5 Reasons ‘New Luxury’ Is the ‘New Normal’ in China
The smell of coffee in a Starbucks welcomes millions of Chinese consumers every day. In fact, the ritual of stopping by a Starbucks has come to represent the rise of the Chinese urban middle-class consumer. And China’s middle-market shoppers are trading up to higher levels of quality and refinement than ever before. China is Starbucks’ biggest growth market, where sales increased by 19 percent in the third quarter of 2021 alone.
Starbucks may not meet the strict criteria of a traditional luxury brand, but it occupies a market space that Silverstein and Fiske refer to as ‘New Luxury’ in their 2003 book “Luxury for the Masses.” The context for this luxury classification is rooted in the turn-of-the-century United States. Yet, China has become the current strategic market destination for New Luxury, with mass-marketed brands bringing the appreciation of luxury to mainstream consumers. Here, we outline five ways New Luxury is unsettling the Chinese luxury landscape, as consumers search for prestige and self-identity in their everyday lives.
Product performance is one aspect that creates higher degrees of perceived quality. Belgian or Swiss chocolate brands leverage their country of origin to convey tradition and expertise. Craft beer and spirits brands play on their perceived scarcity and craftsmanship. However, prestige can also be communicated beyond simple product performance. An interesting yet unconventional example is the Portuguese paper tissue brand Renova, which is expanding in China. Tissue is a category that is not particularly notorious for ‘luxury,’ but the iconic colored Renova toilet paper has built up its associations with avant-garde design. The first black toilet paper in the world was even referred to in The New York Times as “this season’s must-have.”
Distribution is essential for driving brands toward high market penetration, which leads to greater brand awareness and provides credibility to consumers seeking reassurance. Starbucks has over 5,100 stores in 200 cities in Mainland China, with plans to add more than 600 new stores this fiscal year. This sprawl stands in obvious contrast to traditional luxury brands, where a brand’s distribution has traditionally been finely managed to control exposure and access.
Price points are generally high for premium products. Yet, they can help assure consumers that New Luxury is frequently still within financial reach. A Starbucks latte is priced near the top of its category, but Chinese middle-market consumers can still afford 30 RMB for a coffee and a little extra for a croissant or bagel. For some, this purchase may be considered an indulgence yet an affordable one — a self-reward for their hard work. But this rationalization can soon become a habit. Meanwhile, there are other routes to affordability for New Luxury. Discretionary purchases, such as iPhones, are deemed within reach, thanks to the availability of financing plans.
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