Journal of Service Science and Management, 2012, 5, 196-205
http://dx.doi.org/10.4236/jssm.2012.52024 Published Online June 2012 (http://www.SciRP.org/journal/jssm)
Consumer Lifestyle Matters: Evidence from Gray
Markets in China
Weining Liu1, Lan-Yun Chang2, Jing-Ru Lin1
1Graduate Institute of Human Resource and Knowledge Management National Kaohsiung Normal University, Kaohsiung, Taiwan;
2Department of Creative Product Design, Far East University, Tainan, Taiwan.
Received March 9th, 2012; revised April 10th, 2012; accepted April 20th, 2012
ABSTRACT
Consumers are at the central point of marketing. However, while existential research is devoted to understanding gray
market, little attention is given to the consumer’s view of gray market. This study attempts to take the perspective of
consumers to address the gray market issue. Lifestyles of the target customers of trademark holders are proposed for
trademark holders to retain existing customers while simultaneously attracting new customers from the gray market. We
perform Cluster analysis to identify different customer groups by using “lifestyle” as a market segmentation variable.
ANOVA, Scheffe test and regression analyses are then employed to test the proposed hypotheses. Analytical results
reveal that the different customer groups exhibit particular lifestyle features, different perceptions of gray product qual-
ity as well as different purchase intentions.
Keywords: Consumer Lifestyle; Product Quality Perception; Purchase Intention; Gray Market; Trademark Holders
1. Introduction
Gray market products are genuine branded goods sold at
lower prices, but without the same intangible added value
as their equivalent local authorized products. Specifically,
gray market products can lag local authorized products in
terms of service quality, warranty terms, and safety fea-
tures [1]. However, with the rapid growth of electronic
commerce, consumers are strongly aware of the avail-
ability of gray products and are accustomed to purchas-
ing them. Although trademark holders stress that the
prices charged by authorized distributors include a sig-
nificant degree of skilled customer service that is pro-
vided only through an authorized agent, vendors of gray
market products compete by offering their own af-
ter-sales services, resulting in fierce competition [2]. To
compete with gray market products trademark holders
employ market segmentation to distinguish their target
customers from gray product dealers [3]. Scholars tried
to provide feasible solutions according to the legal per-
spective. However, inappropriate enforcement of gray
market laws may erode common market growth [4-9].
Gray market products cover all aspects of the commercial
spectrum, ranging from medical supplies to luxury items
such as perfume, watches, electronic products, and so on
[10]. In this study, we will focus on digital cameras in
China. What is happening in China is a new illustration
of the economies of scale. Millions of Chinese are finally
making enough to buy the consumer goods like digital
cameras. It’s no coincidence that Chinese are bringing
home more memories from trips. The World Tourism
Organization says 20 million traveled abroad in 2003 and
that this number should quintuple by 2020. And digital
camera sales have room to grow at a similar pace [11].
As price and service have been shown to be a major in-
fluence on customer satisfaction for digital camera [12],
this study attempts to take an alternative view that is to
address the gray market issue from a demand perspective,
the perspective of the consumer. Consumers have long
been at the center of marketing. Their perceptions of gray
market products may be expected to influence their be-
havior; knowledge of the consumers is essential to trade-
mark holders to learn which market offerings best sat
them. The consumer behavior literature states that life-
style, including attitude, behavior and psychological pro-
file, is an important influence on consumer consumption
patterns, and can indicate attitudinal differences between
segments [13-16]. Therefore, by segmenting markets ac-
cording to lifestyles of the target customers, trademark
holders will increase the likelihood of the combating
strategies for gray markets. Figure 1 illustrates the rela-
tionships modeled in this study.
2. Gray Market in China
W
ithin two decades of introducing an open door policy,

Consumer Lifestyle Matters: Evidence from Gray Markets in China 197
Lifestyle Market Segmentation
Family concern
Social activities
Entertainment activities
Cultural activities
Fashion consciousness
Product Quality Perception
Conformance to requirements
Serviceability
Purchase Intention
Purchase intentions for gray products
Purchase intentions for locally authorized products
Figure 1. Research framework for lifestyle market segmentation, product quality perception and purchase intention.
