of wealth to display their
economic status. Stage 4 Fit in consists of large-scale adoption of luxury goods fueled by the
need to conform. The last stage is way of life here luxury habits are locked and are now a full
integrated part of the consumer culture. (Chadha and Husband 2006: 43)
Figure 1 (Chadha and Husband 2006: 43)
Wealth reaches successive layers of society over time; so even within a country different layers of
society can be at different stages in the Spread of luxury model. Countries can have a range of
stages being played out at the same time. The model explains the stages that a country has been
through and it also helps to predict what is up ahead in the future. (Chadha and Husband 2006:
46)
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China’s infatuation with luxury and the possibilities that lie ahead
3.41 The limitations of the Spread of luxury model
In my search for scholarly critiques or assessments about this fairly new model I have come up
empty handed. I believe that the model definitely has its limitation. Whether or not the model
should have been linear is a debatable question. Is it not possible that during the early stages,
countries can move back and forth, or perhaps skip whole stages of the model entirely? Despite
the models possible limitations I find it very suitable to use in connection with the theory
proposed by Veblen. The model has been very well researched and it gives a good overview of
how China has developed and the model also predicts how it will develop in the future. I intend to
argue in the analysis that the model is viable and can be linked with the theory of conspicuous
consumption proposed by Veblen.
4.0 Analysis
In this chapter I will analyze how Veblen’s theory of conspicuous consumption can explain the
motivating factors behind the explosive growth of the luxury market in China. I will do this, first
by, linking conspicuous consumption to the consumption of luxury. Then, I will analyze how the
political and economic aspects both played and still play an important role in this sudden growth
in the luxury market. Subsequently, I will incorporate the Spread of luxury model by analyzing
how it can be linked with the theory of conspicuous consumption. I will also incorporate the
information gained from interviewing Professor and sinologist Anne Wedel-Wedelsborg. At the
end of this analysis I will provide some suggestions to companies operating in the Chinese luxury
market.
4.1 Linking conspicuous consumption with the consumption of luxury
The consumption of luxury is closely linked to the theory of conspicuous consumption. The term
conspicuous consumption is previously defined in the theory as when people spend money on
artifacts of consumption that gives an indication of their wealth to other members of society.
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China’s infatuation with luxury and the possibilities that lie ahead
Veblen’s theory has produced the supposed Veblen effect, which means that the consumer is
willing to pay a higher prize for a functionally equivalent good. Evidence suggests that the effect
has empirical significance due to the fact that many companies give testimony to that assumption.
“Our customers do not want to pay less. If we halved the price of all our products, we would
double our sales for six months and then we would sell nothing” (Bagwell and Bernheim 1996:
349) Veblen proposed that individuals need attention to please their ego and he argues that: “ In
order to gain and to hold the esteem of men, wealth must be put in evidence, for esteem is
awarded only by evidence” (Veblen 1899 1996: 24) Bagwell and Bernheim argues that Veblen
identifies and distinguishes between two motives for consuming conspicuous goods; invidious
comparison and pecuniary emulation. Invidious comparison refers to situations in which a
member of a higher class consumes conspicuously to distinguish himself from members of a
lower class. Pecuniary emulation occurs when a member of a lower class consumes
conspicuously so that he will be thought of as a member of a higher class. (Bagwell and
Bernheim 1996: 349) “Members of higher classes voluntarily incur costs to differentiate
themselves from members of lower classes (invidious comparison). Knowing that these costs may
be high enough to discourage imitation (pecuniary emulation)” (Bagwell and Bernheim 1996:
349)
4.2 Incorporating China into the Spread of Luxury model
The model explains the different stages of the amount of luxury consumption, which follows a
country’s economic development. In their research Chadha and Husband (2006) have found that
China is situated at stage 3 the Show off stage. (Chadha and Husband 2006: 45) At this stage
acquisition of symbols of wealth and the display of economic status is emphasized. They
underline the fact that wealth has arrived only to a select segment of the Chinese society
concentrated in the coastal cities. Due to the fact that China has over 1,3 billion residents this one
country can be compared to Europe in term of diversity in regional economies. China’s wealth is
mostly situated in special economic zones and the rest of the country is lacking substantially
behind. Therefore it can be argued that China is still mostly placed in the earlier stages of the
model. Chadha and Husband points this out in their second model that places Asian countries’ in
the different stages on the Spread of luxury model.
