Brands must engage Chinese travellers

Warc, 30 June 2014

BEIJING: Luxury brands could benefit from precisely segmenting the rising number of Chinese consumers who buy significant quantities of premium goods while overseas, a study has argued.

According to a report by management consultancy McKinsey & Co, the Chinese luxury market will expand by 2.5% in 2014, a major slowdown from the double-digit growth of previous years.

That statistic does not capture the complete picture, however. Shoppers from China, the research added, are today responsible for 27% of category purchases globally, and over 60% of this activity occurs in other countries.

"Engaging these consumers and understanding their consumer decision journey is critical to the future success of most luxury brands," the study said.

The complexity of achieving this goal should not be underestimated. Segmenting the target audience offers one possible solution.

"As the market grows and many Chinese become veteran tourists, reaching these consumers is becoming more challenging as there are now multiple segments," McKinsey said.

"There are at least three types of consumers that companies must understand and engage."

The first group is comprised of "ultra-wealthy veteran travellers", who go on several trips each year and spend an average of almost $4,500 per excursion, a large portion of which goes on premium products.

Such buyers are frequently businessmen, and typically "value a high level of service and want to feel that they have access to goods that would not be available at home in China."

Another cohort, the "newcomers", generally incorporates upper middle class buyers, many often from second or third tier cities, who are travelling abroad for the first time.

One example of how to engage this demographic comes from Louis Vuitton's stores in Paris, where 95% of Chinese visitors are drawn from tours including luxury shops on their itinerary.

The third group are the "new repeats". These customers visit Europe and other international destinations at least once a year, something that has become "an important and valued part of their lives".

"As these consumers become more comfortable with and knowledgeable about travel, they are moving away from organised tour groups," McKinsey said.

"Consequently, their reliance on the internet for trip planning is high, with online and social sites often serving as a source for identifying 'must shop' stores."

Data sourced from McKinsey; additional content by Warc staff