China has moved from a state of isolation to being the
second-largest recipient for FDI [17]. According to IMF’s
report, China’s economic strength has become the third
largest in the world. China’s rising consumer class has
attracted significant attention from both academic re-
searchers and multinational marketers.
During the period of “Eight-five project” from 1985,
the growing rate of consumption is far greater than the
increasing rate of resident’s income and keeps growing
in the following years (Figure 2). On the other hand,
people’s deposit amount has reached RMB 3.9 trillions
Yuan, which means the potential purchase power will be
strong in the consumer markets (Figure 2). However,
China went through 5000 years of feudal culture, thirty
years of closed-suffering life of communism, and mod-
ernization through reform to use liberal policy to pursue
substantial civilization. The transitions of culture, institu-
tion, and mental perception, have great impacts on Chi-
nese people’s values, consumer conceptions and even on
consumer behavior [18]. Therefore, foreign traders who
are planning to enter the Chinese market need to under-
stand the intrinsic values of Chinese culture, consumer
perception and behavior to make the foundations of their
marketing strategies and plans.
As the development in rural and urban areas is differ-
ent, consumer behavior is highly related to consumers’
life-style [19]. China is not a single market, but many
regional markets within the geographic boundaries of
China, and that each region will have very different cha-
racteristics that will work for marketing strategies. “Shop-
ping around.” is the traditional shopping behavior of the
Chinese. Because their average income is not high com-
pared to world wide standard, it is also the reason why
the Chinese shop with more caution, and apt to buy prod-
ucts which are more valuable than their price. However,
price is no longer the only factor to the Chinese when
shopping. They also care about the brand, functionality,
quality, reliability and the after-sales service of the prod-
ucts. Accordingly, gray market products become attract-
tive to Chinese consumers. There are not any laws and
regulations about the issues of gray markets in China.
Most judicial interpretations and the views of scholars
are inclined to allow parallel importation. Under this ten-
dency, the authorized distributors will face great chal-
lenges. This special historical development of China mar-
ket makes lifestyle segmentation an interesting issue for
international brands who will expand their China market.
2.1. Gray Market and Lifestyle Segmentation
Previous studies demonstrated that trademark holders can
develop effective marketing strategies for dealing with
gray market if they can identify potential gray-market
customers and forecast the preferences of various market
segments [3,20]. The philosophy to keep any business
alive is to understand customers’ wants and needs [21,
22]. Research shows that advanced understanding of cus-
tomers is one of the most important requirements of suc-
cessful marketing strategies [23,24]. Expect for well un-
derstanding customers, the ability to categorize custom-
ers into quantifiable segments is also necessary. The con-
sumer behavior literature states that lifestyle, including
attitude, behavior and psychological profile, is an impor-
tant influence on consumer consumption patterns, and
can indicate attitudinal differences between segments.
Lifestyle is thus deemed the main basis of segmentation
[14-16]. “Lifestyle segmentation” has been a useful tool
for marketing management decision making [25]. In
marketing, “lifestyle segmentation” describes the life-
like portrait of the consumer and classified potential con-
sumers into segments with specific and identifiable life-
tyle patterns [26]. The life-style is closely associated s

Consumer Lifestyle Matters: Evidence from Gray Markets in China 198
Figure 2. Basic statistics on people’s living conditions in China.
with the economic level at which people live and how
they spend their money [27]. This study applies the life-
style segmentation approach to identify the characteris-
tics of consumer groups that typically favor gray prod-
ucts and locally authorized goods. Then it provides trade-
mark holders with differential strategies based on con-
sumer perceptions of gray product quality and their cor-
responding purchase intentions.
2.2. Lifestyle Segmentation and Product Quality
Perception
Quality is defined as product outcome or performance.
Since quality indicates degree of goodness, it is fre-
quently employed in product selection decisions [28].
Crosby et al. [29] indicated that quality is a key determi-
nant of customer satisfaction, and consumer perceptions
of product quality provide a basis for forecasting con-
sumer behavior [30]. Orth et al. [31] employed lifestyle
segmentation analysis to beer brand promotion, and found
product quality to be an important value sought by cus-
tomers. Since quality expectations are related to contin-
ued customer patronage, Thompson and Kaminski [32]
employed lifestyle to segment health care consumers
according to their expectations of service quality. Life-
style segmentation can help marketers provide the satis-
factory service quality demanded by target customers.
