Data-driven, social media and omnichannel are the focuses of digital marketing growth for luxury brands, while “young”, “geographic concentration” and “social” are the keywords that best describe the trend of luxury brand marketing in China.
A recent report, jointly published by Tencent Advertising and Boston Consulting Group, revealed three major pain points for luxury brand marketing in China:
- how to better reach out to customers
- how to better increase customer loyalty
- how to better use data assets to drive business growth.
Luxury marketing in China: Young, geographic concentration and social are the keywords that describe the future trend
In 2018, China’s luxury market exceeded 110 billion Euros while maintaining a growth rate of 6%, accounting for 33% of the global luxury market. It is expected to grow at a CAGR (compound annual growth rate) of 5-6% in the future and to contribute over 40% of the global luxury retail sales by 2025.
It is an indisputable fact that China has become the most important market for luxury brands. The report shows that this growth is mainly driven by three major trends of Chinese consumers:
- luxury consumers continue to be young
- Geographically, the majority of luxury consumers are from the top 50 cities
- Social media influence remains strong
The report reveals that luxury consumers are becoming younger. Consumers aged between 26-35 y-o contribute 62% of luxury sales and consumers between 18-25 y-o contribute 12%.
Geographically, the majority of luxury consumers are from the Top 50 cities: At the same time, luxury consumption has become more widespread in China and shows an apparent trend of geographic concentration.
High-end luxury consumption has gradually penetrated into second-tier cities. Luxury consumers in the first and second-tier cities account for around 70% of the total number and contribute over 70% of total sales.
Currently, domestic luxury consumers from first and second-tier cities tend to travel abroad to buy high-end luxury goods while due to a limited number of local luxury shops, luxury consumers from third & fourth-tier cities tend to make their purchase in the first & second-tier cities. Therefore, how to use digital channels to manage retained customer assets will be one of the focuses in the future.
Social media influence remains strong. Because of the ubiquity of mobile social media in China, Chinese consumers have also demonstrated strong social orientation when making luxury consumption decisions. More than 80% of Chinese consumers choose the “rational” way of researching online and purchasing offline when buying luxury goods, far above the global average.
The core channels influencing Chinese luxury consumers’ purchase decisions are shifting towards high digitalization. The social media penetration rate is now as high as 67%. Luxury brands can, through social media platforms, better reach out to their target customers, attract and influence the younger generation of core consumers with customized contents.
For luxury brands, the key to growth is to know how to better leverage social media platforms and to achieve a tight online-offline connection in order to form closer relationships with their customers.
Pain point 1: How to leverage social media and reach out to customers
According to the report, customers spend a significant amount of time on social media platforms and contents, and at the same time, KOLs’ endorsement has a very significant influence on their purchasing decisions.
Therefore, how to leverage on social media has become a critical topic that luxury brands need to think about.
Kiki Fan, General Manager of Tencent Advertising’s Key Account Sales and Operation Department, shared the new idea of leveraging on social media with Tencent’s Smart Marketing Solutions:
“…no longer focus on a single social media platform, but use a more global perspective, connect users with all touching points through four major traffic channels, and make social media the key to generating traffic.”
First, the brands must have their own traffic. Currently, an increasing number of luxury brands have set up their own WeChat official accounts, mini-programs, and other tools in the WeChat ecosystem.
Because of the unique characteristics of luxury brand marketing, proprietary channels can best present the brand image and allow them to position most precisely in order to achieve in-depth interaction with their customers, which is also the best way to retain and accumulate loyal customers.
The social media traffic is in turn generated from fission marketing as well as voucher campaigns initiated by the brands. In this way, they can acquire traffic from the social behaviors of their customers within the WeChat ecosystem.
This approach can maximize the social energy of WeChat and help achieve exponential traffic growth. In the end, this traffic can still be directed to the brand’s own channels such as their mini-programs in order to build a true marketing closed loop.
The report shows that researching online and purchasing offline is the main way Chinese consumers make their luxury purchases.
