The luxury market in India has many challenges—import duties, expensive real estate, regulation—just as it has opportunities. However a thriving luxury market also needs a mindset that values luxury.

The largest markets in the world—Paris, New York, London and Milan—have been driven by a strong luxury mindset for several years. In India, Mumbai and Delhi have similar potential but are still far from getting into the big luxury league.

There is an apparent disconnect between potential and performance. I feel that except those who have been very rich for several generations, Indian consumers have a very deep-rooted middle-class mindset—they look at everything from a “value for money" lens or “getting a deal" lens.

Luxury products have a few common characteristics—exceptional product quality, a story around heritage or legacy, exclusive craftsmanship and a great service experience. Unless consumers inherently value these, they would always look for a cheaper substitute that can meet the functional need. Which is what usually happens in India.

On the other hand, for those with old money as well as the new-money industrialists, the local market is largely irrelevant. They pride themselves on exclusive and preferred shopping destinations for their purchases (typically abroad) and have personalized channels that bring products to their homes.

Myriad reasons explain the luxury buying behaviour of other consumer segments. The most visible—corporate executives who earn big bonuses and live in fancy residential areas—buy luxury for functional reasons. Many of these high-profile executives come from middle-class backgrounds but hold high positions in industry by dint of their merit. They have learnt about luxury brands after they have “arrived"; their exposure is relatively recent. So, while they have the resources to spend, they don’t necessarily have a burning desire to buy luxury. They spend a little on watches, cars, entertainment, essentially to maintain the lifestyle that society expects of them, but the intrinsic value of the luxury product is still low for them.

The largest consumer segment that contributes to 40-50% of total demand comprises owners of medium-sized businesses. They have the money, but find it hard to connect with the international heritage of global brands. Luxury for them is a way to flaunt their wealth and status, but inherently they seek attractive bargains. They are averse to spending on anything that does not give tangible value. The service and experience element is a bit lost on them unless it is free.

The third segment is of young aspirational folks who earn more and have limited family responsibilities. They love spending on themselves and are exposed to luxury brands through global travel or their peers. However, unless they consumed luxury brands during their formative years, the core promise of exceptional product quality is lost even on them.

There are other challenges. First, service and experience offered by luxury brands are not entirely new. With low people costs, even mid-market brands offer services like customization, assisted shopping, shoppertainment, etc. Secondly, brand loyalty takes time—unless consumers try multiple brands and like one, they will keep experimenting. Identifying with the brand’s core values and being loyal or evangelizing it is the third stage in the loyalty evolution, and is still very far for most consumers.

On the other hand, the middle-class mindset has some great advantages. Our high savings rate, low levels of resource consumption and wastage are all thanks to the same conservative mindset.

The only way for luxury brands to deal with this mindset is by getting the consumers to actually experience luxury. Hence entry-level products are great, competitive pricing is crucial, promotions and discounts matter a lot, wine-champagne-single malt tastings are great, pre-owned luxury is fine and luxury on hire is also not bad.

How a brand communicates its value proposition may need a relook. When your audience values functional benefits more than the heritage or brand story, it becomes the job of sales associates to point out the very superior functional aspects of the product also to a consumer.

Will India ever reach the levels of fascination with Western brands seen in other parts of Asia? It is possible, with the increase in household wealth and with Indians getting more integrated into the world economy. However, Indian consumers are more attached to traditional consumption patterns for apparel, jewellery, eating out, etc., than other emerging markets. So it will take some time for international brands to become an integral part of our lifestyle. We may have to wait for a generation to pass before we see the emergence of a connoisseur mindset.

Neelesh Hundekari is partner and head of Lifestyle Practice (Asia) at AT Kearney.

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