A Comparison of Buying Behaviour toward Luxury Goods in UK and China

ABSTRACT

This thesis is a comparative research based on buying behaviour toward luxury goods in UK and China. Through analyze the current situation of luxury goods consumption and buying behaviour toward 英國留學生畢業(yè)dissertationluxury goods in UK and China, it seeks to find out what motives lead to the buying behaviour, what buying behaviour should be in China’s luxury goods market, what China’s luxury goods consumption should learn from the U.K..

Through detailedly referring to previous and current literatures on buying behaviour and luxury goods consumption, a questionnaire was designed to explore buying behaviour toward luxury goods in UK and China. Designed questions cover the motives leading to people’s purchase, expenditure and people’s consciousness in luxury goods consumption, etc.
Base on collected questionnaires from responders in China and the U.K., a detailed analysis was implemented according to the feedback. to disclose the possible characteristics of buying behaviour toward luxury goods in UK and China.

The results showed that, in luxury goods consumption, there were much differences on aspects of main consumer groups, motives, consumption consciousness in luxury goods consumption between UK and China. British consumers were found more rational than the Chinese. Its buying behaviour also represented a rational character. On basis of the analysis, the thesis revealed the deep reasons and background resulted in the status in luxury goods consumption in UK and China and ultimately brought forward strategies for guiding buying behaviour toward luxury goods in China.

Chapter 1: INTRODUCTION

1.1 The problem
The concept of luxury can be traced back to ancient Greek times, however, the luxury brand was more or less occurred in the mid-19th century. With the progress of industrialization and the development of globalization, the luxury goods industry flourished in 1970s and developed with a rapid growth in the past 10 to l5 years,. According to the estimation of Merrill Lynch, Asia will be the largest market for luxury goods consumption. In 2004, Japan retained its position as the world's largest consumer of luxury goods (41%), China ranked third in the world (12%), which followed the United States-in the second place closely (17%). All in all, there are two trends change in the development of luxury market, in its geographical distribution, it has experienced four stages: the European market 100 years ago, the U.S. market after the Second World War, the Japanese market after the age of 70, and the rise of today's new emerging markets such as China, India, Russia. The consumer groups also transferred from the originally traditional European high society to the general public and the emerging affluent consumer groups. According to the statistics of investment bank Goldman Sachs, China's total sales of luxury goods (excluding aircraft and a private yacht) reached 60 billion U.S. dollars in 2004, which accounted for 12% of the total world's luxury goods consumption, while the figure was only 1%five years ago. According to their findings, China has already been the world's third largest consumer of luxury goods, the total consumption of luxury goods is only 41% lower than that of Japan and 17% of the United States; and other countries of Europe took 16%; other countries took 14%. Chinese consumer demand for luxury products will rise with an annual growth rate of 20%, in 2015, it will account for 29% of the world's total sales of luxury goods and tie for first with Japan in the world. With China's economic development, the purchasing power of consumers has improved, the share of the luxury consumption also grows, all of these show that China is a huge consumer market of luxury goods.#p#分頁標題#e#

However, as a veteran developed country, U.K. has a long tradition of luxury consumption, in 2009, the consumption of luxury goods are expected to reach 4,500,000,000 pounds in U.K., which is 30% growth in 2004 (China Food Network, 2005).

Well, what the similarities and differences in the motive of luxury goods consumption between U.K. and China are, if the consumption motive of China, an emerging consumer market of luxury has followed patterns of developed countries', if China's luxury consumption has a unique pattern of consumer behavior? This thesis attempts to answer the above problems for providing developing countries as a reference and contributing to the orientation and subdivision of China's luxury brand and market at the same time.
1.2 Context
However, there is no accepted definition for luxury goods in the academic field, different academicians attributed individual definitions to luxury goods. As early as 1776, Adam Smith (2003) described the definition of luxury goods in his classic work The Wealth of Nations. In this book, he divided consumable into two categories: necessities and luxuries. He gave the concept of necessities as which not only includes those commodities which are essential for keeping the pot boiling, but also those goods relate to decent custom and keep people’s lowest class, and then he ruled out those kinds of goods and defined those consumable which did not belong to the necessities for the luxury goods. Wemer Sombart considered that luxury the connotation of both the quantity and quality: the quantity of luxury refers to the waste of goods, the quality of luxury means the use of goods which is relatively good. Wolfgang Reitzle (2003)figured that, luxury is considered as an extravagant way of life in whole or in part by their own communities, which is mostly decided by the product or service. Hu Yijian (1996) pointed out in Tax Study, luxury means a kind of goods which the general public can not afford in a certain historical period, and only a small number of people can. Nueno and Quelch (1998) analyzed the 10 characteristics in traditional view of luxury goods and summed up that, luxury is an affordable enjoyment (such as Haagen-Dazs ice cream) and the mainstream merchandise with high quality and price. Through the variables and data analysis, Simon Kemp (1998) deemed that, a luxury has a higher price elasticity than a necessity. Through analyzing three dimensions: functionalism, experientialism and symbolic interactionism, which are related to luxury goods, Jonathan S. Vickers and Franck (2003) http://www.ttc-switch.com/dissertation_writing/Marketing/argued that, the fundament of luxury is an identity and social status symbol.