Champion [33] proposed that trademark holders should
pay attention to the gray market segments constituted by
gray product consumers, deal with them, and design dif-
ferent marketing programs for them [3]. Since most con-
sumers are concerned with quality when discussing gray
market products [34] and since consumer groups have
specific lifestyle characteristics, brand preferences and
choices [26,32], this study presents the following hy-
pothesis to help trademark holders develop suitable strate-
gies for competing with their gray market rivals.
H1: Different lifestyle segments have different percep-
tions of gray product quality.
2.3. Lifestyle Segmentation and Purchase
Intentions
Analyzing customer purchase intentions enables the fore-
casting of purchase behavior [35,36]. Accordingly, pur-
chase intention indicates purchase likelihood, and is thus
an important variable in analyzing customer behavior.
Generally, a higher purchase intention is associated with
a higher likelihood of purchase-making [37,38]. Previous
studies have frequently adopted the concept of purchase
intention to examine the different purchasing attitudes of
consumers [34,35]. Martin and Bush [39] applied pur-
chase intention to analyze the purchasing patterns of
adolescent consumers, and demonstrated that purchase
intention enables marketing managers to effectively dif-
ferentiate consumers who are likely and unlikely to pur-
chase a product. Armed with this knowledge, marketers
can then develop incentives to actively stimulate the
purchase intentions of prospective buyers. Furthermore,
marketers can target individuals with only a weak desire
to buy the product or with no desire using appropriate
marketing strategies to stimulate their purchase inten-
tions [36,40].
Previous studies have reported that consumer lifestyle
positively influences purchase intention [26,41]. Thus,
using lifestyle segmentation to classify distinct customer
groups, and then identifying the purchase intentions of
individual customer segments, provides trademark hold-

Consumer Lifestyle Matters: Evidence from Gray Markets in China 199
ers with a valuable knowledge base for formulating ap-
propriate marketing strategies. This study thus hypothe-
sizes that:
H2: Different lifestyle segments have different pur-
chase intention of gray product.
2.4. Product Quality Perception and Purchase
Intention
Numerous studies confer that quality is markedly associ-
ated with customer purchase intentions [42]. Earlier,
Shawyer et al. [43] concluded that the likelihood of a
consumer making a purchase decision increases with con-
sumer perception of product quality. Furthermore, per-
ceived product quality affects consumer attitudes, faith-
fulness and repeat purchase behavior. Studies have also
shown that consumer perceptions of a product or service
as being of high quality directly or indirectly increase
consumer purchase intentions [37]. This study examines
the relationship between consumer perceptions of gray
product quality and purchase intentions. Specifically, this
study hypothesizes that:
H3: Consumers’ perceptions of gray product quality
positively impact their purchase intentions.
3. Methodology
The present analysis is based on empirical data obtained
via a self-administered questionnaire. The questionnaire
was developed in English and then translated into Chi-
nese. The comparability between the two versions of the
questionnaire was confirmed through back translation.
The questionnaire comprised four sections, covering life-
style, product quality perceptions, purchase intentions
and demographic variables, respectively. Besides the
points related to the demographic variables, the measure-
ment items were all expressed using five-point Likert
scales ranging from 1 (indicating “strongly disagree”) to
5 (indicating “strongly agree”).
To validate the construction of the survey measure, the
questionnaire was pre-tested by distributing 40 copies
among commercial centers in Hai-Dian, Beijing, where
gray products are selling in many stores. Respondents
were asked to give suggestions regarding the format,
wording, and measurement problems of the questionnaire.
From the 32 copies returned, the Cronbach’s α for life-
style was 0.92, while those for product quality percep-
tions and purchase intentions were 0.89 and 0.91, respec-
tively. The results show that the measurement problems
for each variable in the pre-test have good reliability,
demonstrating the relevance of the questionnaire. Since
the questionnaire contained no inappropriate content,
only its wording was revised here.
