BCG X Tencent Luxury Digital Playbook - With Cases - ENG

China Luxury
Digital Playbook
No ordinary love – the changing relationship between
brands and Chinese millennials
Pre-launch Teaser
Tencent x BCG luxury consumer insight study
Tencent Consumer
data survey
Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved.
Data source Tencent DMP Tencent platform users’ survey responses
1.8mn Chinese luxury consumers 2620 consumers

Sample size (customized BCG x Tencent tags) (luxury buyers in past 12 months)
Key outputs Luxury consumer profiling Luxury touchpoints and purchase pathway
2
Chinese luxury consumers to drive global luxury growth
Chinese personal luxury market to grow at 6% CAGR 40% of global true luxury market will be in China
€ billion, retail value € billion, retail value

2/27/21 2/27/21
2/27/21
2/27/21 2/27/21
2/27/21
2/27/21 247
2/27/21 2/27/21
2/27/21
2/27/21 2/27/21 2/27/21
2/27/21
2/27/21 2/27/21 2/27/21

2/27/21 40%
105 32%
2/27 2/27 2/27 2/27/ 2/27 2/27/

/21 /21 /21 21 /21 21
2/27/21 Accessible luxury F
70% of global growth
1. Monthly household disposable income >23k RMB in 2016 prices
Note: Chinese includes purchases abroad; personal includes leather accessories, apparel, watches and jewelry and perfumes and cosmetics
Source: BCG Luxury Market Model 3
36% 2/27/21 28 Average
2/27/21
8% 6% 6%
Age
2/2 2/27 2/27 2/27 2/27 2/2
7/2 /21 /21 /21 /21 7/2
TGI1 147 148 140 111 88 1
24
2/27/21
They are very
young, better Education
12% 16%
8%
educated, 2/27/21 2/27/21 2/27/21 2/27/21
more female TGI1 100 145 321 505
2/27/21
29%
Gender
2/27 2/27/2
/21 1
TGI1 54 176
1. TGI measures whether the group is over or under represented compared to the general population (base = 100)
4
Source: BCG X Tencent Luxury Study, 2018
Over 50% of luxury consumers
live beyond top 15 cities
% of luxury
City tier consumers # of cities
Top 4 20% 4
Shandong
Tier 1 22% 11
Jiangsu
Sichuan
Zhejiang
Tier 2 22% 32
Luxury consumers
7%+ Guangdong
5-7%
3-5%
1-3%
Tier 3 36% 2,158
0-1% and below
Source: BCG X Tencent Luxury Study, 2018; BCG MAC database 5

They are attached to mobile app throughout the day
% of luxury users logged onto Tencent apps throughout the day Daily ‘mobile’ time per user (min)
0:00- 8:00- 16:00-

100% 8:00 16:00 24:00 WeChat
+QQ
87
Mobile
45
games
50% Video,
News and 75
Music
0%
News Video Music
Source: BCG X Tencent Luxury Study, 2018 6
Luxury purchase pathway is highly fragmented …
Discovery Research Purchase Payment Delivery After sales
… driving shift of luxury from offline to online
Online Offline Total mix
Research Purchase Research Purchase
% of purchase by channel
vol. vol. vol. vol.
Offline1
Traditional Luxury 100%
2012 Brand highly rely on
physical presence Online
0%
Offline1
Digital Luxury 1.0 95%
2017 Traffic shift from offline
to online channel Online
5%
Offline1
Digital Luxury 2.0 85-90%
2023 Traffic conversion uplift Online
as on/offline integrates 10-15%
1. ~1/3 of offline purchased volume comes from ROPO

