China's hunger for luxury goods growing

Hong Kong's jewelry brands are popular with Chinese consumers, with several Hong Kong-owned premium clothing brands also doing well in China.

Chinese consumers meanwhile prefer domestic alcohol brands that win the top spot in this category (37 percent), thanks to the popularity of Chinese liquor. French cosmetics and perfumes sold in China (76 percent), fashion (37 percent) and bags (33 percent) notched up the highest percentages in these categories. Italian brands gained the top spot for footwear (43 percent) and Switzerland for watches (87 percent).

Unique to China is the large number of relatively young multimillionaires, far younger than their Western counterparts. This spells opportunities for brands using new technologies to interact with a younger consumer generation.

Digital marketing and building online sales formats are being combined with the in-store experience. The survey found that nearly 70 percent of respondents said they search online for information on luxury brands at least once a month, while 30 percent do so more than once a week.

While official brand websites are often used as the first point of call for specific product information, celebrity blogs and other micro blogs also play an important role when building a brand image in China.

Luxury companies therefore need to think about how their strategies reach key online influencers.

Advertising and marketing channels in China are fragmented in terms of location and ownership of media. With the advent of digital media they increasingly vary. Brands face a range of choices as they develop their marketing mix, each with the potential to impact consumer sentiment in different ways.

Holding lavish events has been a popular approach for building prestige around a brand in major cities such as Shanghai and leading brands compete fiercely for prime magazine and outdoor advertising space. As brands seek to extend their reach to more cities and provinces, many companies may need to consider a more multi-pronged approach.

The traditional entry route for overseas brands has been through partnerships with local franchises and distributors. In recent years, as the business landscape has become more open and transparent, many companies have now fully acquired their retail operations in China, including some that have entered the market directly with a wholly foreign-owned enterprise model.

Brands are therefore adopting a number of approaches in this market - some are doing everything they can to create a complete experience locally for their customers, by for example, carrying a full range of products in their China-based boutiques.

In order to succeed, it is important for brands to have a long-term punt on the China market. It takes a number of years for new entrants to turn a profit, as they need to initially invest in stores, advertising, and building their brands. Those that have been in China for the past 10-20 years are extremely profitable. This is a huge market for them, as they take advantage of improved retail environments in key travel and tourism hubs such as airports.

The author is partner-in-charge, Consumer Markets, KPMG China.