The cultural differences between Westerners and Chinese lead to a more or less clear and profound consumption patterns’ divergence. Nowadays, Chinese consumers represent between 30 and 35% of luxury buyers worldwide versus 25% for Americans. Several global studies conducted by Deloitte and the Boston Consulting Group, among others, decipher their behavior and bring new light on the interest of Chinese Generation Y in luxury.
What are the Chinese Millennials basic behavioral facts towards luxury brands?
CHINESE MILLENNIALS, A STANDARD?
As a reminder, Generation Y (also known as Millennials), embodies the new generation of consumers between 18 and 39 years old and, according to a survey conducted by Bain and Co, they will account for 65% of China’s consumption growth by 2020.
This nonconformist population, which has grown up in a context of rapid economic growth, is very aware of trends. These well-off and ultra-connected young people (200 million individuals) are emerging as the brands’ new preferred target.
Described as “Transition Generation” by Brain Value, the Millennials are seen as “a generation at the crossroads between the post-80s and the future” by Nicolas Riou, CEO of the consulting firm.
The study highlights the behavior of this young population, subject to social and family pressure from school to the working world. Constantly compared to each other, they lead a “life agenda” imposed by society. This highly rhythmical life, combined with a culture that favors hierarchy and group values, only intensifies their desire to assert their individuality.
In response, the Chinese Millennials embody a generation in tension that seeks to assert itself through social networks and consumption:
It is through social networks (to which they devote about 30 hours a week), that the Millennials seek to affirm their tastes, their personality and their singularity. They are eager to share almost instantly: “In China, your smartphone eats first”.».
“Consuming is their first hobby” underlines Nicolas Riou who distinguishes four different segments of Chinese Millennials: the “Status Seekers” who consume luxury brands to display their social success, the “Hedonists”, who manage to enrich themselves and consume luxury products for the experience they provide, the “Moonlight Spenders” on the lookout for new fashionable brands that will allow them to stand out from the crowd, and the “Young Buddhists” seeking quality brands in harmony with nature.
… oriented towards luxury
According to a study by the Boston Consulting Group (BCG), Chinese citizens will account for 40% of luxury goods consumers by 2024 and 60% by 2025. This development is expected to generate 70% growth in the luxury retail sector.
American or European Millennials tend to discover new luxury products on social networks, while Chinese Millennials (not indifferent to the trends circulating on the networks) prefer to get information by visiting the brands’ websites or consulting fashion magazines.
In general, the uniqueness, the brand and the quality of the product are determining factors in the act of purchase. Then comes the influence of the entourage which will be an important criterion (especially in the West), whereas the Chinese will be more influenced by celebrities.
The Chinese Generation Y is less receptive to the various services that can be linked to luxury products, such as product customization or experience. Indeed, 41% of Chinese youth will be attracted by a customized item vs. 60% in the rest of the world. In the same way, Chinese Millennials are not necessarily willing to pay more for this kind of service, Deloitte explains this reluctance by the low maturity of the luxury market in China.
Finally, brand loyalty varies considerably between the two types of consumers. 50% of Chinese Millennials develop loyalty to a limited selection of brands compared to only 25 to 30% of young American and European consumers.
MODE OF CONSUMPTION
Shopping immersed in a digital ecosystem…
66% of Worldwide Millennials and 77% of Chinese consumers used their cell phone for their last online purchase according to a report published by BCG.
The mobile experience and the digital ecosystem quality are two key parameters of the Chinese consumption pattern. Especially since the proportion of purchases requiring the use of smartphones is estimated at 80-90% by 2024.
Cell phones is also changing payment habits. The use of cash remains very rare for this generation for whom the smartphone almost exclusively replaces the wallet. Everyday purchases using QRcode are widespread and enabled by mobile applications such as Wechat and Alipay.
These new consumption habits should encourage luxury brands to adopt new digital strategies on mobile: via official websites, generalist platforms or social networks.
Indeed, the Chinese Millennials use a lot of E-shops such as TAOBAO for their purchases, especially luxury ones. In addition to offering a fast and quality service, E-commerce is encouraged by the weak establishment of large luxury brands in China. The Chinese Millennials are therefore all the more likely to use E-commerce because this alternative allows them to access the major luxury brands almost instantly, regardless of location.
