Value-justified Buying: How Chinese Consumers Rationalize Luxury Purchases Amid a Slowing Economy

China’s economic slowdown and decline in consumer confidence has dealt a heavy blow to its high-end consumption. Estimates by Bain & Company report China’s luxury market to have fallen by 18%-20% in 2024. However, a more granular analysis of these statistics show that the decline is not uniform across the board; some brands and product categories are exceptionally resilient to these economic headwinds. Hermès in particular has defied industry expectations and reported a 14% revenue increase in Q4 of 2024 across the Asia Pacific market, excluding Japan.

So, what makes them different?

Purchase drivers have traditionally been characterized as either a functional (practical use for a product) or emotional (positive feelings that ownership of a product brings) benefit. However, increasingly conservative spending among Chinese luxury buyers has led to the rise in importance of a third key driver: fiscal benefit, the minimization of opportunity cost for each purchase (or in other words, how to get the most bang for your buck).

Sapling Insight’s internal research via consumer seed groups have found that Chinese luxury buyers are becoming increasingly reluctant to make subjective purchases of items they personally like. Instead, buyers are opting to purchase products they believe to be objectively more cost-effective and valuable in the long run, such as Hermès bags which retain and even appreciates in value on the secondary market. To this end, there are currently two prevailing reasoning processes Chinese consumers consciously and subconsciously use to determine whether a product is a value-justified buy.

Retail Value vs. Market Value: How Chinese Consumers Determine a Product’s True Cost & Worth

The emergence of fiscal benefits as a purchase driver in China is a direct result of its flourishing second-hand luxury market, which grew to nearly 30 billion RMB in 2023, increasing by 73% since 2019. This boom caused perceptions of luxury items to quickly shift from being exclusively a personal item to a highly liquid asset.

The popularity and massive transaction volumes of Chinese online resale platforms such as Poizon (得物), Xianyu (咸鱼), and those dedicated exclusively to luxury such as Plum (红布林) means products’ resale values standardize and stabilize almost instantly on the secondary market. Equipped with perfect information on products’ market value and knowing they can easily liquidate their luxury assets at any time, Chinese buyers are emboldened to make purchases despite tighter wallets.

However, this again is not a blanket case for all luxury brands and products. With the security of resale as their contingency for purchase, consumers naturally gravitate towards items with smaller gaps between retail and market value. In fact, it is common practice for buyers to partake in pre-sale speculation on social media platforms such as RED (小红书). Products speculated to be an “it item” are then immediately snatched off shelves on release. These snap purchases take advantage of China’s 7-day unconditional return consumer protection policy for e-commerce to mitigate risk for the buyer in case a product flops. Items that are not sold out quickly suffer a loss in perceived value, which is instantly mirrored by a decrease in value on the secondary market, disincentivizing purchase.

Now more than ever, even small luxury purchases can be seen as investments rather than pure indulgences. Consumers can easily determine the true cost or value of a product simply by subtracting its market value by its retail value. In some cases, often with limited-edition drops, co-branding, or IP collaborations, products can sell for substantially more than retail on the second-hand market, giving them a significant boost in desirability, scarcity, and ultimately perceived value. In consumers’ minds, buying these items come at essentially no financial cost, eliminating the price barrier to purchase. 

For brands, this dynamic may often result in an unintended overreliance on iconic pieces and frequent brand collaborations, which in turn can lead to co-branding fatigue. To remain sustainable, it is imperative to make a long-term, conscious effort in driving up desirability of regular seasonal releases. For example, brands may choose to occasionally launch designs different to usual brand aesthetics to emulate the effect of limited-editions, or they may sell inventory in staggered batches to maintain a sense of scarcity and desirability. Strategies designed to increase perceived brand and product value are key to maintaining brand health and reputation in the current climate.

How ‘Blind Box’ Strategies Make Cost-effectiveness Irrelevant in Purchase Decisions

While an increase in the weight of cost-effectiveness in decision-making typically results in reduced spending and skewed demand for select products, there is one market that has profited from this trend: blind boxes. China’s premier blind box brand, Popmart, reported 13.04 billion RMB in revenue in 2024 with a year-on-year growth of 106.9%.

