1. Compare and contrast the various segments of Chinese luxury consumers and customers profiled in the case.
2. How have luxury goods brands responded to President Xi Jinping’s crackdown on corruption?
3. Why do so many Chinese parents want their children to study at foreign universities?

4. Assess the prospects for success for the Lincoln Motor Company’s entry in the China market.

Diego Della Valle, chief executive of Italian luxury goods marketer Tod’s, has witnessed firsthand the luxury sector’s explosive growth in China. In a recent interview, Della Valle noted that China has upended traditional models of the way luxury markets evolve. In the “waterfall” or “cascade” model, a luxury brand’s reputation would mature over the course of many years. The reason is simple: Elite, wealthy customers would be the first to purchase high-quality, high-end brands. The middle class would aspire to own those same brands, but only at a later time would they acquire them. In a similar manner, lower-income consumers would aspire to the luxury goods that the middle class had acquired; later, some in the lower-income tier would be able to buy select luxury brands.
Today, Della Valle notes, huge numbers of Chinese consumers are simultaneously demanding luxury goods. The challenge is to maintain an image of exclusivity in the face of exploding popularity. Tod’s and other luxury goods marketers are working hard to understand the Chinese luxury consumer. One thing the marketers have discovered is that the millions of newly wealthy Chinese consumers can be divided into several segments: the super-elite, the newly rich, and government officials.

Super-Elite
The first segment, the “super-elite” or “extremely rich,” consists of individuals who seized entrepreneurial opportunities in the 1980s when Beijing instituted economic reform policies and began to open China’s market. A typical member of this segment is educated, influential, and well respected in Chinese society. These individuals started businesses and now, decades later, number among China’s economic elite.
For example, 61-year-old Jianlin Wang has a net worth of more than $15 billion. He is chairman of the Dalian Wanda group, which is a powerful force in Chinese real estate. Mr. Wang is the richest man in China, and ranked No. 56 in Forbes magazine’s 2014 rankings of the world’s billionaires. His company currently operates dozens of shopping centers, and is developing plans for a new theme park. Yan Jiehe is another member of the super-elite; a former high school teacher, he rose to prominence by restructuring some of China’s poor-performing state-owned enterprises. Pacific Construction Group, the company he founded, is China’s largest privately owned construction company.

Newly Rich
The second segment, the “newly rich,” consists of Chinese whose wealth, like that of the super-elite, only dates back one generation. In contrast to the super-elite, however, the newly rich typically grew up in rural areas and do not have college educations. While in their 20s, some members of this group moved to large cities seeking new opportunities. Largely self-taught, this group improved their skills by reading and immersing themselves in self-study. After joining the urban workforce, they climbed the corporate ladder and ultimately rose to leadership positions. Not as affluent as the super-elite, this segment spends selectively as well as splurges.
A variation on the newly rich were those Chinese who exhibited little desire to move to the city. Instead, they stayed in the provinces, where they exploited the local natural resources and thereby accumulated wealth on a par with the super-elite.