… to the omnichannel
Omnichannel accounts for 48% of luxury purchases worldwide and 61% in China.
Omnichannel refers to purchases made through the use of multiple channels. According to the study conducted by BCG and the Altagamma Foundation, the percentage of purchases made through omnichannel is expected to increase in the coming years. This trend is notably linked to the emergence of Generation Y buyers, who are very receptive to this strategy.
Crystal Hao, Managing Director and Partner of BCG said that “the share of pure online purchases has increased to 30%, indicating a shift towards an omnichannel path”. He added that “in the post-COVID era, luxury brands need to reconsider the key characteristics of Chinese consumers and develop a truly multi-channel shopping experience that takes into account both service and experience”.
The high percentage of omnichannel purchases in China is partly explained by the ROPO (Research Online, Purchase Offline) model adopted by Chinese consumers. Indeed, this young generation places great importance on physical stores, the Deloitte report points out that “64% of Chinese Millennials prefer to go to luxury stores rather than buying online”. This practice allows them to touch the products and try them on and thus ensure the quality of the products.
ATTRACT / RETAIN ?
Propose products with high added value…
According to the DISKO agency, Chinese Millennials are attracted by new and innovative experiences sharable on their social networks. This strategy is already the one of many brands such as LVMH and Chanel, which are successfully increasing the number of events. Indeed, unlike the previous generation consumers of “passive” luxury products, the Chinese Millennials are turning to luxury products that are more lifestyle-oriented, generating well-being and sensations. This translates into a craze for original and immersive experiences. Indeed, young Chinese consumers are not attracted by a simple act of purchase but are eager to live unique and personalized experiences. Also, social networks, entertainment (gaming) and online shopping seem to seduce these young consumers who enjoy chatting, playing and paying with their smartphone. Brands should therefore promote experiences in which the act of buying appears as an entertainment.
The “all in one” principle is another way of offering added value appreciated by these Chinese Millennials who like to have a choice while optimizing their time. Indeed, this system corresponds to the fact of gathering several brands, products or experiences in a single place like some department stores and concept stores.
This experiencial dimension linked to practicality is central for a large number of Chinese Millennials who seek above all to promote and simplify their daily life, particularly through the use of technology. This innovation-oriented generation will be particularly seduced by technological and intelligent accessories. Indeed, the goal of products integrating technology is often to improve the daily life of the user offering a unique experience. According to the survey conducted by BCG x Tencent, consumer interaction with the brand influences or provokes the act of purchasing in nearly 70% of cases.
Pablo Mauron, Partner and General Manager of the Digital Luxury Group in China, gives a decisive role to augmented reality. He emphasizes that brands have an interest in understanding how it works in order to enable new experiences for consumers, especially Chinese Millennials. He said that “the Millennials generation is more complex and wants to be inspired” but also that they “are looking for connected experiences and emotion, they are not just spectators”.
… in accordance with their values
In the same way as the Western Millennials, young Chinese people have developed a certain environmental awareness and have the will to consume in a sustainable and responsible way through a more ethical and committed fashion. They are interested in local and labeled brands. Also, they are increasingly turning to niche designers, limited collections or informal fashion pieces.
Attracting and retaining this audience in a sustainable manner requires avoiding cultural traps. The Millennials and the Chinese public in general have a Chinese pride that brands should try not to offend. In 2018, Dolce&Gabbana presented a visual advertisement with a humorous aim but considered racist by the Chinese community. This was a major mistake from which the brand is still struggling to recover today.
Conversely, the seduction of this population should be achieved by showing empathy and closeness to their lifestyles. It’s about, through various products, of helping them to express their singularity and their unique character, very coveted by these Millennials.
Loyalty to brands therefore seems to require an understanding of the fundamental place of respect in the minds of young Chinese consumers, endowed with great sensitivity.
The young Chinese generation therefore continues to consume high-end products but is turning to a different kind of luxury. They are more seduced by exclusive and personalized products offering them unique experiences, in which the use value is paramount. This is achieved – among other things – by integrating an additional technological brick to facilitate the daily life of a generation with new needs and requirements turned towards the future.
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