March 3, 2006
MIT C3 INDUSTRY UPDATE
March 3, 2006
In this issue:
- Jing Wang on China's luxury consumption
- Sam Ford on fans going postal
- Rolling Stones expands to China
Notes on Luxury Consumption And The Gold Collar in China
by Dr. Jing Wang
There is recent hype about luxury consumption in China by market observers in the US which amuses me a great deal. An article published in Business Week in February "Flaunting Wealth in China" shows pictures of a huge gorgeous mansion owned by a film producer, his Prada shoes, Versace jacket, and Mercedes-Benz SL600. It gives the quick impression that China's middle class is turning into the gold collar overnight.
Ask those who attended the Financial Times Business of Luxury Summit held in Shanghai in May 2005 for a rough estimate of China's gold-collar pool, they would happily quote Morgan Stanley's count -- a 100 million customers when the luxury market peaks. The FT Summit brought together CEO celebrities from LVHM, Gucci, Louis Vuitton, Brioni, Richemont, and Giorgio Armani to assess the future of luxury consumption in China. A precise definition of the income benchmark for the target segment was, however, missing.
Although in the West, luxury consumers roughly break down into Aspire, Acquire, and Repertoire (with the last two segments forming a substantial customer base), clearly the majority of the Chinese gold-collar are confined to the first category -- namely, customers aspiring to own a brand but lacking the resources to buy it. The absence of the financial profile of the Chinese target has yielded statistics that questionably depicted a country running ahead, in the foreseeable future, of the U.S. in the luxury game!
It is a big fantasy.
Taking a look at a message delivered by Inna Iranyi (Shorex's marketing director) during a similar business forum - Extravaganza Shanghai - we may be tempted into thinking that luxury lifestyle is not only catching on among the nouveau riche but is likely to percolate downstream to the Chinese "upper-middle class":
"The abundance of freshly made money in China has left well-to-do Chinese consumers overwhelmed with the selection of expensive and luxurious goods. . . The luxury industry market in China is forecast to grow by 8 per cent. . . China will become the second largest luxury market in the world by 2008."
Now take a look at the per capita annual disposable in 2003-- $1,759 (Beijing), $1,854 (Shenzhen), and $1,945 (Guangzhou). What led those to the inflated number of 100 million potential luxury consumers? The answer may lie in the un-scrutinized habit of transnational marketers to conflate the Chinese white collar with gold collar. The former makes up roughly just 8-9% of the population --104-117 million costumers.
I had an interesting online discussion with the Planning Director of Ogilvy in Beijing, Edward Bell. His take on this issue coincides with mine.
And, there are different levels of 'elite', of course. Against the total urban population, the top 20% bracket are people earning RMB 15,000/year plus (USD$1,818). However, in the context of professional people (office workers, etc), one definition of 'elite' are those who RMB 15,000 per month. This is a senior salary at a state owned firm and because of the high number of these, especially among 2nd, 3rd tier cities, they are more numerous than their joint venture equivalents.
But none of these thresholds enables purchasing of legitimate luxury brands. So, an alternative threshold of 'affluence,' is to think of it against global benchmarks. Of course in one sense this is a bit crazy, given that average earning levels are so low and that the country is still on a steep growth curve, but, if the point is that premium consumers ought to be able to buy legit premium brands, then, we're really only talking about people earning US $ 50K per year. In the local context, this is people who are earning more than RMB 30,000 per month (USD$3,636). Which is half of our OM planners and our business director level people.
At any rate, the moniker 'middle class' is a misnomer, not to mention the "gold collar." When research houses conduct projects into the middle class/affluent classes in China, they tend to downplay income as a criterion. Most Western business execs who have never visited any other Chinese city but Shanghai have the difficulty of understanding Lesson #1 about China --- Shanghai is not representative of China.
Marlow, Iain and Miao Qing (2005). "Luxurious Lifestyle Catches on." Shanghai Star. May 26.
Dr. Jing Wang is the head of the Foreign Languages and Literatures department at MIT and S. C. Fang Professor of Chinese Language and Culture. She is also the founder and organizer of the MIT International Committee of Critical Policy Studies of China.
--------------- TRANSMEDIA ---------------
-- YouTube strikes a deal with MTV2, the video sharing site's first formal partnership to obtain copyrighted content.
-- Yahoo Media Group says it will scale back its efforts to bring sitcoms, talk shows and other television-style programs to the Internet.
-- Business 2.0 runs a profile on Veoh.com, a service that delivers DVD-quality and high-definition videos through P2P technology. The system allows the people who create the videos to either charge for downloads or to share in advertising revenue. It also uses advanced vector math for a sophisticated recommendation engine that will target shows and advertising.