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China’s infatuation with luxury and the possibilities that lie ahead
Figure 2 (Chadha and Husband 2006: 46)
Also mentioned in the preface China’s luxury consumption is forecast to increase to $ 14.6 billion
and become the worlds largest consumer market for luxury goods within the next five years.
(Bain & Company 2010) So the paradox here is: how is it possible for China only to still be
situated at stage 3? One of the reasons is because of China’s enormous size. We have established
that China’s wealth is to be found in the special economic zones situated mostly on the East
Coast. A rough estimate of China’s affluent middle class is less than a quarter of the population
compared to the United States where about 80% of the population is classified as the middle
class.5 This means that close to 1 billion people still live below the middle class and many still
live under extreme poverty. So in order to become the world largest luxury consumer market
China will have to pull an obscene amount of people out of poverty and into the middle class.
4.3 The political factor
China has since the revolution in 1949, where Mao proclaimed the new Republic of China, been
under a one party system rule. During Mao’s reign from 1949 to his death in 1976 China was an
almost egalitarian society. As professor and Sinologist Anne Wedel-Wedelsborg states that in
1974 during her first visit to China there where only one type of clothes that one could wear
5
http://english.peopledaily.com.cn/90001/90778/90862/7071235.html,
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China’s infatuation with luxury and the possibilities that lie ahead
namely the “Mao-suit”6. The “Mao-suit” only came in two colors; green for the army and blue for
everybody else. Mao also instigated The Great Leap Forward, a five-year plan, from 1958-1963,
that meant to develop agriculture and industry. The plan failed and a rough estimate of the
number of death following the famine has been set to around 30 mill. (Ebrey 1996) Times where
hard and many people could not even afford food let alone luxury. Shortly after the Great Leap
Forward another important historical event took place – the Cultural Revolution. The Cultural
Revolution was a 10-year political campaign. Ideological cleansing began with attacks by young
Red Guards on so-called intellectuals to remove any bourgeois influence. Wedel-Wedelsborg
mentions in her interview how the high-ranking politician Liu Shaoqi’s wife was pictured with
her large pearl necklaces and heavy make-up. As Wedel-Wedelsborg puts it, it was absolute
something of the worst one could do under the Cultural Revolution. Both him and his wife where
banished from the party during the Cultural Revolution, Liu Shaoqi died not long after that.
(Ebrey 1996)
4.4 The economic factor
After Mao’s death Deng Xiaoping gained power over the Communist Party and started his
opening-up policies with the famed sentence It does not matter if a cat is black or white, as long
as it catches mice. This was Deng Xiaoping’s justification to now start using market economy
instead of planned economy to gain economic growth in this now extremely poor and famished
country. This gave the people of China an incentive to start making money and thus started a
whole new consumer driven society. Deng’s words where the start of China’s spectacular
economic growth during the last thirty years or so. As mentioned in the preface the Chinese
merchant class was then propelled to the top of the social pyramid and started making money and
was now able also to enjoy them without repercussions as had been seen only a few years earlier
during the Cultural Revolution as described by Professor Anne Wedel-Wedelsborg.
The well-known Engels curves describe how household expenditure on particular goods or
services depends on household income. “Engels Law” states that the poorer the family is, the
larger the budget share it will spend on food. (Chai and Moneta 2010) The curve of the necessity
goods has a downward sloping Engel curve; that is when the households income increases it
subsequently decreases its spending on the necessity goods. Vickers and Renand argues that a
6
The ”Mao-suit” consisted of a two-piece cotton suit with a very loose fit. The jacket was fitted with a typical China
collar.
22
China’s infatuation with luxury and the possibilities that lie ahead
luxury good has an upward sloping Engel curve indicating that as income increases, a greater
proportion is then spent on luxury goods. (Vickers and Renand 2003)
4.5 New money, fast money
Roughly speaking it took the developed countries in the West a couple of centuries to advance
economically. Asian countries have done all of this in a few decades and many of these countries
are now on equal terms economically with many Western countries. Compared to old Europe;
Asia is mostly about new wealth. In China, the twentieth century was harsh and people were
extremely poor and most old inherited wealth had been completely purged. The last two
generations are China’s first generation of middle-class people with a significant spending power
and on top of that this is also China’s first and second generation of working women with
financial independence. (Chadha and Husband 2006: 40)
Essentially, China does not have the distinct hierarchy or stratification as Europe to some notion
still has. Using the terms pecuniary emulation and invidious comparison by Bagwell and
Bernheim introduced earlier - how can members of higher classes differentiate themselves from
members of lower classes (invidious comparison) and on the contrary how can the lower classes
imitate (pecuniary emulation) a higher class if that class does not exist? With the previously
mentioned development of the media (magazines, Internet, blogs, social media) and this
worldwide media exposure to the masses, the Chinese consumer now has a view of the whole
world and what it has to offer. The nouveau rich Chinese now have access to the Internet and they
can travel to any part of the world. They are exposed to commercials on every corner in the city
where they live and work. This is where established luxury brands come into the picture. The
Chinese can now follow what the rich and famed of the world are doing and especially what they
are wearing and can then emulate them. Instead of having an upper class to follow in their own
country they emulate the “world upper class” Having money and a new upper class to follow the
wealthy class can now differentiate themselves from the lower class as described in the theory.
