Big Data: The Vital Tool for Luxury Brands in China

For the second year in a row, China’s luxury market has seen robust growth powered by digital transformation and a tailored approach to customer service — strategies that heritage brands like Gucci, Burberry, and Christian Dior have used with immense success. As commerce and the consumer preferences of Chinese luxury shoppers continues to evolve, luxury brands need to stay agile if they intend to maintain prime positioning on the Chinese market — that's where big data comes in. In a country that boasts the most advanced digital platforms where young, upwardly mobile consumers are socially connected, online shopping still didn’t reach its full potential. According to the consulting group McKinsey, “only 7 percent of Chinese luxury sales occur in official online channels.” Still, McKinsey also stated that, “as luxury brands further develop O2O initiatives that bridge the online and offline worlds to create a seamless experience, it is likely that more luxury sales will be conducted online.” Even though young consumers demand full digital transformation, they still need the store-based retail experience. And despite the high digital connectivity rate, Chinese consumers still demand premium engagement with brands in physical retail stores. Understanding the shopping habits of these young consumers (millennials and Generation Zers) and meeting them in their habitat has become crucial for brand survival. According to Deloitte’s Global Powers of Luxury Goods 2018 report, “Collectively millennials and Generation Z will represent more than 40 percent of the overall luxury goods market by 2025, compared with around 30 percent in 2016.” As millennials and Gen Zers further drive sales in the luxury market, brands will become more and more preoccupied with understanding these consumers and their shopping habits. But these mobile shoppers are constantly exposed to an unlimited amount of data and filtering through so much information and managing significant facts becomes a laborious process. Due to information overload, these consumers are becoming more selective and adjusting their shopping behaviors accordingly. At this point, big data comes in handy as it benefits brands who want to deliver personalized content by subdividing consumers based on their purchasing habits and engagement. According to Luxe Magazine, “85% of luxury brands sales come from customers registered in the database,” and despite that encouraging rate, traditional luxury companies have been maddeningly slow to embrace big data. Heritage brands have a clear advantage over their competitors because they receive important information during the course of their interactions with customers, but far too often they under-use this data. Through customer segmentation and the analysis of behavioral data, luxury brands can use a more targeted approach in their interactions with customers, and this will again translate to higher sales. Furthermore, through the use of social data, luxury brands can further enhance their storytelling capacity to appeal more to their target audience. Burberry is the archetype for success stories when it comes to embracing big data and using it to create a competitive edge. Since 2006, the British company has reinvented itself as an “end to end” digital enterprise by using consumer behavior analytics to better understand the purchasing habits of shoppers and to run targeted marketing campaigns. According to Socialwall, Burberry assigns over 60% of its advertising budget to social media platforms. This transformed the company into a digital colonizer leading the way in avant-garde digital experiences. The brand was also one of the initial luxury companies to adopt a complex omnichannel model, which helped to create a cohesive customer experience. Burberry collects data from customers through social media platforms and implements this data in their digital and non-digital marketing campaigns. Burberry’s successful Customer 360 program is also highly data-driven. While using the program, customers agree to share their style preferences, shopping aversions, and purchasing history with Burberry. Sales associates can access the data through tablets, analyze the information in real time, and offer customers personalized shopping experiences. Meanwhile, the brand’s Art of the Trench campaign has reinvented Burberry, turning it into a luxury brand that belongs to a wider and more globalized community. By making the brand more accessible, Burberry has added innovation to the DNA of a traditional business model — and that has also helped them enhance their customer experience. Through The Art of the Trench, Burberry fans can share their style hacks (when it comes to dressing the Burberry trench up or down) with a wider audience, and this again generates buzz for the brand. Dior is another example of a heritage brand that uses a holistic approach to customer experience. Thanks to data harvesting, Dior has officially become the most relevant luxury brand among Generation Z consumers. By integrating the data available on social media platforms, Dior has created some outstanding marketing campaigns in the country. The brand’s success was on display in China during its Customized Lady Dior Small handbag campaign. Between August 1 and August 4, 2016, Dior offered the handbag for sale for $4,047 (28,000 RMB) on WeChat. They sold all 200 bags within 36 hours. This success story demonstrates how brands can use customer behavior analytics to increase revenue and customer engagement. While heritage brands like Burberry and Dior are reinventing their appeal with data-driven personalization, others who didn’t get on the big data wagon are now bleeding market share. Interestingly enough, the luxury brands that fell behind don’t understand that they own a big advantage over fast-fashion and affordable luxury brands in the form of the data they’ve collected from their shoppers. But unfortunately, not all brands know how to leverage data and turn it into actionable insights. But luxury brands that collect data through social media channels and customer feedback must also understand that online security is absolutely crucial for their success. Any cyber attack can put the corporate reputation at serious risk and threaten the brand’s market value; thus cyber security is as important to a business as strategy or branding. Protection against information leakage, data breaches, and cyber attacks are vital, so companies need to invest in internal encryption, strict controls, security training, and audits. Understanding the power of big data is the first step toward successful data management. According to an editorial from the Economist, data has surpassed oil as the world’s most valuable commodity, and China is the place where we can see the full power of analytics take shape. In a country that boasts 802 million internet users and 673.5 million people using social media platforms, e-commerce websites like Alibaba and JD.com have made data and analytics their key focal points for winning legions of fans. China’s Singles’ Day set a record of $30.8 billion in sales in 24 hours in 2018, and big data and social media were crucial in achieving this huge triumph. China molds e-commerce and social media into a social shopping experience that gives consumers the ability to shop directly via their own social network. Chinese brands and e-commerce players understand, much more than outsiders, how achieving a cohesive customer experience requires data insights into customer’s lives. For global players like Alibaba or JD.com, customers are not one-dimensional. Because of this, marketing strategies shouldn’t be either. Thanks to big data, Chinese companies understand that customers change their idiosyncrasies during their lifetime, so they use statistical techniques and data — updated regularly — to forecast important shopping behaviors. Soon, only the luxury brands that tailor their approaches based on customer behavior patterns will survive. And in a country like China where online retail sales reached about $1.33 trillion in 2018, the use of big data should be considered indispensable for Western luxury brands.

Big Data: The Vital Tool for Luxury Brands in China

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Published June 19, 2019

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Big Data: The Vital Tool for Luxury Brands in China