(research online purchase offline) Bubble size = Traffic volume (consumer) 8
Over 50% of luxury consumer attention online, mainly
mobile super APP
Chinese KOL important touchpoint to reach luxury

consumers
6
Brand Official Account becoming an impactful way to
reach and engage
trends re-defining
the rule of game
Research online purchase offline (ROPO) is the
dominant purchase pathway
Low-tier luxury consumers active in digital; cluster-

based targeting more effective to reach them
Marketplace dominates luxury e-commerce, yet

social-linked shopping rapidly emerging
9
1
Over 50% of luxury consumer attention is online, mostly

on mobile …
Earned Traditional
Discovery touchpoints by consumer attention traffic: 18% media: 3%
Organic
Online/mobile traffic: 29%
2/27/21
Offline 2/27/21
2/27/21
Other digital
media traffic: 26% 29%
100%
Social content 7%
traffic: 24% 8%
11%
12%
12%
KOL (on Brand Social 2/27/21 2/27/211 2/27/21 2/27/ 2/27/21 2/27/21 TVC/Print/ 2/27
WeChat Media (WeChat and mini- 21 Event/OOH /21
and Weibo) and Weibo) program
1. Primarily Moments ads and OTV ads
1
… attention focuses platform consolidated by super APP
Dominance of mobile time by Tencent
WeChat
Social QQ
Weibo
2017 share of time spent on smartphones (%)
Mini-program Tmall
E-com Store Taobao
Tencent
News & info Weibo Baidu
News Tencent Facebook
Baidu
50% 22%
Music QQ Music Xiami Music
Music
Tencent
OTV Youku iQiyi
Video China US
e.g.,
Honor of
Games
Kings
Source: BCG China Internet Trends Report 11
2
Chinese KOLs important touchpoint

to reach luxury consumers
Top 30 Tencent KOL accounts by % of followers among luxury users
2/27/21% 1 2 3
2/27/21%
2/27/21% Gogoboi Becky’s Fantasy Mr. Bags
Average:
2/27/21.2%
1 2 3
• While top KOLs have widest reach, they are not necessarily
followed or liked by your target consumer
• Brands should work with Tencent’s analytics to identify

which long-tail KOLs are most relevant

3
Brand Official Account becoming an

impactful way to reach and engage
Average views per Official Account article (indexed)
• ~20k views per article on average, though top brands'
articles can hit >100k views
• Brands can invest resources to make content more engaging,
and/or co-develop new content formats with Tencent
Note: Average views of last 3 articles on WeChat Official Account

Source: Brand accounts on WeChat, BCG analysis 13
4
ROPO is the dominant

purchase pathway
Our observations
58%
• ROPO relevance driven by:
– New luxury buyers
ROPO 12% 100% educate themselves
26% 3% online before
entering store
– ~45% of online-inspired
32% consumers buy abroad
due to pricing and/or
lack of stores
8%
2/27/21 • Online solo to grow as EC
platforms in China further
develop luxury offering
2/27/21 2/27/211 ROPO – 2/27/2 2/27/21 2/27/21 2/27 (e.g., Tmall Luxury Pavilion,
China 1 /21 JD Toplife)
1
1. Researched Online, Purchased Offline

5
Digital is crucial to reach and convert consumers living

in lower tier cities
Consumers by city tier
Consumer journey type Top 4 and Tier 1 Tier 2 Tier 3 and below
ROPO
(research online, purchase offline)
64% 56% 51%
Pure offline 28% 29% 27%
Pure online 8% 9% 16%
Showrooming
(research offline, purchase online) 1% 5% 6%
Note: Abroad purchases includes asking friends/family to purchase abroad

5
Location-based cluster approach helps amplify brand

marketing reach
Chuzhou (Tier 5) is less than 20 mins train to

Shenyang
Nanjing (Tier 1), I travel there to buy luxury
Beijing goods several times a year
Tianjin
— 28 years old, Chuzhou
Xi'an
Nanjing Suzhou
Wuhan Hangzhou
Chengdu Chongqing
Consumers from Liaocheng (Tier 4) typically go

to Jinan (Tier 2) for luxury goods. Therefore,
City categories we only do marketing in high-tier cities
Guangzhou
Emerging
Shenzhen
Top Tier — Luxury brand Sales Manager
Cluster
Note: 18 official clusters defined by Gov based on proximity and intensity of economic activities
Source: BCG MAC database 16
6
Marketplace dominates luxury e-commerce, yet social-

linked shopping emerging fast
Generalist Mono-brand Social media Luxury Online Off price

marketplace website linked sales multi-brand flash sales e-tailer
(e.g., T-mall, Ali (e.g., WeChat) (e.g., NAP, (e.g., VIP)
Pavilion, JD, JD Farfetch)
Toplife)
51% 23% 11% 8% 7% N/A
23% 33% 2% 32% 4% 6%