The formal questionnaires were distributed among
commercial centers in Beijing, Tianjin and Shanghai in
China to respondents randomly selected on the spot. Af-
ter ascertaining that the respondents fully understood the
meanings of gray market and authorized market, and had
purchased gray and locally authorized products, the re-
spondents were asked to complete the questionnaire. A
total of 1000 copies of the questionnaire were distributed,
of which 798 were returned. Eliminating incomplete
questionnaires or those with uniform answers, a total of
728 valid questionnaires remained, representing a re-
sponse rate of around 72.8%. Of the valid ones, 57%
were completed by males and 43% by females. Regard-
ing respondent age distribution, respondents aged below
20 years old accounted for 21%; those aged between 21
and 30, 35%; those between 31 and 40, 26%; those be-
tween 41 and 50, 11%, and those over 51, 7%. Regarding
geographical distribution, 39% were from Beijing, 27%
from Tianjin, and 34% from Shanghai.
Measures
Lifestyle: Respondent lifestyles were assessed using a
24-item scale adapted from [26] and expressed through
conventional AIO statements. The collected lifestyle data
were analyzed using factor analysis based on principal
component extraction and varimax rotation. Five solution
factors were obtained, named “family concern”, “social
activities”, “entertainment activities”, “cultural activities”
and “fashion consciousness”, respectively. The Cron-
bach’s α value of all dimensions was found to exceed 0.7,
a level judged acceptable for current research purposes.
Product quality perception: Taking the classifications
of product quality proposed by Crosby et al. [29] and
Teas and Agarwal [30], five-point Likert scales were
developed to measure respondent perceptions of gray
product quality. Factor analysis yield two dimensions,
“conformance to requirements” and “serviceability”,
respectively. The Cronbach’s α value of both dimensions
was found to exceed 0.7, and thus both of the dimensions
were considered reliable indicators of respondent product
quality perception.
Purchase intention: Taking the items proposed by Li et
al. [35], Goode and Harris [44], and Martin and Bush [39]
as a reference, five-point Likert scales were established
to assess respondent purchase intentions regarding gray
market goods. Factor analysis yielded two dimensions,
“purchase intention for gray products” and “purchase
intention for locally authorized products”, respectively.
The Cronbach’s α of both dimensions both exceeded 0.7,
and thus both of the dimensions were considered reliable
indicators of respondent purchase intentions.
4. Results and Analysis
The analysis of respondent data was commenced by per-
forming a factor analysis to identify the dimensions life-

Consumer Lifestyle Matters: Evidence from Gray Markets in China 200
style, product quality perception and purchase intention.
Cluster analysis was then conducted based on the five
lifestyle factors identified by the factor analysis to assign
the 728 respondents to appropriate cluster groups. Sub-
sequently, multiple discriminant analysis was conducted
to determine the effectiveness of the result of cluster
analysis in differentiating consumer lifestyle groups and
establishing their relative importance. One-way ANOVA
and Scheffe tests were performed to test statistically sig-
nificant differences among the different cluster groups in
terms of their product quality perceptions and purchase
intentions. Finally, regression analysis was conducted to
examine the correlation between consumer product qual-
ity perceptions and their purchase intentions.
4.1. Cluster Analysis
Cluster analysis is frequently applied in market segmen-
tation research [16]. The two-stage cluster analysis of the
hierarchical and non-hierarchical (K-Means) method is
used in this study to identify target customers of gray and
authorized markets. The hierarchical method is applied to
determine whether the number of clusters is appropriate
via analysis of the large difference among clustering co-
efficients in the agglomeration schedule, demonstrating
that three-cluster solutions are chosen as the appropriate
number of clusters (Table 1). The K-Means procedure is
then used, based on the five lifestyle factors extracted via
factor analysis. The results show that 178 cases were
found in Cluster 1 (24.5%), 264 cases in Cluster 2 (36.3%),
and 286 cases in Cluster 3 (39.2%) (Table 2).
4.2. Discrimanant Analysis
As various previous researchers have speculated on
thereliability and validity of results obtained via cluster
analysis [16], discriminant analysis was performed to
validate the current clustering results. Two canonical
correlation functions were generated, i.e. F1:

=
1059.498, Wilks’ Lambda = 0.2310, P < 0.001; and F2:

= 484.739, Wilks’ Lambda = 0.5115, P < 0.001.
Both correlation functions were statistically significant,
confirming their validity for cluster classification. Func-
2
10
X
2
4
X
Table 1. Clustering coefficients of hierarchical cluster analy-
sis.
