As luxury brands are starting to understand the full impact of Covid-19 on their business, we look into the strategies luxury brands can employ to mitigate decreasing appetite in 2020. VCCP Singapore
The e-commerce ecosystem has evolved its role from bottom of the marketing funnel to enabling the entirety of the marketing funnel on one single platform.
ADAPT TO THE AGE & ECOSYSTEM OF IMPULSE PURCHASE
Luxury brands were slow to enter the digital space. The experience of purchasing a luxury good is as paramount as the good itself. Luxury brands have struggled to replicate the same experience online, as the seemingly democratic Internet should be fundamentally at odds with the exclusivity of luxury.
Though unable to ignore the power of e-commerce in China, many brands have chosen to setup flagship stores in JD and Tmall, establish social commerce capabilities on WeChat, and seed content into the social commerce space of Little Red Book.
Signing away part of their power, luxury brands must then be prepared to learn to play by the rules of China’s Internet giants. Initially, having the badge appeal of the brand was enough to draw interest. But now, as e-commerce evolves from “product-centric” ecosystem where people searched for the brands & goods they had in mind, to a “discovery-centric” ecosystem where algorithms, content seeding, and social recommendations takes the user from product discovery all the way to purchase. The e-commerce ecosystem has evolved its role from bottom of the marketing funnel to enabling the entirety of the marketing funnel on one single platform.
Users no longer log on with intent but browse e-commerce as a leisure activity. Impulse purchase of luxury goods on e-commerce has doubled from 2012 to 2018 (Bain), one in two of their luxury purchases are decided in a single day (McKinsey).
Flagship stores on e-commerce platforms have already become the most important channel for some brands, as they reserve even exclusive product launches and launch online fashion shows with Alibaba.
One of the e-commerce tactics that is furthering impulse purchases is livestreaming.
Alibaba’s Taobao Marketplace generated more than 100 billion RMB in livestream sales, a 400% y.o.y. increase.
Li Jiaqi known as the “Lipstick King” of China sold more than 100 million RMB worth of product in just 6 minutes on his 2019 11.11 pre-sale livestream. With COVID-19, brands sought to enlist Li Jiaqi to bolster their online sales. He was even the face of a livestream to raise funds for Wuhan. Li’s rate card has risen to 100,000 RMB for a 10-minute livestream in response to the anticipated ROI (Caixin).
As COVID-19 lowers intent for luxury purchases, the right tactics can foster impulse purchases to trigger bursts of growth.
FROM GLOBAL MAISONS TO LOCAL BOUTIQUES
Luxury brands initially scored big in Asia by building the idealized image of aspirational European culture. But now it’s the brands that combine their heritage with local culture that truly enjoys success.
Take Hermes, famous for its Birkins – but makes everything from Asian-style fans to mahjong sets.
It is not a diffusion of decisions from global headquarters that trickles down to each local store. Each store director visits the Paris HQ twice a year, not just to learn but also to feedback. Those top performing Chinese store directors, of course have a lot more sway, but this ultimately means the seemingly random Asian-themed Hermes products are created from consumer feedback. Coupled with using Chinese designers, Hermes both retains its heritage yet evolves to fulfill the needs of its Asian customers.
Financial Times reported Hermes as being the most profitable luxury brand in 2019 with 34.8% profit margin. WWD reported a Hermes store in Guangzhou reopened earlier this month, with 19 million RMB in sales during its reopening day, with enthusiastic customers documenting their purchase experience on Little Red Book.
NEW CHANNELS OF ENGAGEMENT; NEW SOURCES OF REVENUE
For certain luxury brands, it seemed like the boldest digital moves still is to setup a WeChat mini program or to be on short video platforms.
It definitely made headlines then, that LVMH decided to do a tie-up with a video game –League of Legends (LoL) in late 2019.
What started as a branded in-game skin evolved to include: designing the actual Summoner’s Cup – the ultimate prize for LoL eSports Championships, to actual LV x LoL clothing that was sold out in less than a day on LV’s website and on a WeChat mini program dedicated to the partnership. The success drove more LV products and LoL in-game skins down the line.
What seemed like a 2019 wild bet on LVMH’s part is actually following the footsteps of proven success in China in previous years by other brands.
LoL’s sister IP – Honor of Kings – is under the same parent company of Tencent, and it is no stranger to commercialization. Honor of Kings started with developing branded in-game skins with McDonald’s, Yum Brands, and Sprite.
MAC developed lipsticks in the theme of the game’s female characters in the beginning of 2019, that sold out within an hour and went on to be scalped for 2x – 3x the retail price for the remainder of the month.
Even earlier, BMW worked with Honor of Kings to launch its X1 in 2017. The partnership included sponsoring the Chinese eSports team KPL amongst other assets like a film.
But the one wildcard asset took BMW China by surprise. The partnership also included a branded in-game skin that players could purchase.
The BMW branded skin amassed 150 million RMB (~$22 million USD) worth of sales on its first day of launch in March 2017 – daresay this might have exceeded the launch day sales of the car itself.
But the BMW skin is just a drop in the ocean compared to what players spent in Honor of Kings – $1.61 billion USD in total in 2017 (Sensor Tower).
It’s no secret that spending on games & entertainment enjoyed a sharp uptick due to COVID-19. Luxury brands or not, the logical marketing behavior should be to follow consumer attention and spending.
For luxury brands, although people may be buying less bags and shoes. The most valuable asset is still the brand itself. Coupled with a well-executed product – whether jewelry or an in-game skin, the top luxury ‘product’ during times of COVID-19 could very well be a digital one.
As COVID-19 transforms industries and people’s behaviors around the world, the face of luxury will be forced to undergo a transformation as well, to define itself beyond traditional product portfolio, engagement strategies, and brand building.
But right now, is also the opportune time for luxury brands to come out ahead as innovation champions across industries.
Alex is a hybrid of cultures and backgrounds. He has experiences across a variety of markets and agencies, including creative, digital, experiential, and media – a living mantra of “it only works if it all works”.
This drive for integration was shown in his operations in cross-agency teams, leading strategy for clients like adidas and GSK to drive positive business outcomes. Despite it being an industry cliché, Alex still believes silos need to be broken down – to explore different angles to solve business challenges.
Before coming to Singapore to join VCCP in late 2019, Alex worked in WPP China leading digital strategy at MediaCom, then integrated communications strategy at Grey.
He also possesses an entrepreneurial background, having ran his own D2C e-commerce business, a believer that we should all practice what we preach – clients can hopefully rest assured the business didn’t file for bankruptcy.
Alex now joins VCCP to challenge and be challenged, alongside the challenger brands of the world in Asia.