The success of blind boxes comes from its business model, which fundamentally undermines cost-effectiveness during a consumers’ decision-making process. For 50 yuan, a blind box can yield a figurine that can go for anywhere between 10 yuan to 300 yuan on the secondary market, making it impossible for consumers to ascertain the real cost of the good. This impedes a consumers’ financial rationality and turns the purchase into an emotion-driven decision. In these circumstances, cognitive research indicates most consumers, driven by thrill and expectation, are inclined to over-estimate their chances of winning and similarly the value of the purchase.

While blind boxes inherently benefit from this phenomenon, the same consumer psychology can be applied to strategies in the luxury space. In its most traditional form, this tactic takes shape as consumer profile building and discretionary sales. When buyers must first spend a certain amount to gain access to a more exclusive product, the sunk cost cause consumers to perceive said product to be much more valuable than its retail price.

In the same vein, the blind box effect is always present in cases where the inclusion of a complimentary service or product cause customers to overvalue a product beyond its retail price. A common strategy which takes advantage of this mindset is a purchase threshold gift or lottery. For example, Louis Vuitton’s recent collaboration with Japanese artist Takashi Murakami featured a gacha (lucky draw) event in China. When customers spend over 15,000 yuan, they are allowed to spin a gacha machine and receive a small egg containing a prize of varying rarity inside. The potential value of the prize obscures the overall cost of goods, nudging consumers to spend the required amount with the expectation that the prize will increase the cost-effectiveness of the 15,000 yuan that they spent.

A similar strategy more commonly used by accessible luxury brands is “福袋” or lucky bags. Here, customers spend a set amount to purchase a bundle of assorted products inside without knowing what items they’ll get (like blind boxes). By obscuring the true value of the goods contained, buyers are inclined act on their false sense of optimism, believing the combined value of what they receive will exceed the cost of the lucky bag. To sweeten the deal, brands usually include highly valuable or limited-edition items in the prize pool, further playing towards the inherent, biased optimism of buyers.

So long as brands understand the fundamental psychology behind the “blind box” effect, it can easily be applied in a large variety of situations. The key lies in leveraging cognitive dissonance, or the duality of a financially rational yet emotionally biased consumer. The presentation of an unclear financial variable, for example the inclusion of a not-for-sale gift, appeals strongly to the increased desire of Chinese consumers for fiscal benefits.

A Case Study of Market Value Stabilization: Rolex’s Certified Pre-Owned Program

When a product’s fiscal benefit is tied directly to its performance on the secondary market, it is also susceptible to the market’s volatility. This is best represented by the predicament currently faced by the luxury watch market. According to a joint report by Morgan Stanley and Watchcharts, second-hand watch prices fell 5.7% year-on-year in 2024 after a consistent 11 quarter decline. In the same year, Swiss watch exports to China fell by 27%, previously one of its biggest markets.

The secondary market has traditionally remained just beyond a brand’s control. However, when sales become so inextricably tied to a product’s perceived value, renowned watch brand Rolex could no longer afford to sit idle. Late 2022, the Swiss watch brand announced its Certified Pre-owned Program, an unprecedented distribution and sales model where official retailers directly participate in the sale of second-hand watches. While marketed as an attempt at reining in grey-market dealers, it can also be read as an effort to resuscitate and curb the brand’s declining value in secondary market by providing an official pricing benchmark. With only 25 retailers supporting the pre-owned program during the beginning of 2024, that number has grown to 216 as of April 2025. This strategy has shown strong signs of success, with second-hand Rolex prices rising 0.3% in the first three months of 2025, while the overall market declined by -0.4%.

Key Takeaways for Brands: Now More than Ever, Perceived Value Matters

Brand value has always been considered somewhat intangible, yet the boom of the second-hand market has rendered it quantifiable and even comparable. In China where fiscal benefit has become the foremost consideration for most luxury buyers, overlooking the need for a hands-on approach to brand sentiment & value management can lead to lasting consequences that are difficult to reverse. 

Despite some new risks, we hope brands ultimately see these platforms as a new, highly accurate benchmark for brand health, the birth of a new trickle-down consumer base, and above all, a new avenue to communicate to brand prestige to customers. With luxury secondary marketplaces exploding not just in China but across greater East Asia, such as KREAM and Bunjang in South Korea and Brand Off and RAGTAG in Japan, brands must be prepared to move quickly. By implementing the correct strategies to target the increasingly value-oriented mindset of East Asian luxury buyers, this may potentially be the biggest opportunity for luxury brands in Asia since the first China boom.