According to Tencent and Boston Consulting Group’s latest release, “A New Generation of Chinese Consumers Reshaping the Luxury Market —2021 Tencent X BCG China Digital Luxury Report”, the Chinese luxury market is estimated to reach a size of 630 billion yuan in 2022. However, to maintain growth momentum, luxury brands need to meet consumers’ complicated structural needs. Considering current sales networks and consumer composition, what marketing channel should luxury brands choose to best suit their sustainable development in the digital trend?
In the latest earnings season for the global luxury sector, the Chinese-dominated Asia-Pacific markets (excluding the Japanese one) have once again clearly demonstrated their strong and lasting resilience to lead luxury companies towards growth. Amid the growing Chinese luxury market, Chinese consumers keep maturing with rapidly changing consumption habits. In reaching an ever-increasing number of such users online and offline, luxury brands need to meet such a change to ensure their visibility and growth in China.
On October 25, Tencent and Boston Consulting Group (BCG) jointly released, under the theme of “Boundless Luxury Linking the Future,” a white paper titled “A New Generation of Chinese Consumers Reshaping the Luxury Market—2021 Tencent X BCG China Digital Luxury Report” in Shanghai. Tencent Marketing Solution and BCG have worked together to explore the Chinese luxury market trends for four years. They have launched a series of reports which cover the general trends driving the Chinese luxury market to gradually thrive and the small tides facilitating the fostering of the unique Internet environment for Chinese luxury companies.
As the Chinese luxury market has entered a new normal of growth, the rise of a new generation of consumers becomes the focus of the Report. On the one hand, China’s post-90s consumers will soon become a major driving force behind market growth, as they have already contributed more than 46% of luxury sales; on the other hand, existing heavy-spending consumers (annual luxury spending >RMB 300K) also have strong spending power, as they make up 11 percent of consumers but contribute 40 percent of sales. Thus, luxury brands need to keep developing better channels to meet such customers’ ever-rising demands.
The Report shows that in 2021, 31 percent of purchases are made completely online, up by 1 percent from 2020, and only 8 percent of purchases are made completely offline. This means that despite the full recovery of offline touchpoints, Chinese consumers have already formed the habit of online exploring or purchasing. Therefore, luxury brands need to keep developing better online channels as well. In this context, how should luxury brands adjust their marketing towards the changing consumer behavior? What channel should these brands choose to suit their marketing goals in the complicated digital ecosystem?
Robust Growth and Changes
Despite that the Chinese consumer market has experienced a slight decrease from last year, the specific luxury market will maintain its resilience for a period of time. According to the Report by Tencent and BCG, the luxury market of Mainland China is estimated to grow by 23 percent -25 percent in 2021 and reach a size of 630 billion yuan in 2022.
Under the special retail environment last year, the luxury market growth in Mainland China was universally attributed to the backflow of overseas consumption. Due to travel limitations, a great deal of demand on overseas consumption would rapidly go back to the domestic market. However, the Report indicates that such backflow has not become the main driver of the luxury market growth in Mainland China. Of the 100 billion yuan of growth, only 34 percent comes from the overflow caused by epidemic restrictions, and the rest comes from voluntary and proactive consumption made by consumers with new attitudes in the improved shopping environment.
The Chinese luxury market is still on the rise, with great potential waiting to be explored. In the past year, luxury newcomers have accounted for 17 percent of the total consumer base and contributed 12 percent of sales. Of these newcomers, 59 percent were born after 1990, forming part of the complex luxury consumer structure in China.
China’s luxury market is experiencing rapid changes, the most obvious one of which is the rise of post-90s consumers with strong purchasing power. In the past year, post-90s consumers have contributed 50% of luxury sales growth in Mainland China. In the coming year, post-90s heavy-spending consumers are expected to contribute 23 percent of such growth.
However, pre-90s consumers are expected to contribute slightly varying growth. On the one hand, pre-90s heavy-spending consumers—a solid core customer base of luxury companies in Mainland China—will continue to contribute 22 percent of growth. On the other hand, pre-90s light-spending and medium-spending consumers are expected to contribute remarkably lower growth, as 12 percent of growth will come from light-spending consumers and 14 percent from medium-spending ones. Considering that pre-90s consumers still account for a majority (54 percent) of sales, luxury brands need to focus on these consumers while tapping the potential from post-90s consumers.
In addition, luxury brands need to develop marketing strategies for consumers of different ages based on their consumption awareness and habits. For instance, different generations of consumers buy luxuries out of different motivations. Post-95 consumers put “self-reward” rather than “high quality” first. In this regard, Veronique Yang, Managing Director and Partner of BCG, responsible for BCG’s Consumer Business in China and Special Fashion and Luxury Programs in Asia-Pacific, notes that during the survey, she was most impressed by “two major consumer segments: Very Important Clients (VICs), and post-90s newcomers—the future backbone”. She adds, “The biggest challenge for luxury brands is how to match the different demands and behaviors of the two consumer segments and establish unique relationships with them.”
