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According to The Economist, Chinas share of the global luxury goods market will increase to 44% by the year 2020, putting it just behind the United States, which is currently the single largest luxury goods market in the world in terms of sales. Chinas love of ostentation is to a large extent the result of greater wealth and higher disposable incomes, but also reflects a new mood in the country where after decades of strict socialism and frugal living, the urge to splurge is no longer frowned upon. However, China is not the only market where luxury spending is fast becoming fashionable. A 2010 study by Bain International (a US-based research consultancy) shows that while Europes luxury markets still lead the way, the bulk of future growth an estimated 10% in 2011 will come from the BRIC countries (Brazil, Russia, India and China) with China at the forefront. Along with the BRICs, the Next Eleven (a group of eleven countries identified by Goldman Sachs as having the potential to become the worlds next fast growing economies) which includesPakistan, will also contribute significantly to luxury consumer spending in the coming years. Bain gives several reasons for this trend, the most important being a large, young population and an increasing level of affluence (particularly among young women). Figures on Pakistans luxury market are next to non-existent, but Datamonitors research shows that even in a year of economic depression (2008), the clothing, accessories and luxury goods sector in Pakistan accounted for 10.9% of total retail value, showing a CAGR (compound annual growth rate) of over seven percent since 2003. It seems therefore that there is a future for luxury goods in Pakistan in spite of economic and political instability, the depreciating rupee and rising levels of inflation. Although 17.2% of the population lives under the poverty line (Source: UNDP), 10% of the wealthy account for 27.6% of spending (Source: Nations of the World Encyclopedia); the inequitable distribution of wealth notwithstanding, urban Pakistan is a high potential market for luxury items.
(Re)defining luxury
The definition of what constitutes a luxury brand is somewhat subjective in Pakistan. Hameed Kashan, Chief Marketing Officer, Upmarkit Luxury Marketing Consultancy says that context is critical for a Pakistani definition of luxury to emerge as all the current definitions come from societies and economies vastly different from ours. In pure economic terms, a luxury is any item for which demand increases more than proportionally when income increases. This is in direct contrast to a necessity for which demand will increase regardless of an increase or decrease in income. However, two worldwide trends are redefining luxury. The first is the democratisation of luxury, a trend whereby high-end luxury brands are making their products accessible to a wider range of income groups to expand their market share. The other is the emergence of mass premium (also known as masstige) brands which offer premium quality at low prices; this concept is particularly prevalent in the skincare category where traditional drug store brands such as Ponds, Olay and many others have launched premium quality specialised skincare products. According to an FMCG brand manager who moonlights as a luxury brands consultant, one of the reasons that a lot of companies are focusing on luxury brands is because people who have money have the propensity to spend higher amounts, whereas the middle and lower
classes are curtailing spending, making it more profitable for companies to deal in high-end products.
- Quality of service: One of the key elements in the purchase of a really luxurious brand is the experience which includes everything from the design and layout of the shop, the knowledge, attitude and demeanour of the sales staff, right down to the packaging and after sales service. Luxury brands and stores inPakistan suffer greatly on all accounts and most particularly in terms of untrained salespeople, which means that many customers leave with a less than luxurious experience. - Marketing: Considering the underdeveloped nature of the luxury business in Pakistan, the marketing of these brands is also very basic and restricted mainly to personal PR and billboards. Kashan says that in terms of marketing, I have yet to meet a luxury brand [in Pakistan] that really impressed me. Luxury marketing is still all about billboards; measurement and effectiveness are concepts that will take time to seep in. There is another issue as well. International luxury brands are often marketed on the strength of famous spokespeople who embody the values of the brand, and part of the problem inPakistan is the shortage of suitable brand ambassadors.