China's luxury market set for strong rebound this year

07 December 2020 Consultancy.asia

The global luxury market was already moving to China before the Covid-19 pandemic, and is doing so even faster now. Boston Consulting Group (BCG) collaborated with Tencent Marketing Insight (TMI) to examine the market. 

BCG and TMI analysed more than 10,000 consumer purchases with the sole aim of understanding movement in the Chinese luxury market. Last year, fellow management consultancy Bain & Company noted that China would account for nearly half of the global luxury goods market by 2025 – a call-to-action for brands.

No doubt, Covid-19 threw a spanner in the works here. Amid job losses and a widespread recession, luxury spending is the first to come under the axe. By March, both BCG and Bain were predicting a contraction for luxury across the world, with the Chinese luxury market alone expected to take a hit of more than $40 billion this year.

Personalised online sales are the future of luxury

Yet, China managed to contain infection rates soon after, and economic stability followed. By this point in the year, even luxury spending has regained its momentum. BCG and TMI report that China’s luxury market will actually grow by up to 30% this year – a figure made all the more stark with the same report predicting a 20% to 45% hit for the global segment.

For global luxury brands, the path ahead is exceedingly clear. China is the luxury epicentre of the future, and investing in the market is crucial for survival. Indeed, steps in this direction have already been made by major luxury players this year. Leveraging their marketing and data analytical capabilities, BCG and TMI analysed consumer data to give these brands something to work with as they look to conquer a vast new market.

Managing Director & Partner at BCG Crystal Hao highlighted the strength of the market, while also noting some key trends. “The luxury market in China was the first to recover from the impact of Covid-19, and is seeing an increasing rebound in local consumption and online channel adoption.”

The social media path-to-purchase

“The share of pure online purchases has increased to 30%, indicating a shift towards an omni-channel journey.” The shift online reflects a similar trend across the Chinese and global retail landscape, as brick & mortar visits are ruled out either by government restrictions or  by fear of infection. According to Hao, brands must respond strategically.

“In the post-Covid era, luxury brands need to re-consider the key characteristics of Chinese consumers, think about how to better leverage digitalization enablers to understand and cater to consumers’ needs, and develop a truly omni-channel shopping experience that takes into account both service and experience.”

Notable among the findings is that a personalised customer experience is key to clinching a sale. Be it first time buyers or repeat customers, most expressed a preference for a one-on-one sales experience, which accentuates the luxury of it all. In similar vein, consumers want a personalised customer experience, tailored to their specific needs and wants.

Brand engagement online

For brands, this makes data analytics an indispensable investment going forth. Vast pools of customer data can offer nuance on behavioural patterns and preferences, which helps deliver that much-coveted tailored experience. Online sales channels and data analytics aside, brands also need to up their social media game.

Younger consumers are increasingly occupying the high-spending brackets in China, and a distinct characteristic among this generation is the tendency to do online research and connect with a brand via social media. Experts suggest that everything from generating awareness about a brand, cultivating interest in a product, building intent to buy and making the actual sale can all be done via a comprehensive social media platform.

As the luxury market turns to this vast, young and ever discerning population, there are substantial gains to be made if the right technology is put to use. The researchers position an immersive and personalised omnichannel experience as the golden ticket to making inroads in the Chinese market.