Despite the differences among consumer segments, online channels have influenced all consumers’ purchasing habits. In 2021, 39 percent of purchases are made via online channels (including Brand.com, WeChat Mini Programs, and e-commerce platforms), while 78 percent of sales come from offline purchases. Obviously, online purchases feature high frequency but low transaction value. Therefore, in order to improve online sales, luxury brands still need to keep cultivating and activating consumers’ online purchasing habits.
Consumers’ expectations and behaviors vary with platforms. On WeChat Mini Programs, consumers spend the most, with an average of 170,000 yuan per person per year, and prefer to buy fashion show collections and crossover/limited edition products. On e-commerce platforms, consumers spend less on average, as they are mainly on the entry-level or from lower-tier cities. Undoubtedly, Brand-Owned WeChat Mini Programs have become the very important purchasing channels for all consumers. Among the surveyed sample, 53 percent of post-90s light-spending and medium-spending consumers (each with annual luxury spending of less than 300,000 yuan) and 54 percent of heavy-spending consumers of all ages would explore and buy products via WeChat.
How to Take the Advantage to Upgrade Luxury Consumption Experiences
Therefore, to expand digital practices in China, luxury brands need to find a platform covering the entire purchasing pathways and enabling fine marketing towards all consumers. As a main Chinese social network platform, WeChat has made it possible for luxury brands to reach consumers in China through diversified scenarios and integrated marketing communications.
Showe Zhang, Director of Tencent Marketing Solution’s Luxury & CPG Business, indicates, “Tencent has always been committed to our mission, ‘Value for Users, Tech for Good’. We make warm human-to-human, human-to-content, human-to-service, and human-to-commodity connections. We are a highly suitable platform for digital luxury brands. In the past year, 25 percent of luxury brands have created A-level branded zones on WeChat Search, 80 percent of luxury goods have opened accounts on WeChat Channels, and more than 70 luxury brands have launched WeChat Mini Program.” “In the past few years, we have been talking about what WeChat is for luxury brands.” George Xie, Head of Tencent Marketing Solution’s Luxury Business Planning, says, “We used to develop WeChat as a communication scenario for brand exposure. Now, we have launched touchpoints and innovative functions on WeChat. They are both open platforms and efficient tools for brands to design their business models freely and independently.”
Brands can capitalize on all parts of WeChat, such as Official Accounts, Channels, Search, Mini Programs, as well as Tencent’s huge ecosystem, to reach consumers with different marketing mixes and activation methods. For post-90s consumers emphasizing social interactions and pursuing innovation, brands can rely on Tencent’s content products, such as QQ Music and QQ Game, to carry out targeted circle marketing. For heavy customers valuing unique shopping services and experiences, brands can use WeChat to integrate online and offline scenarios and to make high-quality offline services available online. For example, Louis Vuitton has launched Mini Program stores, inviting its VICs to one-to-one livestreamings to enjoy optimized online shopping experiences.
On WeChat, users interact between the public and private domains, which makes the platform inherently advantageous in connecting the public and private domain traffic. For example, in Dyson’s super brand day campaign launched on WeChat this year, the household appliance brand worked with celebrities and KOLs to market and recommend its products in the public domains of Moments Ads, Channels, and Official Accounts. After acquiring certain consumers, Dyson continued to display livestreaming links on Search, post attractive articles on its Official Account, and launch 24-hour livestreaming on its mini program. These efforts targeting the private domain traffic were made to motivate and drive consumers to buy products online.
On WeChat, some brands have begun to acquire consumers in the public domain and provide them with targeted services in the private domain. For example, Louis Vuitton has launched a number of Mini Programs, such as the Sneaker Store, the New Product Experience Store, and the Online Pop-up Store with Fall/Winter collection for men, to promote different products to different consumers. In the marketing of jewelry, watches and other hard luxuries which involve a longer decision-making period, brands can add the consumers acquired by advertising to WeCom, so that sales representatives can have one-to-one communication with them and guide them towards online/offline purchases. Then, brands can After one-to-one communication and train, Online/offline sales channels convert these consumers. Wendy Chan, SVP, LVMH Digital Asia, states, “To further expand the market, a brand must work hard to meet the diversified needs of consumer segments, get a deeper understanding of the innovative rules of different tools, and develop a deeper relationship with more consumers.”
As is said by Hati Lin, Deputy General Manager of Vertical Sales & Operation Department, Tencent Marketing Solution, “Digital connection is Tencent’s mission and gene. As an ecological strategic partner for luxury brands, Tencent Marketing Solution will help these brands communicate with consumers and meet their diverse needs in both public and private domain scenarios.” With customized all-domain operation services, Tencent will greatly facilitate luxury brands’ digital transformation in China.
For the full version of the 2021 Tencent x BCG China Digital Luxury Report, please CLICK HERE TO DOWNLOAD.
Tencent together with BCG and WWD China is also planning a series of online courses soon for providing international brands with digital marketing solutions especially for China-market, look forward to your continuous attention.