China has been a dynamic market for luxury brands these past few years. And by 2025, affluent Chinese consumers will conduct 40% of the world’s spending on luxury goods. With the explosion of upper-middle-class households, most luxury brands have developed new strategies to succeed on the Asian market.
And that is not an easy task considering that these consumers have their own habits and behaviors. In 2018, Chinese shoppers spent $115 billion on luxury items, so finding their place in the market and building a solid strategy is not an option anymore for luxury brands. And with the traditional gifting culture China is known for, adding digital gift cards to this strategy is a wise decision.
China, a driving market for luxury goods
Overseas and domestic spending
The figures do not lie. Chinese consumers are expected to deliver 65% of the global growth in luxury spending heading into 2025. And so far, the majority of these spending was done overseas (70%). However, a 2019 McKinsey study expects the ration to shift with the cut of luxury import taxes. Bain&Company anticipates that Chinese consumers go from 27% domestic spending in 2018 to 50% by 2025.
Cutting taxes on luxury goods is a way for the government to reduce cross-border exporting, commonly referred to as “Daigou” (Dye-go). To encourage domestic consumption, they reduce price differences, implement new policies and close taxation loopholes. So, luxury brands that have not already done so must quickly invest in the area and find their way in the market.
Young consumers are reshaping the industry
Just like in Europe, luxury brands will have to build their strategy around the new target that will make up the market: Millennials and Gen Z. In 2018, post-80s and 90s consumers represented 70% of luxury consumers and 79% of luxury purchases in China (McKinsey), whereas worldwide, they accounted for 47% of luxury consumers and 33% of luxury purchases (Bain&Co).
And just like western gen Y and Z, Chinese young consumers are breaking the long-held patterns in their country. But they are still quite different from the rest of the world in their consumer behavior and expectations. Luxury brands have to adapt to the customs in this highly connected environment. Compared to previous generations, they pay less attention to the brand itself and tend to also value design, fabric, and the production process. They see luxury as a form of social capital that helps mark them apart, and achieve personal and social goals.
E-gift cards: an ideal tool for luxury brands’ strategies in China
Taking part in the Chinese culture of gift-giving
One of the specificities of China is, without doubt, its traditional culture regarding gift-giving. They do not need special occasions to make gifts, which are given all year long, as a way to nurture or strengthen a relationship – be it social, professional, or friendly. The gift’s value represents the importance of the relationship the giver has with the recipient. Gifts are closely linked to the Mianzi culture, it is about building trust, respect and Guanxi with the other person (relationship/connection).
So, gifts have a very important place in Chinese culture and luxury brands must take it into consideration in their offers and marketing strategies. This specific culture trait, associated with the habits linked to digital payments, make digital gift cards the ideal tool to gain Chinese consumers’ loyalty.
Especially with the younger generations who are already getting used to making gifts through digital interfaces. They often use WeChat Pay or Alipay to send virtual gifts, like the traditional hong bao (red envelopes given for the New Year). In 2017, WeChat users sent 46 billion red envelopes over the Chinese New Year holiday period. Thanks to the Mini Programs built by WeChat, luxury brands can create marketing campaigns with digital gift cards to target young Chinese consumers.
Whether through social media or apps, e-gift cards can be adapted to pretty much any format. Moreover, they have the advantage of being sent immediately, with certainty of pleasing the recipient. Affluent consumers will therefore be able to give “luxury branded currency” to strengthen their relationship with each other. For example, Gucci created a Mini Program that combines photo editor along with e-gift cards that are redeemable in store for items like perfumes, wallets and other small products.
And for luxury brands, each recipient is another opportunity for customer acquisition.
Ecommerce and e-gift cards
Opening physical stores in a country as vast as China is very expensive. To quickly reach the entire territory, it is very interesting to have your own ecommerce website.
Young Chinese consumers especially love new technologies and spend a lot of time online. Brand-owned digital channels are a great way to reach them and get in touch with affluent consumers. In fact, besides offline experiences digital channels are the most impactful sources (McKinsey). A vast majority of consumers tend to gather information both offline and online before going into stores. They like to pick up information and improve their knowledge and awareness of the luxury market.
On both their website and app, brands can use digital gift cards as a marketing tool. It encourages consumers to browse through the website and plan a purchase. They can choose a specific type of customer and give them a gift card with a set amount, either before a purchase – to create and nurture the relationship – or after – to thank them for their purchase and extend the experience. This strategy remains in line with the Mianzi and Guanxi cultural concepts.
E-gift cards can also be used for customer acquisition. Luxury brands can create partnerships with specific successful distributors. Each card bought through their distribution network is a potential future customer.
Broaden your luxury distribution network
As for physical distribution, it is still essential as 92% of all luxury Chinese consumers purchase offline. And it is expected to remain the preferred sales channel in the near future. Luxury brands first move was opening stores in ‘Tier 1’ cities like Shanghai and Beijing, of course. But today, considering the size of the country, their appeal remains weakened by the congestion in large cities. There are many opportunities awaiting them in medium-sized cities.
These cities are full of affluent customers, especially young consumers eager to purchase luxury goods. The McKinsey report cited earlier suggests that luxury brands’ current store footprint captures less than half of the country’s affluent households. Many cities in the new tier 1 and tier 2 are full of young consumers that would rather avoid the high costs of larger cities. They cannot wait to discover more of luxury brands by going in their physical PoS.
Creating an e-gift card campaign is a great way to target potential or existing customers, in order to invite them in these medium-sized cities’ stores. They can be gifted along with an invitation to the store’s opening night, or any event that can lead them to get a taste of the unique customer experience your luxury brand can offer them. In fact, young consumers love attending events hosted by luxury brands to highlight their tastes and social life. They particularly love fashion shows and art shows.
Interacting on social media
Chinese consumers, and the younger generation especially, spend a lot of time on social media such as WeChat or Weibo. These medias have developed so many different services that users can do many things without having to switch platform. It is very convenient for everyday use, especially to keep up with fashion trends and improve their knowledge of the luxury market.
KOLs (or Key Opinion Leaders) have a significant influence on young Chinese consumers’ purchasing intentions. And social media in general is the ideal interface to interact with customers and give them the information they seek. For example, in 2017, Burberry partnered with top fashion KOL Mr. Bags to promote a special edition exclusively launched via WeChat, which sold out in less than ten minutes.
Digital gift cards can also be used as a means of interaction between KOLs and consumers, and become an invitation to visit the brand’s online or physical store.
The phygital phenomenon
What Chinese consumers love most about new technologies is how they make life easier. In addition to discovering the exotic Western lifestyle through experiences offered by brands, consumers also like to be advised and guided with a personalized customer experience. Professional knowledge and opinion are what is most likely to influence young consumers to make a purchase in store; offline as well as online.
What they particularly expect from luxury brands, is an omni-channel experience, and fluidity between the digital world, on which they do their search, and the physical one. Digital gift cards are the perfect link between both worlds. They enable consumers to easily switch from one point of sale to the other. They can be used both online and offline, are compatible with mobile wallets and apps. Moreover, they correspond to Chinese behaviors who love using digital payment methods such as Tenpay or Alipay, …
The Chinese market is at the heart of many strategical decisions for most luxury brands wanting to seize its business opportunities. However, there is still a lot to be done for most of them. Developing the physical sales network, building online presence, adapting to cultural behaviors, … there are many strategic objectives to work on. Digital gift cards can be a great acquisition and loyalty tool to implement in order to stand out and gain a competitive edge on the Chinese market.
Suggestions for further reading
Understanding and attracting luxury consumers thanks to digital technology
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