U.S. economists, Thorstein Veblen (1899) mentioned the concept "conspicuous consumption "in The Theory of the Leisure Class. He pointed out, the reason why people owned property was that it could prove that the property owner took a higher status than others. On basis of the psychological point of showing their own superiority and honor, the dominant class in financial terms would engage in conspicuous consumption.#p#分頁標題#e#

Today's universal concept of luxury is, it is an unique, rare goods which is beyond the scope of the needs of a people's survival and development, it is intituled as non-necessities.

Observing the consumer groups of luxury goods, the main luxury buyers includes: affluent population, which is divided into "old money" (Aldrich 1988) and "nouveaux" (Lararbera, 1988 ). Traditionally, the classification of luxury goods market takes the level of wealth as an index, those who can not afford or do not interest in luxury goods are "exclusive" (Dubois and Laurent, 1995). For a long time, luxury goods is available to the rich of the richest class, however, with continual introduction of new brands and new product lines, the middle class has gradually been ranked as target groups. In today's market, demand for luxury goods is mainly from the general public. Therefore, the segments of luxury market results in a new ethnic group, which is known as " excursionists "(Dubois and Laurent, 1994,1995,1996). Such a transfer of the consumer group is known as the process of "democratization of luxury" the (Lipovetsky and Roux, 2003). Nancy Wong and Aaron Ahuvia (1998) suggested that consumption culture of luxury goods extended to the whole world with the impact of globalization, in recent years, the rise of some developing countries (China, Russia), as well as countries of Third World created the new consumer groups of luxury goods. At the same time, along with stock, software and network innovation in recent years, an upstart group of wealthy people emerged, this group is different from the traditional rich upper class, they are relatively unfamiliar with luxury market, their awareness, knowledge and attitudes for luxury brand is limited. And their buying behaviour toward luxury goods are applied to their original accustomed model. For example: the price-oriented and functional importance, and so on. What’s more, their upbringing, education level, lifestyle are quite different from the traditional affluent class, such a phenomenon is known as Sudden Wealth Syndrome or Affluenza, which has brought a new impact on the original luxury market, and created a new culture of luxury consumption (Economist, 2001).

1.3 Specific Research Objective (SRO)
This thesis attempts to answer the following questions:
1.What are the similarities and differences in the motive of luxury goods consumption between U.K. and China?
2.Does the consumption motive of China, an emerging consumer market of luxury have followed patterns of developed countries'?
3.Does China's luxury consumption have a unique pattern of consumer behaviour?

Chapter 2: LITERATURE REVIEW

This section first reviews the theory on behaviour in luxury consumption market in order to understand the general characteristics of behaviour in luxury consumption, followed by is a review on the theory of motive of luxury consumption, which lays a theoretical basis for this research..#p#分頁標題#e#

2.1Theories on Behaviour
2.1.1 Demand Theory
Economics demand is defined as the amount which has the ability or would like to purchase certain goods. For the current Chinese consumer market, which is just entering a well-off level, its clearly strong phenomenon in the luxury goods market is not sufficient to be explained with demand theory. Because in accordance with the economic point of view, in terms of luxury goods, the majority of people do have the will to purchase but they do not have the capacity to pay for the goods, therefore, only the so-called rich class has a real demand for luxury goods. However, judging from the current situation in consumption of luxury goods, luxury is not entirely exclusive use of the rich, the pursuit of high-quality life of ordinary people especially the younger generation makes the level of their needs continue to increase. To meet the basic needs of life, this idea does not live with many consumers any more, taking inflation factors into account and basing Maslow's theory of need levels, residents’ demand for luxury consumption will far exceed the demand defined in economic theory.

2.1.2 Elastic Theory
From a practical point of view, in many cases, the price of luxury goods (such as luxury villas, antiques, etc.) is much higher than its value, the main reason is that the speculation of luxury driving up the value of luxury goods. According to elastic theory, for different types of products (luxury goods and normal goods), the pricing strategy manufacturers have taken will also be different. For example, in normal circumstances, for goods (normal goods)which is lack of flexibility, because its price elasticity is less than l, manufacturers will raise prices to get greater benefit; for flexible goods (luxury goods), because its price elasticity is more than 1, manufacturers can lower prices to gain greater benefit.

