Digital Red Envelopes Are a Crucial Marketing Tool in China

Chinese New Year has come and gone, but red envelopes, or hongbao, are here to stay. While the likes of Mulberry and Dolce and Gabbana have been known to tap into the Chinese tradition of gifting money during Spring Festival, many other brands have found ways to benefit from hongbao‘s evolving role in China’s mobile payments ecosystem.

WeChat has firmly positioned itself as a leader when it comes to the digital exchange of red envelopes, called “lucky money,” on its platform. Tencent claims that during this year’s Spring Festival season alone, upwards of 768 million people exchanged red envelopes through WeChat, up 10 percent from last year.

Prior to the holiday, a survey by Lightspeed Research conducted among about 900 respondents across Greater China revealed that more than 80 percent of users had planned to exchange red envelopes on WeChat this year, while only 69 percent had planned to share physical red envelopes, and less than one-third of respondents said they would use the red envelope function on Alipay.

It’s hardly surprising that WeChat dominated the share of digital red envelope exchanges given its history with the phenomenon. Tencent did its first major campaign promoting the function in 2014 during CCTV’s Spring Festival Gala, the most-watched television event in the country, incentivizing users to use WeChat’s “shake” function to receive red envelopes filled with prizes.

Obviously, consumers loved it. In fact, many experts agree that this particular occasion modernized a very structured and traditional way of gifting among family members in China for not only Spring Festival, but for weddings, birthdays, and other special events. But, more importantly, it helped consumers become more comfortable with sending and receiving money on a mobile app linked to their bank card.

“It was a very important moment when red envelopes became popular because it is not an exaggeration to say that WeChat Pay itself was in large part built upon the success of ‘lucky money’ or ‘red envelopes’ on WeChat,” said Matthew Brennan, a known WeChat expert and co-founder of China Channel. “Without lucky money, WeChat Pay wouldn’t have the adoption that it has today.”

This adoption rate has put WeChat Pay just behind Alipay as a preferred payment option both overall and among the wealthy in China, according to the Hurun Chinese Luxury Consumer Survey 2018. Only two years before, bank cards were still the most popular payment method among luxury consumers.

While most of WeChat Pay’s use revolves around micropayments, transaction amounts have been increasing, and a number of luxury brands have encouraged the use of WeChat payments through e-shops on the platform or by scanning WeChat QR codes in brick and mortar stores. About 26 percent of WeChat users turn to WeChat Pay for online shopping, 21.6 percent for paying restaurant bills, and 20 percent when shopping in malls, according to the WeChat User Behavior Report released last year.

Also illustrating the growing comfort with exchanging money on a smartphone, the red envelope has led to the expansion of mobile payments into dozens of features on WeChat, including making charity donations, taxi payments, and ordering food. But making payments using red envelopes, as opposed to sending a more impersonal transfer or paying a bill, has its own function that persists throughout the year. First, for making peer to peer micropayments within WeChat’s messaging platform, and secondly through incentivized marketing, usually in the form of discounts.

Brands generally don’t directly benefit from friends exchanging money online, but occasionally one might engage in social gifting, sharing with friends red envelopes that are directly linked to vouchers from brands. For example, Starbucks has enabled users to send cups of coffee in the form of digital red envelopes to friends through its WeChat app.

There have been a number of other ways brands have adopted the concept of the red envelope in their daily marketing schemes through cooperation with WeChat Pay. After buying something in-store using WeChat Pay, consumers may, for instance, receive a red envelope with a surprise discount. Sometimes, payees are also prompted by the brand to send ‘lucky money’ to a friend, helping the brand expand its customer base. In most cases, Brennan says, the participating companies are consumer brands because the idea of a discount communicates value and is generally not an incentive that luxury brands want to be associated with.

However, as WeChat and Alipay race to find ways to retain users for their mobile payment ecosystem, they continue to explore ways to incentivize shoppers and even promote various new technologies.

Aside from offering instant discounts in the form of red envelopes following mobile payments, Alipay included red envelopes in an augmented reality (AR) game last year on the tail of the global Pokemon Go phenomenon. Users could give the app access to their cameras and locations in order to see digital hongbao floating in front of them. Brands have gotten involved by teaming up with Alipay and “hiding” AR red envelopes in their stores or among their products, promoting online to offline (O2O) engagement among followers. WeChat has also empowered retailers to tap into O2O gamification using red envelopes, working with a mall to incentivize shoppers with a hongbao scavenger hunt.

Luxury brands such as Hermès are already using mobile games as a marketing channel. In place of offering discounts, they can instead reward engagement with exclusive products or access to events.

Alipay and WeChat Pay present significant new opportunities for brands operating in China.

“There’s an intense war to protect those payment platforms and also to integrate increasingly more with offline payments, merging online and offline retail experiences,” Brennan said. ”From the backend, this also means utilizing data better and improving logistics as the expectations of the consumers in China are increasing.”

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