Visiting recently with a Land Rover dealer in California, I found myself dragged into the usual “Do you think China will keep growing so fast next year?” conversation. I get this question constantly from a wide variety of luxury brands—in this case, because the dealer has been astonished to receive “calls every day from Chinese customers, offering 30 percent over MSRP if we agree to ship their new Range Rover to Beijing,” which they are not permitted to do.
While this could be an enviable situation for luxury brands, it could also potentially wreak havoc on global inventory management and brand perception if they’re not careful.
Just as dealers of flashy SUVs that have attained blockbuster status in China are struggling to keep pace with assertive and dynamic customers, purveyors of products in all luxury segments around the world saw massive market disruptions in 2013, under indefatigable pressure from Chinese consumers.
Before we pontificate about next year, here is a small sampling of notable happenings from a very eventful 2013 in Chinese tourism:
- The number of outbound trips from China continued to increase, boasting more than 18 pecent growth in the first nine months of 2013, despite the constraint of an ongoing corruption crackdown.
- Chinese travelers surpassed their German counterparts to become the world’s biggest traveling spenders, notching more than US$102 billion in 2012 compared to just US$84 billion by German travelers.
- Chinese travelers became the most numerous overseas arrivals at many global airports, including LAX, where they placed fifth just two years previous.
- China’s broad Tourism Law went into effect on October 1, 2013, ushering in momentous changes in tourism operations, and resulting in sudden shifts in traffic, shopping habits and travel preferences.
- As we go to press, yet another new regulation has been issued, concerning shopping for Chinese travelers. Keeping abreast of the ever-shifting regulatory environment in China is crucial for any luxury brand manager.
It is always perilous to make sweeping predictions about China, given its recent emergence as a global retail power and the continuing uncertainty about the future of its economic growth model, but our attempt at 2014 Chinese tourism fortune telling follows:
1. Going it alone. Individual tourism will represent a larger percentage of overall Chinese overseas travel. As the effects of China’s new Tourism Law percolate throughout the industry, the prices of group tours have increased, drastically reducing the cost differential between group and individual travel. We therefore expect to see an increase in independent travelers as Chinese tourists become more comfortable with booking and traveling on their own or with friends and family. We may also see fewer large bus tours as VIP groups shrink, with the average group now smaller than 10 people, in most markets.
2. Raising the bar. What seemed to work easily for brands in attracting and engaging Chinese travelers last year won’t work this year, as consumers’ sophistication and preferences are evolving rapidly. Virtually all tourism destinations and luxury brands have begun to target Chinese travelers in some fashion, making the competitive landscape more and more crowded in attracting this very influential tourist—the era of low-hanging fruit has passed. Brands and tourism destinations need to innovate faster than competitors in providing compelling service and experiences for Chinese customers. The product development mantra “Ready, Fire, Aim,” comes to mind.
3. Making the connection. Tencent’s WeChat, the innovative social network that is rapidly evolving beyond its WhatsApp-like roots, will become a compulsory social media application for luxury brands seeking to connect and build loyalty with Chinese tourists. With more than 600 million users in China, virtually every overseas Chinese tourist has a WeChat account and uses it daily to communicate with friends while traveling. WeChat allows brands to engage in a more personal conversation than they can with Sina’s Weibo. If you are not looking closely at WeChat, then you are already trailing far behind your most important customer.
4. Thinking outside the box. Chinese tourists will expand the depth and breadth of desired tourism destinations in 2014. Following the explosion of interest in visiting Yellowstone National Park and other destinations outside the traditional New York-Los Angeles-Las Vegas-San Francisco bubble during the summer of 2013, we expect to see increased tourism from China to lesser-known destinations like Spain, Portugal, Prague, Texas, and Brazil during 2014. The current “first wave” of Chinese outbound tourists is growing more sophisticated as better and deeper sources of information are reaching them. If you are a destination or brand, you need to make sure that you stay in the mix.
5. Considering alternatives. Chinese consumers are increasingly open-minded and curious in their brand selections. While we will surely see continued interest in the top-tier luxury brands, some of which have achieved near-ubiquity in China, we are also seeing Chinese consumers looking further afield for subtle, high-quality products. With all indications that the government crackdown on corruption will continue, at least through the first half of 2014, we expect this trend to accelerate.
Given the pent-up demand for overseas travel, we will surely see continued growth in 2014—and the bemused and befuddled questions from California luxury auto dealers will continue.
If you want to learn more about WeChat marketing to Chinese travelers, join Jing Daily and China Luxury Advisors on January 15 for our “Weibo vs. WeChat“ webinar.
Sage Brennan is co-founder of China Luxury Advisors, a boutique consultancy that helps luxury brands and retailers to develop China-related strategies, ranging from market entry to social media to attracting, converting, and retaining Chinese tourists. Sage first visited China in 1987, and has worked in China as a researcher, investor, entrepreneur, journalist, and advisor, with a specialization in digital, mobile, and strategy. Follow China Luxury Advisors on Facebook or Twitter.