Stage Clusters
Combined Clustering Stage Cluster Appears Next Cluster
Cluster 1 Cluster 2 CoefficientsCluster 1 Cluster 2 StageNumbers
724 1 89 21.829017 723 715 726 4
725 263 267 22.255836 720 714 7263
726 1 263 25.598206 724 725 7272
727 1 269 27.010431 726 698 01
tion 1 can effectively distinguish clusters 1 and 3, while
function 2 can distinguish cluster 2 and others (Figure 3).
The correct cluster classification rate (i.e. the overall hit
ratio) was 95.47% (Table 3), and hence it was deduced
that the cluster analysis results were sufficiently reliable
for the current purpose.
4.3. Characteristics of Clusters
The mean and Scheffe test results for cluster groups and
lifestyle factors (Table 4) show that Cluster 1 exhibited
“family concern” and “cultural activities” lifestyle char-
acteristics, and thus is a group that enjoys housekeeping
and is more family oriented than any other cluster.
Meanwhile, the lifestyle features of Cluster 2 are related
primarily to the “social activities” and “cultural activi-
ties” factors; so they like going to public places and par-
ticipating in outdoor activities better than consumers in
other clusters. Finally, the lifestyle features of cluster 3
are related primarily to the “fashion consciousness” and
“entertainment activities” factors; and the cluster is a
group who care more about being fashionable, and are
more interested in new and unique products, more enthu-
siastic about traveling, and more interested in people and
friends than any other cluster (Table 4).
4.4. Test of Hypothesis
The ANOVA analysis results for lifestyle segmentation
and product quality perception (Table 5) demonstrate
that all lifestyle segments perceive gray product quality
differently. The results indicate that three statistically
significant clusters are in relation to the “conformance to
requirements” and “serviceability” factors of gray product
Table 2. Cluster analysis results based on five lifestyle fac-
tors.
Segmentation Cluster 1Cluster 2 Cluster 3Total
Number of samples178 264 286 728
Percentage 24.5% 36.3% 39.2% 100%
Table 3. Discriminant analysis of clustering results shown in
Table 4.
Actual GroupPredicted Group Total
1 2 3
Cluster 1 162(91.0%) 8(4.5%) 8(4.5%) 178
Cluster 2 7(2.7%) 255(96.6%) 2(0.8%) 264
Cluster 3 2(0.7%) 6(2.1%) 278(97.2%) 286
Percent of “grouped” cases correctly classified
= (162 + 255 + 278)/728 = 95.47% (Hit Ratio)
T
he correct rate of percentage is in parenthesis.

Consumer Lifestyle Matters: Evidence from Gray Markets in China 201
Figure 3. Clustering results. Function 1 = –0.56274Y1* + 0.46502Y2 + 0.29359Y3 – 0.59282Y4* + 0.83241Y5*; Function 2 =
0.00437Y1 + 0.88469Y2* – 0.27791y3* + 0.46792Y4 – 0.31175Y5; .denotes largest absolute correlation between each variable
and each discriminant function.
Table 4. Mean and Scheffe test results for cluster groups and lifestyle factors.
Cluster and Naming Family Social Entertainment Cultural Fashion
Concern Activities Activities Activities Consciousness
Cluster 1 0.47 –0.95 –0.13 0.33 –0.64
Cluster 2 –0.001 0.81 –0.19 0.33 –0.23
Cluster 3 –0.29 –0.15 0.25 –0.51 0.61
F value 34.018*** 321.89*** 16.07*** 74.76*** 132.30***
Scheffe test 1 > 2 1 < 2 1 < 3 1 > 3 1 < 2
1 > 3 1 < 3 2 < 3 2 > 3 1 < 3
2 > 3 2 > 3 2 < 3
***P < 0.001; **P < 0.01; *P < 0.05.
quality perception (P < 0.001). Hypothesis H1, namely
that all lifestyle segments have different perceptions of
gray product quality, thus is supported. Generally, the
results listed in Table 5 support the following inferences:
1) members of cluster 1 have the lowest consent of gray
product quality; 2) members of clusters 2 and 3 perceive
gray product quality as conforming to requirements; 3)
members of cluster 3 do not consent to the “service-
ability” of gray product quality, and 4) members of clus-
ter 2 exhibit the greatest consent to the serviceability of
the three clusters.