-- Rolling Stones said that it would publish Chinese edition featuring a mix of Rolling Stone's branded American content and local reporting on Chinese stars and events.
-- Upper Deck will soon unveil their brand new All-Star Vinyl designer toy line. Holding exclusive licensing contracts with iconic athletes such as Michael Jordan and LeBron James, the concept is to introduce an athlete themed designer toy line for sports enthusiasts and kicks collectors.
-- A study by Points North Group and Horowitz Associates found that consumers would really prefer to view TV shows the good-old-fashioned way -- on the TV set.
-- Wired runs a tutorial on putting DVD content onto video iPods.
-- A fan dug up old Apple's press releases and plotted the progress of content sales on iTunes leading up to
the recently announced one billionth download.
-- Many TV shows are supplementing their Web sites with blogs penned in the voice of a character, writes Contra Costa Times.
--------------- ADVERTISING ---------------
-- CMO Magazine runs a long editorial about product placement. It says,"63 percent of 118 senior marketers surveyed by the Association of National Advertisers (ANA) say their companies have used some form of branded entertainment—products woven into program content—in the past year."
-- Wooster Collective published an illustrated tutorial about how to create a viral campaign.
-- KFC created a commercial with a hidden offer of a $1 sandwich, visible only when the spot was viewed in slow motion, making it "TiVo-proof". ABC refused to air the commercial, saying it was "subliminal". Now, AdAge writes, the traffic to KFC's site spiked after the rejection.
THESE FANS WILL FOLLOW YOU...THROUGH RAIN AND SLEET AND SNOW AND...
by Sam Ford
Last week, I posted a feature on brand communities surrounding some of the most surprising of products--a Windex fan group on Yahoo, a Pringles fan site, etc. But this week takes it a step farther. Imagine my surprise when I found fan sites dedicated to - guess what - the United States Postal Service.
One area where the postal service has garnered an avid fan community is the stamp collecting. While many see this as a fad of the past, there is still a vibrant stamp collecting community out there who use the Internet to trade, discuss, and bolster each other's collecting. The stamp collecting sites are many and are not just related to the USPS, but it is obviously in the best interests of the USPS to work with and encourage the ardent following they have amongst stamp collectors who have a great interest in who and what is placed on postal stamps.
Another line of fan support didn't really surprise me. The postal service has been aware of the importance of building its brand, even as a government entity, to combat the negative energy often directed toward the mail carrier. And their support of the cycling team which included Lance Armstrong is an example of how this worked beautifully.
The USPS cycling team has various Web sites dedicated to it. And, despite the end of the team now, the Web site for "Postie Fans" to unite remains up and as a site for people to reflect on and remember the successes of the USPS team.
But goodwill and fandom expands from this sports sponsorship to appreciation sites that focus solely on the official function of the USPS.
For instance, when Eric Siegmund posted an appreciation entry about the USPS on "The Fire Ant Gazette," several readers came out of the woodwork, so to speak, to support his words of encouragement and admiration for the government entity. Siegmund, a freelance web designer from Midland, Texas, goes far enough to consider him a USPS fan. Could some of that language be tongue-in-cheek? Possibly. But, as you can see, the sentiment is support for what many view as an underappreciated and unjustly ridiculed government operation.
The most adamant support site, however, is "THE US Post Office Fan Page." The site, while it hasn't been updated in a little while now and still thinks stamps are 32 cents apiece (a pipe dream, I guess, although it really wasn't THAT long ago, now was it?), has a comments section with 61 pages of notes. While there are a few pieces of spam there, the majority of the posts are a dialogue about the post office, including those who consider themselves fans, those who consider themselves anti-fans, and those who are somewhere in between.
The site includes various resources and stories on the post office, though and was, at least at one time, leading a valiant campaign to stop use of the term "snail mail, " feeling that it shows disrespect to a very efficient government entity that does not deserve such derision in language. The site included a write-in campaign to any official business who was using "snail mail" on their Web site to list their mailing address.
The site includes a link to "Improbable Research," where a group researched various limits on what the postal service would be willing to send through the mail, various sources on the history of the post office, and a history of stamps. There is also several references to how much better the U.S. Postal Service is compared to Canada's, one of the defense mechanisms that the fans who created this site use to deflect criticism of the USPS.
--------------- SAVE THE DATE ---------------
Reminder, to mark your calendars for the annual C3 conference to be held at MIT April 27-28.
Compiled by Ilya, Sam, Alec, Geoff, Ivan and Parmesh
Edited and signed off by Ilya (email@example.com)
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