China Report • The luxury consumer
‘luxury digital playbook’
In this section analysing Chinese consumers’ luxury spending habits, we feature the results of recent joint research from The Boston Consulting Group and WeChat owner Tencent, presented first at The Trinity Forum in November.
Angela Wang: China’s luxury consumers are young, digitised and more likely than ever to come from outside tier 1 cities.
“Luxury shoppers in China account for about 32% of luxury revenues globally and it keeps growing. By the year 2024, they will account for 40% of the global luxury market. That means about 75% of luxury growth will be coming from the Chinese luxury shopper.”
The Boston Consulting Group China Partner and Managing Director Angela Wang highlighted one of the key findings of a recent survey by her company and WeChat owner Tencent into the China luxury consumer. The report was first presented at November’s Trinity Forum in Shanghai (organised by The Moodie Davitt Report, ACI World and ACI Asia Pacific).
The purpose of the survey, explained Wang, was to gain an understanding of the purchasing paths of new generation Chinese consumers and the effect of digital on this. Data gathered from 1.8 million luxury shoppers in China was combined with a survey of 2,620 consumers, with an emphasis on young adults.
“We know that Chinese shoppers are young – really, really young,” said Wang. The average age is 28, some ten years younger than the international average, and the bulk of them (around 58%) fall into the 18-30 age group. These consumers are mainly college-educated, often with better educations than their parents, and many “read English with no barrier” offering them access to information and trends from across the world. These luxury shoppers are also more likely (compared to the general population) to be female (at around 71% on average, found the survey).
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Where these consumers come from is becoming more diverse. Only around 22% come from tier 1 cities, the same proportion from tier 2, 20% from tier and the remainder from tier 4. This means that well over 50% come from outside China’s 15 largest cities, underlining the scale of the opportunity for brands among the young middle classes in emerging locations.
“These consumers are incredibly digitalised in terms of their shopping behaviour,” said Wang. They spend four hours a day on their mobile phones, using them not just for communication but also for entertainment and, of course, shopping. And their online shopping, or brand discovery, process is fragmented. “Information is coming from everywhere,” noted Wang.
This mix of influences has an impact on shopping behaviour too. While the modern Chinese consumer may be glued to their mobile phone most of the time, they still like to shop offline.
She highlighted six major trends that are “redefining the rules of the game” for luxury brands and how they reach consumers in China.
First, the digital world commands a strong share of luxury consumer attention, noted Wang, highlighting the importance of creating brand awareness through digital campaigns. Whether Chinese customers are buying at home or abroad, they rarely make a purchase from a brand they haven’t already explored and learned about.
Understanding China’s “super apps” is crucial in engaging the consumer, said Wang, noting that the dominance of apps (WeChat and Weibo) is unmatched in other markets.
Second, KOLs are also an important channel of communication, though companies should be careful with their selection, recognising that follower numbers do not necessarily equate to engagement. Tencent, she said, offers analytics that can help brands identify the right KOLs for them.
Third, official brand accounts are becoming an impactful way to engage with consumers, as long as the content is engaging and relevant. Brands can work closely with Tencent to deliver new content formats. The most effective brand articles can reach over 100,000 views.
Fourth, as noted above, ROPO (research online, purchase offline) is a key trend among this demographic and “the dominant purchase pathway”.
ROPO relevance is driven by new luxury buyers who educate themselves online before entering the store. Importantly, 45% of online-inspired consumers buy abroad (including in travel retail), with pricing and/or lack of stores in China encouraging foreign purchase. Online transactions are likely to grow their share, however, as the luxury offering at sites such as Tmall Luxury Pavilion and JD Toplife improves.
Fifth, digital is a crucial tool in reaching lower tier city shoppers. Importantly, marketing dollars are better spent on a cluster approach that targets regions with a mix of high and low tier cities; typically shoppers from lower tiers will travel to the higher tier locations to purchase.
Take note: A fast-growing volume of luxury sales are now coming through social channels such as WeChat, said Wang.
Sixth, although marketplaces such as Tmall or JD dominate luxury shopping today, social-linked shopping is emerging fast. In China, around 11% of luxury sales are through WeChat or other social media connections compared to 2% worldwide.
Wang said: “In an environment where the consumer is highly digital, and the eco-systems are evolving every day, getting their attention and increasingly affecting their purchasing behaviour, [digital] is fundamentally changing the rules of the game. Luxury players need to think about how they can partner to really capture and sell to the Chinese consumer.”
New era, new rules: Brands must fine-tune their approach to the savvy Chinese consumer, said Angela Wang.
The Moodie Davitt Report • The Online Magazine • February 2019