This research believes that the emergence of these conclusions are based on the income level of consumers and the convergence conditions of consumer's preferences. When consumer groups can be subdivided effectively according to income levels or consumer's preferences, the above conclusions are not fully established. This is mainly because even for the same goods, as income levels and consumer's preferences is different, consumers' price elasticity for commodity price will also be different. In addition, dues to driving by comparing psychology, when prices of luxury goods rises, it will make consumer demand increase, when prices is in a lower level, no one is interested. Thus, in a luxury market, luxury goods are often defined as goods which is lack of flexibility, it is necessary to raise prices to get more revenue.

2.2 Theories on Motive
Viblen (1899) put forward concepts of conspicuous consumption, he defined conspicuous consumption as the waste of money and/or resources by people to display a higher status than others Then Leibenstein (1950) pointed out three types of motivations: mass psychology, uniqueness and exclusiveness. People who hold mass psychology is eager for identification of the majority of people in order to obtain the social value in groups; to be specific, the people wants to be different from others so as to obtain a unique value; to be exclusive is for the purpose of showing off their wealth and social status for value of vanity. These three points show the social orientation of luxury motive. Mason (1992, 1993) also emphasized the importance that the social status and social role play in the motivation of purchasing luxury goods.#p#分頁標題#e#

Dubois and Laurent (1994) later developed a 34 item scale for empirical research, in addition to social-oriented motive, he put forward the purchasing motivation of "hedonism" and "perfectionism". Hedonist seeks for a self-realization to obtain a pleasant value in emotion; perfectionist searches for a high-quality assurance for the value of quality. The finding of these two consumer motivation has first contributed to the motivation of personal orientation. Based on previous research, Vigneron and Johnson (1999) brought forward the conceptual framework of " consumer behaviour toward luxury," which integrates the above five purchase motivations, there are exclusiveness, uniqueness, mass psychology, hedonism and perfectionism, they combined personal-oriented motivation with social-oriented motivation in luxury purchase and insisted that the five motivations exist in luxury consumption synchronously. In addition, it is found in the research which takes the UK consumers as investigation objects that, there are three motives in purchasing luxury goods, , namely functionalism, experientialist and symbolism. At the same time, the researchers implemented empirical comparison with the three motivatations in the non-luxury and luxury products and found that, symbolism performs significantly in the motivation of luxury purchase (Vicker and Renand, 2003).

In allusion to motivation of personal orientation, Taiwan scholar (Tsai Shupei, 2005) investigated 945 respondents all over the world, including Asia-Pacific region (Hong Kong, Singapore and Japan), Western Europe (Germany, France and Britain), as well as North America (United States And Canada), he found that, in the personal-oriented motivation of luxury purchase, there are four dimensions, namely self-pleasing, self-gifting, internal consistency and quality assurance. This finding puts forward a new dimension for personal -oriented motives in luxury purchase.

Danziger (2005) took the U. S. rich class as object of a luxury investigation, he classified luxury purchasers as four groups: the butterfly-shaped purchasers, the isolated purchasers, the purchasers who pursuit of fame and status, the luxury-loving purchasers. Butterfly-shaped purchasers took luxury purchase as the way to trace a new meaning in the life, they did not think that conspicuous consumption was their goal; the isolated purchasers took luxury goods as a way of self-identification, what they had was very important for self-identification; the purchasers who pursuit of fame and status did not pursue feeling or experience, instead, they looked on luxury goods as a symbol to express their identity; the luxury-loving purchasers put all their energy and money in a world of luxury goods and indulged.

To observe of the buying motive toward luxury in developed countries it can be found that, the consumers of developed countries have transferred their motives from the former mass psychology, uniqueness and exclusiveness these social-oriented motive to the more personal- oriented motive, such as self-pleasing, self-gifting, internal consistency and quality assurance, This article will through the comparison of consumption motive toward luxury in China and U.K. to explore if the process of consumption motive of China, the emerging luxury market follows the patterns of luxury consumption of developed countries, whether China's luxury consumption has its unique characteristics, if has, what are they, how we should guide China's luxury goods consumption and formulate the marketing strategies through taking advantage of these characteristics? These will be the content of this research.#p#分頁標題#e#

2.3 A Comparison of Luxury Consumption in China and the U. K.
Luxury goods is still a relatively new industry in China, its growth rate is higher than that of the United Kingdom and other mature markets. At present, China has been the world's third largest luxury goods http://www.ttc-switch.com/dissertation_writing/Marketing/consumer country, the Chinese luxury goods consumption reached 6.0 billion U.S. dollars as a big rate of increase amplitude of 70 percent in 2004, which far exceeds the global average increase of 15 percent. China is expected to reach an increase amplitude of about 40% in luxury consumption in 2009, which would reach 8.4 billion U.S. dollars. In 2009, luxury consumption is expected to reach 8.1 billion U.S. dollars in Britain, up 30 percent of the growth in 2004 （as show in Figure 1）. Compare with the more mature markets such as Britain, the most significant difference in China's market lies in luxury consumption patterns.

