Key points to remember:
The Chinese luxury consumer group has reached a turning point. Data shows that consumers born between 1990 and 2000 now represent 50% of the luxury market.
Although the Chinese luxury goods market has maintained 20% growth this year, the pandemic has also had a profound impact on the perceptions of luxury consumers, and brands must change their marketing focus to adapt.
Digitization is helping online luxury consumption continue to grow from 20% in 2020 to 22% in 2021. As such, online channels are becoming increasingly important as a platform for marketing of the brand and increase customer loyalty.
Chinese consumers’ desire for luxury goods is expected to continue growing in 2022 at an estimated rate of 13%, making them the heaviest spenders in the world. By 2025, generations Y and Z will represent more than two-thirds of the market. Generation Z, China’s youngest spendthrift generation, is made up of digital natives who grew up in material abundance. And they’re willing to pay more for fresh, niche experiences.
As such, luxury brands will continue to take advantage of digital opportunities over the next few years to provide consumers with unparalleled shopping experiences, using innovative technologies such as NFTs and AR-based digitization. Yet offline shopping remains the most important sales channel, accounting for over 50% of all consumption.
Online channels offer consumers multidimensional avenues to communicate and resonate with luxury brands. Meanwhile, offline channels provide consumers with physical product and service experiences that online services cannot replace. But integrated online and offline channels create an unparalleled level of user loyalty, helping brands retain future consumers.
So, as you can see, online and offline channels are essential today, but everyone needs different tactics to achieve their goal. Here are two online tactics and two offline tactics that brands have used successfully to achieve their goals:
1. Create innovative products and scarcity scenarios
Young people have undoubtedly become the center of attention for luxury brands. The annual consumption of over 300,000 people born after the 1990s represented only 11% of the total consumer population, but accounted for 40% of sales.
Digitization can establish better communications by providing consumers with refreshing, unique and personalized luxury service features. Tmall Luxury Pavilion has created a 24-hour digital shopping channel called Cloud Luxury City (äº å¥¢ å), containing over 30 different luxury brands. On the platform, consumers can use exclusive AR trials, 3D interactions, mini-games, and other online services provided by luxury brands. Tmall Luxury Pavilion has also released six Virtual Collections (NFTs) in collaboration with six luxury brands, allowing consumers to purchase their favorite physical products from these brands online while receiving a unique digital item based on blockchain technology. This digital collection was launched on November 1 and sold out from the first hour. It is clear that providing products in limited stock, which are only available for a short time, will remain a crucial way for brands to attract consumers.
2. Manage private traffic to provide more personalized services
Chinese luxury consumers today are very diverse. Young people want interactive and creative content that only the digitization of the brand can satisfy. Therefore, social media needs to become a high priority – at the brand marketing level – because it is an important way to communicate with young people. The WeChat ecosystem should also be part of a brand’s marketing strategy, helping to improve the overall brand experience and establish an omnichannel ecosystem.
For loyal customers, social media can better provide them with personalized services in a personalized way. Louis Vuitton connects with different groups of customers by creating small, specific WeChat mini-programs with a unique tone and content. Brands would be wise to upgrade their social media so that they can offer consumers more personalized and personalized digital services with luxury features.
At the same time, brand management and private traffic exploitation will have a major impact on luxury redemption rates and customer retention. The Dior China Fashion Show was featured live via the brand’s Tencent Video and WeChat video account. Afterwards, the show’s ads and the new collection were placed directly on his WeChat Moments. These ads were connected directly to the brand’s home page, which boosted sales. WeChat and other social media provide useful ways for luxury brands to engage with users, whenever and wherever. Brands need to recognize how important this is and create robust CRM ecosystems.
As mentioned, offline experiences are irreplaceable. Here are two offline tactics that can contribute to the brand’s success in China:
3. Pay special attention to sustainability, but try collaborations first.
After the pandemic, consumers will favor the recyclability of products. As such, today’s young shoppers have a keen interest in purchasing vintage luxury goods, which also helps them express their personality. This demand for vintage luxury is attracting more and more players, and the second-hand and vintage luxury markets are expected to reach 33 billion euros by the end of 2021.
Chinese suppliers of vintage luxury goods and services are dissatisfied with their online business performance in 2021, and luxury brands should pay attention to their deployment of offline stores. This year, vintage luxury goods and service provider Ponfu (èè) recently reopened its offline flagship store in Beijing, displaying nearly 10,000 SKUs. And now, some limited editions of vintage luxury goods are starting to meet the demands of young people for uniqueness and durability.
In 2022, luxury brands could work with second-hand luxury suppliers to capture this market as it is still in its infancy in China. Outside of China, the Kering group has already announced its intention to invest in a luxury product resale platform called Vestiaire Collective. But, for now, it’s hard to say which industry giant will emerge in the Chinese vintage market.
4. Optimize the layout of offline stores according to the distribution of consumers
Besides the consumers’ perspective, factors such as regulations have had a significant impact on the development of the industry and on marketing and product strategies. China’s promotion of the Common Prosperity Policy will increase the incomes of the middle class while limiting luxury and extravagant consumption to some extent. Brands should pay close attention to their marketing values ââand adhere to country guidelines for related industries.
In addition to the ever-growing size of the market, brands can now also see the contribution of specific groups of people to the luxury market, such as consumers in lower-level cities. As brands continue to promote in lower tier cities, the concept of luxury goods increasingly extends from tier 1 to lower tier cities. Meanwhile, luxury consumption in Tier 2 and Tier 3 cities, such as Qingdao and Dalian, has jumped to the top five. An offline luxury store in these cities offers consumers a up-close opportunity to feel and try a product. And the display and decoration of offline stores allows luxury brands to show their uniqueness and brand culture. For this reason, the layout of offline luxury brand stores in cities must take into account the specific preferences of consumers. Consumers in Level 2 and in nearby lower-level towns are drawn to these experiences, which are not available in online stores.
China will continue to be the growth engine for luxury brands in 2022. And online consumption will continue to grow, with offline channels providing the majority of sales. And now, with the launch of anti-monopoly regulation, brands can choose from multiple platforms to sell. In fact, many luxury brands have performed very well on different full platforms this year. The recent Double Eleven saw more than 200 luxury brands launch more than 300,000 products on Tmall Luxury Pavilion, and JD.com achieved an unprecedented new model of cooperation with the LVMH Group where consumers could directly access the official website of the brand to buy on the JD platform.
Brands should pay attention to the characteristics of different platforms and channels to take advantage of their unique policies. At the same time, luxury brands are also expected to conduct differentiated selections and SEO strategies on e-commerce platforms and offline stores to provide consumers with personalized services and experiences that meet their preferences.
Additional research by Joanna Wang