Over 50% of luxury consumer attention online, mainly
mobile super APP
Chinese KOL important touchpoint to reach luxury

consumers
6
Brand Official Account becoming an impactful way to
reach and engage
trends re-defining
the rule of game
Research online purchase offline (ROPO) is the
dominant purchase pathway
Low-tier luxury consumers active in digital; cluster-

based targeting more effective to reach them
Marketplace dominates luxury e-commerce, yet

social-linked shopping rapidly emerging
18
Online to offline Offline to offline Online to online
Social gifting SCRM tools Online sales platform

Social-linked gift cards
and coupons
‘Wechat For Work’2 Wechat store, mini-program
A broad KOL amplification
e.g., Online celebrities as SA

New retail application Personalized online offerings
range of tools LBS ads/shopper instant discounts Scan and go / order

Customized messages and
re-defining the
product offerings
LBS Moment Ads
Offline engagements Online content and
social marketing
O2O gamification/engagement
rule of the
Instore tournaments Wechat OA articles,
e.g., O2O treasure hunt game 1 /interactive screen mini programs, etc.
game Impression-driven marketing tools: QQ Music, OTV, news, etc.
Licensed IP for promotion and product differentiations
Data-driven member management
Store-level shopper profiling and traffic analysis
19

and coupons ‘Wechat For Work’2 Wechat store, mini-program
KOL amplification
E.g. Online celebrities as SA
LBS ads Targeted messages in Wechat

Scan and go/order
OA
LBS Moment Ads
O2O gamification/engagement social marketing
E.g. O2O treasure hunt game1 /interactive screen mini programs
Impression-driven marketing tools: QQ Music, OTV, etc.
Gucci: Online conversion leveraging social media

fan base and social sharing

Interactive New product Social Social
customization promotion gifting sharing
Official account
Moments Ad
Better Product Sales Brand

QR code
Engagement Exposure Enablement Exposure
20

KOL amplification

Scan and go/order
OA
LBS Moment Ads
Apparel brand: Link KOL with mini-

program to accelerate conversion

1,000
Article for Product Mini-program Boutique in Transactions
“Seeding” Display Embedded Mini-program in 2 min
Valuable Product Trigger click Purchase

dressing tips information
1 Mil
Sales Value
in 7 min
113min
All Products
Sold Out
21

KOL amplification

Scan and go/order
OA
LBS Moment Ads
Hugo Boss: O2O gamification and VR shopping to

drive offline traffic

Inviting brand fans to join the AI chat box VR gaming in HUGO
Christmas campaign game interaction BOSS store
22

KOL amplification

Scan and go/order
OA
LBS Moment Ads
Travel retail: Engage fans through location-based

social media advertising

Integrate into EC
“Brand” feature: Interact campaign with WeChat
with loyal fans Pay
Recruit fans through LBS Special Event Customized purchase
Moment Ads. Campaign experience
23

KOL amplification
LBS ads Customized offerings with

Scan and go/order
personal preferences
LBS Moment Ads
Some luxury brands have experimented with

Mini Programs as an integrated sales platform

Three major use cases Brand Mini Program examples
1 Build social-friendly EC platform on • New collections come with
WeChat
1. Longchamp customization options
Online shop • Share and pay via WeChat
2 Drive online traffic to offline stores • Customers buy gift cards
(lipstick or perfume), to send
2. Dior each other on WeChat
Gift sharing • Gift can be picked up from a
nearby Dior's retail store
3 Kickstart CRM • Sign up as member in WeChat

