Luxury: how to conquer the Chinese market thanks to e-gift cards?
China has emerged as a vibrant market for luxury brands in recent years. Wealthy Chinese consumers are among the largest buyers of high-quality products worldwide. With their spending accounting for nearly 33% of global luxury purchases, many prestigious brands have ventured into the Asian market. However, this journey has proven to be challenging, as Chinese consumers have distinct habits and behaviors. Yet, with the market projected to reach €260 billion in 2018, it’s crucial for brands to establish a presence and craft a sharp strategy. Digital gift cards, a product that resonates with Chinese consumers, present an excellent opportunity to support a brand’s growth in this dynamic country.
China: a dynamic market for luxury goods
Luxury purchases will shift to domestic markets
The numbers speak for themselves. By 2025, affluent Chinese consumers will dominate the global luxury market, accounting for half of all luxury purchases. Traditionally, Chinese buyers made their luxury purchases abroad—whether online or during their travels—but this trend is changing. In a few years, 50% of their luxury purchases will be made domestically, compared to just 24% in 2018.*
*Bain & Co
Why the shift? To combat the secondary market driven by "Daigus" (personal shoppers) and encourage domestic consumption, the Chinese government has implemented key measures, including price reductions and lower import tariffs, all aimed at improving conditions for purchasing luxury goods within China. Given these developments, luxury brands must move quickly to establish and strengthen their presence in the country, despite the potentially high costs.
Chinese millennials: a key segment of affluent consumers
Like in Western markets, luxury brands in China will need to focus on millennials. By 2025, this future generation of consumers is expected to represent 55% of the luxury market.*
*Bain & Co
While Chinese millennials are breaking traditional consumer norms, much like their Western counterparts, they still differ in terms of consumption habits. With this ultra-connected and tech-savvy generation, luxury brands must adapt to their digital behaviors.
Luxury fashion shopping online
It's no surprise that China is a leader in online shopping, even for luxury goods. In fact, 45% of Chinese consumers bought luxury items online in 2015.*1 Among them, millennials primarily purchase cosmetics (58%) and leather accessories such as handbags (38%).*2
*1 KPMG
*2 Bain & Co
When we look at where these purchases take place, Taobao and Tmall (50%)—two of China's largest e-commerce platforms—dominate the landscape. Just as Amazon does in the West, Chinese consumers tend to check these sites first for specific luxury goods. As a result, some luxury brands have chosen to be listed there. However, this has led to another challenge: the demand for high-end goods has fueled the growth of counterfeit items, which are often hard to differentiate from authentic products. In 2013, over 70% of items detected on these platforms were counterfeit.
Faced with this issue, Chinese consumers have increasingly turned to cross-border online shopping in search of authenticity and quality, now accounting for 28% of the luxury online market. Nearly half (48%) of China's internet users have already made purchases from abroad.*
*KPMG (2015)
Despite the strong online performance, it might seem that the internet is the most dominant luxury shopping channel in China, but that’s not the case. In fact, compared to Western millennials, 64% of Chinese millennials still prefer physical stores when it comes to buying luxury goods.
The e-gift card supports various luxury strategies in China
Gift culture enhanced by the digital card
One of the most unique aspects of Chinese culture is the importance placed on gift-giving. Gifts are not reserved for specific occasions but are a way to maintain or strengthen relationships, whether social, professional, or friendly. The value of the gift represents the importance of the relationship with the recipient. Governed by the concept of “Mianzi,” or maintaining face, gift-giving holds significant weight and should be reflected in the offerings of luxury brands.
Introducing digital gift cards is highly relevant in this context. With the rise of digitalization, especially among younger generations, the Chinese are increasingly opting to give gifts through digital platforms. Whether through social media, which they use heavily, or various apps at their disposal, digital cards offer flexibility across many formats. Additionally, they provide speed and the guarantee of delighting the recipient. Affluent consumers can gift “luxury brand currency” to nurture their relationships.
For luxury brands, the greatest benefit remains that every gift recipient represents a new opportunity to acquire a future customer.
Expanding into e-commerce with digital gift cards
Opening physical stores across vast territories like China entails significant costs for brands. Therefore, launching an e-commerce platform is a strategic move to quickly access the entire market. Chinese millennials, in particular, are tech-savvy and spend a considerable amount of time online. Digital platforms provide luxury brands with an entry point to reach a large portion of the affluent population, ultimately supporting physical store sales.
Whether through a responsive website or a mobile app, luxury brands can leverage digital gift cards as a marketing tool. The goal is to introduce Chinese consumers to the brand’s online presence and encourage shopping.
Based on their contact lists, luxury houses can offer their target audience limited-value gift cards either before a purchase to initiate or nurture a relationship, following the culture of Mianzi, or post-purchase as a thank you, extending the brand experience.
To further expand their customer base on new e-commerce platforms, digital gift cards can act as a powerful driver. Luxury brands can offer their e-cards through carefully selected resellers with high traffic. Each recipient of a gift card purchased through external distribution networks becomes a potential future client.