Tencent’s Smart Marketing & Smart Retail Solutions offers a series of tools to allow brands to convert their offline traffic into online traffic and integrate the two. This can help them convert their traffics in offline shops and from shopping guides into direct sales.
The advertising traffic provided by Tencent Advertising, as paid traffic, can be an amplifier for brand marketing campaigns, enabling a wider range of customer connections under diversified contexts of the Tencent platform.
A number of luxury brands, including Cartier, Bulgari, and Gucci, are experimenting with these four traffic solutions provided by Tencent to effectively expand their customer base and realize growth.
Pain point 2: How to better improve customer loyalty
According to the report, among the current online purchase channels, proprietary channels are emerging and account for over 30%. Brand-managed mini-programs and WeChat public accounts became the fastest growing channels last year.
This phenomenon is closely related to the unique characteristics of the luxury industry. For luxury brands, their customers expect the same shopping experience online as in offline boutiques. Therefore, for luxury brands, the key to realizing future growth breakthrough is to build proprietary platforms in an asset-light fashion that can interpret their brand image and help them build a tighter relationship with their customers.
Kiki Fan stated that: “Tencent Advertising provides the Brand 2.0 model for luxury brands. With mini-programs as the core, we can help brands establish and operate their proprietary sales channels on WeChat mini-programs and help them achieve closed-loop marketing throughout the chain.”
Brand 2.0 does not only allow brands to establish their proprietary sales channels in an asset-light way through mini-programs and mobile payment but also enables them to offer consumers a richer shopping experience through the social media platform of WeChat.
Online mini-programs can provide brands with long-term online boutiques as a non-stop sales channel. It can also be used as the ground for pop-up shops as the brand’s online marketing campaign.
Tiffany launched its limited edition product line in its pop-up shop mini program during the 520 period (20 May, Chinese Lovers’ Day), and achieve efficient sales conversion with the help of advertising campaign in WeChat’s social sharing channel Moments and injection of social media traffic.
At the same time, on their proprietary channels, brands can deepen the emotional connection with consumers through collaboration with IPs or KOLs, or by creating customized contents that attract consumers.
On these channels, brands can communicate with consumers effectively, and by using the Tencent Smart Advertising tools to analyze and manage collected data, service their consumers more precisely, create their own CRM and in turn increase their brand loyalty.
Pain point 3: How to achieve business growth leveraging on data assets
In the past, the communication and marketing of luxury brands relied mainly on creating emotional resonance with and conveying brand values to consumers.
In a highly competitive market environment, how to collect and retain consumer data from the four major channels and convert it into business and strategic insights in order to drive growth has become the third biggest pain point. Tencent Think Tank can effectively address this pain point and help brands explore potential growth opportunities.
Thanks to its accumulation of data insights over the years, collaboration with third-party partners, and excellent multi-dimension strategy development capabilities, Tencent can help brands match target consumers as well as potential consumers through its Data Think Tank, provide advertisers with many options of group combinations and expansion models.
With Model LAB’s more intelligent customizable model, flexible targeting, positive-negative target sample comparison functions, and machine learning training models, Tencent help advertisers precisely target group combinations, optimize marketing budget allocation, increase client base expansion capability and ultimately boost conversion throughout the entire chain, according to the report.
This is like providing luxury brands with a compass on the sea and help them effectively reduce the time spent seeking growth in China.
For luxury brands, China still has huge prospects and potentials to be explored in the future.
“Data capability is the foundation of growth for luxury brands, and is the basis on which marketing strategies should be developed.” Kiki Fan said.
She states that thanks to Tencent’s Data Think Tank’s multi-dimensional insight and strategy development capabilities, brand data assets collection and analytic capabilities, and the one-click marketing applications, luxury brands can obtain 360-degree portraits of their consumers at different stages of the consumption cycle and truly understand them.
This can allow them to identify key loss/conversion nodes in the consumer decision path, and to understand the relationship between audiences and advertising. Brands can then develop a more optimized and effective marketing strategy in order to capture the business opportunities and achieve growth brought by China’s 820 million mobile Internet users.