Chadha and Husband have China ranging over the three first stages of the model. So the new
upper class are placed at stage three and the lower class somewhere in-between the three stages.
This means that the lower class and the up-and-coming lower and middle class now have an
23
China’s infatuation with luxury and the possibilities that lie ahead
upper class to emulate, meaning they do not necessarily have to look abroad but can just look up
in their own society.
4.5 The cultural factor
As mentioned earlier luxury has a different connotation in Chinese it indicates a wasteful use of
wealth. The reason for this is the teachings of the Asian philosophies of Confucianism, Taoism
and Buddhism. Professor Anne Wedel-Wedelsborg underlines than extremes and standing out are
not a positive thing. When asked if she believed that these traditional values still hold ground in
the current Chinese society she explains that it might affect some people. Though, she believed
that the Chinese have a very pragmatic approach to things and that they are able to adapt. They
can have this extravagant luxury life and still feel like being part of a Confucian belief and
everything else for that matter. So even though the government has issued the socialist concept of
honor with values like “Know plain living and hard struggle; don’t indulge in luxuries and
pleasures” (Lu 2008: 28) The Chinese seem to be just as capable as the government to separate
things. The government still holds on to many communist and socialist values but the economy
has been given free rein.
4.6 Suggestions to luxury companies operating in the Chinese market
The luxury consumer market is flourishing in China and its prospects are far-reaching. We have
established that China within the next five years will become the world largest luxury consumer
market. This prospects must be mouthwatering for the worlds luxury companies. When looking at
Chadha and Husband’s model China still have many stages to go and when they reach the last
stage the Way of life the financial possibilities seem endless. But for companies that are operating
in China at the moment or are just entering there are a few things they need to be aware of. The
nouveau riche Chinese are extremely wealthy and can afford all the luxury in the world. They will
need to emphasizes their status and will need big flashy items to do so. Where in Europe the
customer might want an expensive diamond necklace in its more subtle way whereas, the Chinese
more than likely wants a piece of big shiny jewelry to make sure people are aware that this was an
expensive piece of jewelry. So everybody will know that here is person that is a member of the
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China’s infatuation with luxury and the possibilities that lie ahead
new wealthy class of China. Even though this new wealthy class has a substantial amount of
buying power companies should not overlook the opportunities that lie ahead. More and more
people each day are entering the middle and can therefore afford pieces of luxury now and then. It
is important to target this class also. They are the ones that want to imitate the new wealthy upper
class and they will do so by consuming conspicuously. While the upper class is looking to the
West for its inspiration the middle class is just looking up.
5.0 Conclusion
The intention with this project has been to investigate what the immense growth rate in the luxury
consumer market in China, has been. This research project has considered three main motivating
factors to explain this explosion namely the political, economic and cultural factor.
After Mao’s five-year-plan, the Great Leap Forward, hunger and poverty followed. The people of
China lived in a class-less society where everybody had to appear the same. When Deng
Xiaoping in 1978 gained power after Mao’s death decades of economic growth began. This
marked a shift in the political environment that now attached great importance to economic
prosperity. Deng Xiaoping paved the way for a state with communist rule and a market economy.
I argue that this drastic political change was the initial motivating factor that set the ground for
the growth in the luxury market.
China has seen a vast amount of people move from poverty to wealth in a few decades. Some of
these people have obtained an enormous fortune and have now started to spend that fortune. The
economic theory of the Engels curve concludes that the curve of the necessity goods has a
downward sloping Engel curve; that is, when the household’s income increases, the household
subsequently decreases its spending on the necessity goods. Conversely a luxury good has an
upward sloping Engels curve indicating that as income increases, a greater proportion is then
spent on luxury goods. This economic theory supports the idea of economy being the major factor
of motivation when it comes to the increase spending on luxury goods.