Figure 1 A Comparison of Luxury Goods Consumption between China and U.K.

Sources: Ernst & Young: China Luxury Market Report in 2005

In China, the objects of luxury goods consumption is still products mostly, that is, consumers seek the latest series or products. And in mature British markets, consumer prefer worshipful experience, such as luxury holiday or time-saving services such as door-to-door delivery services.

In the United Kingdom and other mature markets, luxury goods can be seen everywhere. In supermarkets, people even can buy the top of foods there. While in China, the purchase of luxury goods is on behalf of the wealth and social status. Unlike China, in the United Kingdom and other developed countries, it is difficult to judge the wealth a person has according to his acts in the purchase of luxury goods, because almost everyone has the ability to purchase some luxury goods.

Another important point is that, there is big difference of people's concept of consumption, consumption levels, consumption patterns toward luxury goods between China and developed countries such as the U.K.. In Europe, consumption of luxury goods has become a habit, but the premise is that people has the part of disposable wealth for luxury goods, it is natural to buy some relatively expensive clothing, evening dress, accessories, etc., while takes it as something for showing off. In China, the purchase of luxury goods are mostly young people under 40 years of age, while in U.K. and other developed countries, this market is dominated by 40-70 year-old middle-aged and the elderly. In the form of consumption, for Chinese people, the majority of luxury goods are concentrated in bags, perfume, watches and other personal articles, but in the U.K., housing, cars, family travel are people aspire to.

Chinese luxury consumption has caused more and more attentions seriously by scholars in the industry. by comparing characteristics in the field of luxury goods consumption between China and U.K., it would get more information on China's luxury goods industry in order to facilitate carrying out the business in China, but the current studies are more theory, less original data, the thesis hopes to obtain first-hand raw data through survey methods to reflect the status quo of luxury goods consumption in China and the United Kingdom to provide more research material for more deep-level theoretical research.#p#分頁標題#e#

Chapter 3: METHODOLOGY
The section includes three parts. The first part introduces adopted methods in this research and more details in designing questionnaire. The second section shows the process of data collection and the third section explains ethic problems involved in the research.

3.1 Research Design and Method
This research is a comparative analysis, structured questionnaires are adopted in this research for understanding people’s (from all walks of life) attitudes toward luxury goods. All analysis will base on the collecting results of questionnaires. Male and female consumers, ages of 18-50 are taken as objects of the survey.

This thesis will use a combination of quantitative and qualitative methods to implement research, the method it takes is a questionnaire, because questionnaires not only can get answers it needs in a relatively short time, but also has a strong maneuverability, for example: savings research costs. The most important thing is that it can enjoy the convenience of carrying out a investigation in a vast scope which will help understand the tendency of group thinking.
A questionnaire will be developed with questions based on the differences of consumption motive toward luxury between Chinese and British people. The questionnaire will consist of common questions and two pathways: one is for British people and another is for Chinese ones. This method will help to meet the first research objective.

For the needs of the research, a number of important raw data is needed to be quoted in this paper it will also cite some data and information from several authoritative organizations, magazines and Web sites, which includes the world's luxury consumption, China's consumption situation toward luxury goods as well as the share it takes in world luxury consumption, and so on, these data will give a strong support for the implementation of the research.
In order to answer the research objects in Section 1.3, a combination of Chi-square and t-tests will be used to analyze and compare the motive of buying behaviour toward luxury goods between China and U.K.. MS Excel 2007 and SPSS v1.6. will also adopted for analyzing collected data.

3.2 Data Collection
As mentioned in section 3.1, the questionnaire was designed based on previous research work on the topic.

The questionnaire was divided into three sections:
•Background information of the respondents
•Respondents’ situation of luxury goods consumption
•Respondents’ motive toward luxury goods consumption

The questionnaire included twelve questions which were based on the above topics. The questions were combined of multiple choice questions, five open-ended questions were included to get special feedback.
During Christmas, 2008, took 18 to 50 years old Chinese and British citizens as objects, generally in line with the proportion of one-quarter to select samples. For U.K. the data collection adopted method of field distribution to distribute questionnaires. 50 questionnaires were distributed for people shopping in in London while the other 50 were collected through an online survey for which invitations were #p#分頁標題#e#http://www.ttc-switch.com/dissertation_writing/Marketing/sent out to only those who were known to be Chinese. More details about questionnaires can be found in Appendix A.

3.3 Ethical Concerns
Before implementing questionnaire, I will connect with any related units for permission. Every respondent will be informed about the nature, aim of the study being conducted and given a choice of either participation or non-participation. Any respondent’s privacy will also be protected during the study. The researcher will report the findings in a complete and honest fashion, without misrepresenting or compromising the outcome of the study.