Interaction on social media with affluent consumers
Chinese consumers, especially the younger generation, spend a significant amount of time on social platforms like WeChat and Weibo. These networks offer such a wide range of services that users can perform numerous actions without leaving the platform, making them an ideal space for following fashion and the latest trends. Local influencers, known as KOLs (Key Opinion Leaders), play a crucial role in shaping opinions and are frequently consulted for information.
Social media provides a perfect interface for engaging and enhancing the research process for Chinese customers. One of the key touchpoints for this interaction is the digital gift card. It can serve as a communication tool with influencers or as an invitation to encourage the target audience to visit a brand’s website or physical store.
The phygital phenomenon for luxury brands in China
Chinese consumers are enthusiastic about the efficiency brought by new technologies. In addition to discovering Western lifestyles through experiences offered by luxury houses, they seek personalized advice and assistance, whether from sales associates or through technologies like beacons and sensors that send information to their preferred apps, such as WeChat.
Moreover, beyond connected stores, they desire an omnichannel experience that seamlessly transitions between digital and physical. The digital gift card is one of the "bridge" tools that enables consumers to easily switch between touchpoints. It can be used both online and in the brand's physical stores, providing a flexible and convenient experience.
The digital gift card is also compatible with wallet applications found on mobile devices. This is particularly relevant given that Chinese consumers are avid users of smartphone-based payment systems such as Tenpay and Alipay. In fact, three-quarters of millennials have used these services, generating an impressive $506 billion in revenue in 2015 alone.
Luxury shopping through tourism: a major opportunity
Chinese luxury tourism represents a significant asset for major fashion capitals like Paris, London, and New York, where 8 out of 10 luxury purchases made by Chinese consumers occur outside their home country. Drawn by savings of up to 30% due to tax and currency differences, Chinese tourists eagerly travel to experience unique and authentic shopping adventures. In 2014, 100 million Chinese tourists traveled abroad, and this number is expected to double, making this segment critical for luxury brands.
How can brands reach Chinese tourists before they travel?
It's quickly apparent that Chinese travelers know exactly where they’re going, what sights they plan to see, and most importantly, what purchases they’ll make while abroad—often well before they even leave home. Everything is meticulously planned, and the primary tool they use to prepare is the internet.
Social media plays a key role in this process, providing insights into the experiences of other travelers. What are the must-see places? What pitfalls should be avoided? Chinese tourists seek advice from their peers and follow Key Opinion Leaders (KOLs) on platforms like WeChat and Weibo, whose posts and opinions are viewed by thousands. They also scrutinize the accounts of luxury brands to become well-versed in their offerings.
However, social media (15%) is not the primary source for planning luxury purchases abroad. Chinese luxury shoppers spend more time visiting the websites of luxury houses (18.3%), fashion magazines (17.6%), and fashion e-commerce sites (16.4%).* They particularly enjoy staying informed about the latest brand news and collections, building shopping lists for themselves and their loved ones.
*Bain & Company
Luxury brands must therefore be present across strategic digital touchpoints to engage Chinese tourists as they prepare for their trips. Highlighting trendsetting products and demonstrating their quality (which 40% of consumers prioritize) are critical factors in their decision-making process. Personalization, on the other hand, is less important to Chinese consumers—only 41% customized their products, compared to 60% of Western consumers—while rarity and uniqueness remain the key motivators.
A digital gift card to encourage tourist visits
To maximize the influx of tourists from China, luxury brands can offer a limited-value digital gift card, redeemable only in their stores located at the traveler's destination. Since one of the main motivations for purchasing luxury items abroad is economic, a gift card offer could be the deciding factor for Chinese tourists.
Being digital, this gift card can be generated quickly and easily, personalized for future travelers at minimal cost. It also provides an opportunity for brands to make an initial connection with tourists, inviting them to visit their boutiques abroad.
Similar to how Chinese consumers research luxury products online, they also organize their travel digitally, often turning to major online travel platforms. The three most popular platforms are CTRIP, used by 60% of Chinese travelers, along with Elong and Qunar. Through these platforms, tourists manage all their bookings and itineraries. Therefore, it would be strategic for luxury brands to partner with these agencies and offer digital gift cards through their platforms to strengthen their engagement strategy.
A digital gift card from friends and family
Offering digital gift cards for sale on the brand's website can be a smart move, especially considering China’s distinct gift-giving culture. Unlike in Western countries, where gifts are typically reserved for specific events, gift-giving in China is highly symbolic. Whether visiting an old friend or meeting someone for the first time, it’s customary to present a gift, reflecting the Guanxi principle of strengthening relationships, both professionally and personally.
If friends, family, or even colleagues know that someone is traveling abroad, gifting a digital card that can be used during their trip makes perfect sense. For the gift-giver, the card is easy to purchase, and the gesture will undoubtedly strengthen their relationship with the recipient, who will deeply appreciate the thoughtful gift. For the luxury brand, this gift translates into increased visibility and motivation for the recipient to make purchases at their store, reinforcing the bond between brand and consumer.
The Chinese market is central to the strategies of many luxury houses, as the opportunities are vast. However, much remains to be done: from expanding physical sales networks to adapting to specific consumer behaviors and strengthening online presence. Chinese consumers, eager to acquire luxury products that reflect their social status, are willing to travel abroad to make direct in-store purchases. It’s crucial, therefore, to be present at every touchpoint along their journey.