Veblen’s theory of conspicuous consumption has helped to explain some of the more cultural
reasons behind the increase in luxury spending. This theory of conspicuous consumption stresses
that individuals emulate the consumption patterns of other individuals higher up in the hierarchy.
In general, after the cultural revolution China was a society purged of classes. But due to the
25
China’s infatuation with luxury and the possibilities that lie ahead
previously mentioned economic changes a wealthy class started to emerge and this class has, as
the theory prescribes, started to mimic the consumption patterns of other individuals higher up in
the hierarchy. Since China did not have anyone higher up in the hierarchy I argue that they have
started to emulate the more developed western part of the world due to the large exposure of
western luxury brands. Following the new wealthy class is the middle class and it seems as if
they are simultaneously trying to consume conspicuously so that they will be thought of as a
member of a higher class. This emulation of the west may be one of the motivating factors behind
the increase in Chinese luxury spending.
6.0 A perspective of the future of luxury
There are many interesting perspectives linked to the consumption of luxury goods in China. As
seen in this research China has far from reached its potential when it comes to consuming luxury.
One particular and interesting topic would be China’s young generation ranging from pre-teens to
young adults in their early twenties. These young people have no siblings because they have all
been born under China’s “one-child-policy”. This means that all of these children have two sets
of grandparents each including both parents’ finances going strait to this one child. These
children, therefore, have an immense spending power. I believe that these children will be of
great interest to the luxury companies in a very near future.
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China’s infatuation with luxury and the possibilities that lie ahead
7.0 Bibliography
Books:
Berry, Christopher J “The idea of luxury – a conceptual and historical investigation” Cambridge
University Press (1994)
Bryman, Alan “Social Research Methods” Oxford University Press – Third edition (2008)
Campbell, Colin “The Puzzle of Modern Consumerism” in the book: The
Consumer Society Reader by Lee, Martyn Blackwell Publishing. (2000).
Chadha, Radha & Husband, Paul “The cult of the luxury brand – Inside Asia’s love affair with
luxury” Nicholas Breatly International (2006)
Ebrey, Patricia Buckley “Cambridge Illustrated History of China” Cambridge University Press
(1996)
Kapferer, Jean-Nöel & Bastien, Vincent “The luxury strategy – break the rules of marketing to
build luxury brands” Kogan Page Printing (2009)
Kvale, Steinar “Interviews – An Introduction to qualitative research interviewing” Sage
Publications, Inc. (1996)
Lu, Pierre Xiao “Elite China: Luxury consumer behavior in China” John Wiley & Sons. (2008)
Veblen, Thorstein “The theory of the leisure class” (1899) reprinted by Augustus M. Kelly
(1975)
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China’s infatuation with luxury and the possibilities that lie ahead
Articles:
Bain & Company “Luxury Goods Worldwide Market Study” April 2010
Bagwell, Laurie Simon & Bernheim Douglas B. “Veblen effect in a Theory of Conspicuous
Consumption” The American economic review June 1996 pp. 349-373
Campbell, Colin “Conspicuous Confusion? A Critique of Veblen's Theory of Conspicuous
Consumption” Sociological theory, March 1995, pp. 37-47
Chai, Andreas & Moneta, Alessio “Retrospectives: Engels curves” Journal of economic
perspectives, 2010, Winter edition, pp. 225-240
Johnson, Lester W & Vigneron, Franck “Measuring perception of brand luxury” The journal of
Brand Management, 2004, 11, pp. 484-506
Kapferer, J. N. ‘Managing luxury brands’, Journal of Brand Management, 1997, 4, pp. 251–260.
Lu, Pierre Xiao “Luxury consumer behavior in Mainland China: What exists behind the façade of
new wealth” The European Business Review, September 17th, 2010
McIntyre, Richard “ Consumption in contemporary Capitalism: beyond Marx and Veblen”
Review of social economy 1992 pp. 50-57
Trigg, Andrew “ Veblen, Bourdieu, and Conspicuous Consumption” Journal of Economic Issues,
2001, 35 pp. 99-115
Vickers, Jonathan S & Renand, Franck “The Marketing of Luxury Goods: An exploratory study –
three conceptual dimensions” The marketing review, 2003, 3, pp. 459-478
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