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The global market for luxury goods is going through turbulent times. Bain and Company’s Spring 2024 Luxury Goods Worldwide Market Study reveals a 1% to 3% year-on-year decline in the first quarter of 2024, continuing a progressive slowdown from 2023.
Some markets — China in particular — could weather the storm better than the rest. In an earlier edition of the Luxury Goods Worldwide Market Study, Bain and Company expected Chinese consumers to become “the dominant nationality for luxury goods, growing to represent 35% to 40% of global purchases.” The report further added that “Mainland China should overtake the Americas and Europe to become the biggest luxury market globally (24% to 26% of global purchases).”
But before it lives up to its potential, China’s luxury market will have to find solutions to three key challenges.
Finding the right customers: The luxury category has traditionally been heavily skewed towards very important customers (VIC) who, while accounting for less than 1% of the total market worldwide, nevertheless contribute up to 30% of revenue according to a report from Bain and Company.
Among the key challenges is wooing the middle-class consumer. For such consumers, luxury is an occasional indulgence, but their vast numbers could help reduce the industry’s overreliance on VIC.
Outreach to a wider audience base will require a change in direction from the luxury category which has thus far over-indexed on catering to VIC. Bain partner Federica Levato recommended a dual strategy involving top customers and small luxury goods to drive growth at both ends of the price spectrum.
Finding the right pegs to appeal to younger consumers: The VIC customers are typically in the 30 to 45 age group. As a result, luxury brands tend to not pay enough attention to late millennials as well as Gen Z. There are of course several challenges that are specific to marketing to Gen Z: short attention spans, lack of brand loyalty, and their dominant presence on platforms that are yet to be embraced fully by the luxury category such as social media. Worldwide, luxury still relies on physical retail experience.
Finding the right partner for online marketing: It is becoming increasingly apparent that brands of all categories — not just luxury — need to move online to find growth. However online digital marketing platforms are often quite different from each other in terms of the audience they serve and their potential to meet the exacting demands of marketers and brand owners.
A platform ought to have strong organic content as a hook, even as it allows more commercial messages to be introduced in a seamless and engaging manner. For categories like luxury, the ability to move users online to offline and vice versa is critical. Finally, the platform should provide accurate responses to hard questions around investment and return on ad spend, besides being able to reflect a boost in the softer brand measures of affinity and preference. There are very few platforms – Douyin for instance – that meet this brief.
How luxury is making the transition online
Douyin has 600 million daily active users. Search and discovery are rapidly expanding on the platform. Narrowing down on the luxury category, 260 million of Douyin’s userbase are core (40 million), potential (70 million), or interested customers (150 million), according to research from Ocean Insights and interviews and analysis from Deloitte. Each of these users are drawn in by the content they prefer — watches and jewellery for core customers; shoes and accessories for the typically younger users who beginning to show an interest in luxury. Douyin is now used by 73% of Chinese luxury consumers.
Also present on the platform are influencers who specialise in the luxury category, as well as local and global celebrities who further seed interest. Taken together, these factors are helping to transition the potential and interested userbase into consumers of the luxury category.
In line with these trends, the overall share of online spends has been on the rise within the luxury goods industry. The luxury goods industry’s online marketing share is expected to increase to 30%-33%. Furthermore, according to the report from Bain and Company, “Younger generations (Generations Y, Z, and Alpha) will become the biggest buyers of luxury by far, representing nearly 85% of global purchases.”
Why Douyin should be an essential element in a luxury brand’s strategy
On Douyin, luxury brands can make the most of appealing to their existing VIC audience, as well as bridging the gap with new customers. An interplay of multiple factors has seen Douyin harness the power of its userbase and technology to super serve luxury as a category.
A) The luxury category is experiencing a surge of organic interest on Douyin
Fashion has gained traction across the platform with nodes around global Fashion Weeks in markets like Paris and Milan. Douyin launched its own fashion week event, showcasing Louis Vuitton’s pre-fall men’s 2024 collection, Balenciaga’s autumn 24 series, and the summer men’s 2024 collection from Celine. These events offer heightened exposure to participating luxury brands and help them grow their follower count on the platform.
Trends that encourage users to dress like a celebrity have also played a part in making new users more curious about luxury. Events by brands like Gucci and Cartier attract significant traction. Brands such as Louis Vuitton and Gucci have over 3.7 million fans on the platform. The fans are engaging with these brands not so much for ultra short videos but for deeper insights into their symbols and stories.
B) Douyin helps amplify the power of global celebrities as well as influencers and creators connected to luxury
An event by singer Rihanna and Fenty, the brand that she co-created with LVMH, saw a 1,457% increase in the search index for the brand and a ninety times expansion in business. At the Louis Vuitton event, its creative director Pharrell Williams joined Douyin which saw a 20,000 strong surge in the fanbase of the brand.
There has been an increase in the number of influencers in the luxury category, particularly when it comes to platform-verified experts. Key opinion leaders (KOLs) are vital to the audience on Douyin, with 86% of consumers in China claiming that these influencers have an impact on their purchase behaviour. The audience for high end beauty are more likely to engage with content from KOL and follow 22% more KOLs than the average user.
C) Innovative ad formats help luxury brands stand out
Advertising on Douyin is delivered to an accurate target audience on the platform within 30 seconds, considering content, user interest, and behaviour. The innovation in advertising extends beyond quick and relevant targeting.
Considering the luxury audience’s desire for an elevated differentiated experience, the ads use interactive formats and AR and VR to strike a deeper engagement. Among users on Douyin, 33.1% prefer interactive ads to normal ones. Compared to normal ads, interactive ads have higher clickthrough rates, evoke more follows and are shared more frequently.
For instance, on Chinese Valentine’s Day, Prada launched an AR-driven try on function for its hats and sunglasses. Tag Heuer deployed similar technology for its watches. Critically, these ads went beyond mere promotions or online contests, and were tied to e-commerce within the Douyin ecosystem.
D) From awareness to sales
From a simple exclusively online or offline model, the purchase cycle across brands has become more complex, switching between the virtual and the real. Connected CRM systems help activity on the platform translate into real world benefits for the customer.
To help with sales, some brands are replicating the offline shopping experience with online personal concierge (OPC). Douyin helps luxury brands focus on the most relevant customers through a combination of e-commerce and search. Embraced by brands like Louis Vuitton and Dior, the OPC attracts customers to the offline store, helping them with appointments or physical displays, creating a one stop service experience.
This goes a long way towards establishing exclusivity and personalised service — the hallmarks of offline luxury marketing and among the most critical elements in brand building.
Delivering on the promise of luxury marketing
Building the best online environment and audience is only half the battle won — brands need a scientific mature marketing measurement system to demonstrate ROI. Douyin has the most comprehensive marketing data measurement capabilities. Luxury brands can thus track the whole process — pre, during and post marketing activation — and arrive at comprehensive insights based on how the userbase reacted to the campaign. The measurements include highlights of a short term burst as well as long term effects on brand image; the reputational impact, and how a brand fares in comparison to the competition.
Douyin thus helps luxury brands by bringing together all the disparate pieces of the marketing puzzle: the right audience — current and future; a platform that taps into and expands their interest in luxury; the presence of global celebrities and KOLs; OPCs who assist in the last mile of purchase, and finally measurement tools that allow marketers to evaluate and optimise their campaigns.
The opportunities for luxury on the platform are simply too big to ignore, and marketers who do not have a Douyin strategy stand to miss a large potential audience.
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