The ANOVA analysis results for lifestyle segmenta-
tion and purchase intention (Table 6) indicate that all
lifestyle segments have different purchase intentions re-
garding gray products. As shown, all three clusters are
statistically significant (P < 0.001) for both “purchase
intention for gray products” and the “purchase intention
for locally authorized products”. Therefore, hypothesis
H2, i.e. that all lifestyle segments of customers have dif-
ferent purchase intentions of gray product, is supported.
The ANOVA results support the following specific in-
ferences: 1) members of cluster 1 exhibit no specific
preferences for either locally authorized or gray products,
renamed “Neutral”; 2) members of cluster 2 show a pref-
erence for locally authorized products, renamed “Trade-
mark Lover”; and 3) members of cluster 3 prefer gray
products, renamed “Gray Product Lover”.
Finally, the regression analysis results indicate that
consumer perceptions of gray product quality statistically
significantly influence their purchase intentions (P <
0.001) (Table 7). Therefore, hypothesis H3, i.e. that
consumer perceptions of gray product quality positively

Consumer Lifestyle Matters: Evidence from Gray Markets in China 202
Table 5. ANOVA analysis results for cluster member per-
ceptions of gray product quality.
Cluster Product Quality Perception
Conformance to requirements Serviceability
Cluster 1 –0.31 –0.26
Cluster 2 0.07 0.18
Cluster 3 0.12 –0.006
F value 11.903 10.399
P value 0.000*** 0.000***
Scheffe Test 1 < 2, 1 < 3 1 < 2, 1 < 3, 2 > 3
***P < 0.001; **P < 0.01; *P < 0.05.
Table 6. ANOVA analysis results for cluster member pur-
chase intentions.
Cluster Purchase Intention
Gray ProductsLocally Authorized Products
Neutral (Cluster 1) –0.26 –0.33
Trademark Lover
(Cluster 2) 0.06 0.21
Gray Product Lover
(Cluster 3) 0.11 0.01
F value 8.363 16.20
P value 0.000*** 0.000***
Scheffe Test 1 < 2, 1 < 3 1 < 2, 1 < 3
***P < 0.001; **P < 0.01; *P < 0.05.
impact their purchase intentions, is supported. Further-
more, the results show that both the “conformance to
requirements” and “serviceability” dimensions of product
quality perception significantly affect consumer purchase
intentions.
5. Discussion
This study provides trademark holders with insight into
the lifestyles of their existing and potential customers.
Generally, five lifestyle segmentation factors have been
identified, namely “family concern”, “social activities”,
“entertainment activities”, “cultural activities” and “fash-
ion consciousness”. Furthermore, three distinct customer
groups have been identified, i.e. “Neutral”, “Trademark
Lover” and “Gray Product Lover”.
The conclusions of this study demonstrate that differ-
ent lifestyle segments of customers have different per-
ceptions of gray product quality and different purchase
intention. Members of the “Trademark Lover” group,
who exhibit lifestyle characteristics by “social activities”
and “cultural activities”, prefer locally authorized goods,
and they are mostly customers of trademark holders. In-
terestingly, although this group agrees that gray products
Table 7. Regression analysis results of product quality per-
ception on purchase intention.
Product Quality
Perception Purchase Intention
Gray Products Locally Authorized Products
Conformance to
requirements 0.276*** 0.187***
Serviceability 0.387*** 0.203***
Adrj2 0.224 0.085
F value 105.628 34.908
P value 0.000*** 0.000***
***P < 0.001; **P < 0.01; *P < 0.05.
offer good after-sale service and conform to their re-
quirements, they still favor locally authorized goods.
This preference results from the fact that this group fre-
quently visit public places, and enjoy literary, religious
and cultural activities, i.e. they like to declare, intention-
ally or unintentionally, that their clothes or possessions
are locally authorized purchases for the sake of face or
vanity. As a strategy to retain these customers, trademark
holders should consider offering various after-sale ser-
vice portfolios tailored to their preferences, including
discount coupons for future sales, VIP cards for special
treatment, or gift coupons for various products. And af-
ter-sale service schemes may make customers feel that
their business is valued and their repeat purchase inten-
tion is encouraged.
Conversely, customers of the “Gray Product Lover”
cluster group prefer gray products to locally authorized
ones. This group possesses “fashion consciousness” and
“entertainment activities” lifestyle characteristics, re-
garding themselves as fashion leaders, and enjoying trav-
eling and conversing with others. Consequently, they
enjoy numerous opportunities to obtain and dispense in-
formation regarding gray products. Importantly, such
consumers derive a strong sense of satisfaction from ac-
quiring new and unique products. To deal with such con-
sumers, trademark holders may apply a product differen-
tiation strategy, i.e. offer different products tailored to
individual markets so as to cater to local consumer wishes.
Furthermore, as stated in the results of this study, gray
product lover does not think that gray market can offer
good after-sale service for what it sells. Trademark hold-
ers may stress that only by acquiring locally authorized
products can consumers be guaranteed effective after-
sales service backed by appropriate professional knowl-
edge and skill. Trademark holders may also consider
reducing the prices of locally authorized products to
minimize the price advantage of their gray rivals. Re-
stated, the development of appropriate promotion and
market positioning strategies may be sufficient to per-

Consumer Lifestyle Matters: Evidence from Gray Markets in China 203
suade consumers to alter their purchasing behavior to
favor locally authorized products.
Finally, individuals in the “Neutral” cluster exhibit no
special preferences for either gray market or locally au-
thorized products. Such consumers comprise the group
that possesses stronger “family concern” lifestyles char-
acteristics than other groups. Such consumers have no
strong preferences for either product type, and nor do
they consent to the conformity of gray market product to
perceived requirements and serviceability. Consequently,
most members of this cluster are potential customers for
trademark holders. Locally authorized agents thus should
position their products as family oriented, stressing that
their appeal to the whole family, to attract consumers in
this cluster group to make purchases.
Our results have confirmed that consumer perceptions
of gray product qualities positively impact purchase in-
tentions. Consequently, it is reasonable to infer that con-
sumer perceptions of gray product quality not only in-
fluence purchase intentions regarding gray products, but
also determine purchase intentions regarding locally au-
thorized products. The findings here indicate that a gray
market may not necessarily adversely impact trademark
holders. That is, provided consumers perceive the quality
of locally authorized products to be superior to that of
their gray market equivalents, they are likely to become
loyal local authorized market customers. Thus trademark
holders should strive to increase the perceived added
value of their products sold through local authorized
market and formulate differential strategies for each
cluster to gain their competitive advantage.
6. Conclusions
The emergence of the gray market as a powerful com-
petitor to trademark holders can be attributed partially to
the blurry purchasing behavior of the customer base.
Since it is difficult for trademark holders to accurately
identify who are gray product purchasers, they face
problems in developing effective strategies to deal with
their gray market competitors. Trademark holders thus
must identify their target customers and analyze their
consumption behavior [3]. In this regard, the results pre-
sented here make a valuable contribution since they re-
veal that a market segmentation approach offers a means
for trademark holders to gain a position that improves
their odds of success.
The lifestyle segmentation results presented in this
study have identified three customer groups, each with
different lifestyle characteristics, product quality percep-
tions and purchase intentions. The analytical results pro-
vide trademark holders with a valuable source of infor-
mation for developing effective strategies to retain exist-
ing customers and attract new ones. The gray market has
been increasingly active in China since 1979, forcing
trademark holders to respond by promoting their af-
ter-sales services. However, experience has shown that
this strategy has low reliability [2]. Therefore, applying a
market segmentation approach and developing product
differentiation strategies should be considered by trade-
mark holders to attract customers and build customer
loyalty.
With 20% of global consumers in the world, China is
an ideal market for trademark holders. Owing to the lack
of enforcement of laws prohibiting the sale of gray
products in China, trademark holders face a crucial
problem of how to deal with such products. The findings
and recommendations of this study have practical impli-
cations for trademark holders seeking to gain competitive
advantage in China. However, since most respondents
answering the questionnaire are Chinese consumers, and
since human lifestyles may change according to the cul-
ture of one’s native place, the results presented in this
study may not apply elsewhere. Future researchers may
examine consumer attitudes toward gray market goods in
countries in which they are interested, and develop spe-
cific reference materials to benefit trademark holders.
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