3. Michael Kors to see more brand content
CRM • Potential to link to more
customized CRM
24

KOL amplification

Scan and go/order
OA
LBS Moment Ads
Forevermark: Create a personalized shopping pathway

using data analytics

Reach Engage Convert Purchase
WeChat Moment Ads Creative H5 designed to Customer recruitment WeChat pop-up store
engage with consumer
Limited offering through
online sales platform
Offline flagship store
Event marketing via

video/micro film
Recruit user to follow

Leverage Tencent big data
Official WeChat Account,
precision targeting to
lead to online platform Steer online traffic to new
reach consumer
and offline store location boutique store opening
25

KOL amplification

Scan and go/order
LBS Moment Ads
Backup: Precision tagging based on TA features

Reach Engage Convert Purchase Leverage Tencent big data precision targeting to reach consumer
Basic tagging Fashion tagging Search based Community based

tagging tagging
• Age/gender • Income based • Searched history • Celebrity fans
• Cities • Fans of fashion for crossover group
• Interest brand brands, product
Performance
Impression Video view Clicks Likes/comments
~17M ~17M ~80K ~11K
WeChat Moment Ads 26


KOL amplification

Scan and go/order
LBS Moment Ads
Backup: Personalize content and interactions

Reach Engage Convert Purchase Connect consumer via H5/Video with creative contents
Event marketing via
Creative H5 content designed to engage with consumer video/micro film
Interactive H5 Personalized H5 Event based marketing
Interactive H5 content leading Provide personalized Launched to accommodate 520
consumer step by step toward recommendation based on event, connect single consumers
product exhibition, embedded analysis of multiple questions, and stimulate their needs in
with celebrity endorsed video drive traffic to online & offline purchase for themselves
stores
27

KOL amplification

Scan and go/order
LBS Moment Ads
Backup: Drive traffic to both online and offline

Reach Engage Convert Purchase Digital tool to creative seamless experience across online & offline
WeChat pop-up store with limited time and offer to Continue to drive traffic to new boutique store for
ignite consumer purchasing desire online-offline shopping experience
• Campaign time
length: 3 days
• Total SKU: 8
• Pieces sold: >250
• Sales: >3M RMB
Key success factors Key success factors

• Limited offer and celebrity endorsement • New retail design and renovation
• Newfangled digital shopping experience • Powered by interactive digital tools
• Precision targeting to boost conversion (e.g., magic mirror)
• New market positioning • Celebrity PR events
• LBS moments to drive traffic to store
28

KOL amplification

Scan and go/order
OA
LBS Moment Ads
Prada: Fashion show live

broadcasting on OTV to create

impression marketing
WeChat WeChat Live-broadcasting
Invitation Reservation on OTV
1,3M audiences watched the live broadcasting
29
29

KOL amplification

Scan and go/order
OA
LBS Moment Ads
Rolex: Leverage
media and • Tencent received the exclusive right to stream the
Wimbledon Championships from 2017 to 2018
sponsorship • In each live-stream, Rolex was given the exclusive
slot to launch custom H5 ads (pre-roll and in-video)
assets for
• Rolex received 10M+ video views throughout
maximum media the competition
amplification
30

and coupons Wechat store, mini-program
KOL amplification
‘Wechat For application
New retail Work’2 Personalized online offerings

Scan and go/order
OA
LBS Moment Ads
/interactive screen mini programs
Impression-driven marketing tools:QQ Music, OTV, etc.

E.g. O2O treasure hunt game1
Lancôme: Successful IP collaboration to boost reach

and conversion
Content
IP Social
co-
selection media
creation Continued chats on the
Collaborate with Implant ads into ideation of the finals to makeup look of
candidates attract widespread attention candidates in Produce
101
• 350Mn VVs of ideation
• 140Mn VVs of “sienna summer makeup look” on

microblogs
• 321% higher in sales of core product 120 Sienna
Ultime; 5 times higher in sales of lipsticks
31
bcg.com
Thank you
32
Glossary of selected China digital luxury terms
Digital luxury term Explanation Attributes unique to China
KOL Key Opinion Leader; fashion influencer High influence on luxury market: Many work with luxury
brands for product promotions and designs, and able to
convert consumers interest into instant purchase
ROPO Researched Online, Purchased Offline Online research channels vary from KOLs on WeChat/Weibo
to brand Official Accounts, website/Mini Programs;
Offline purchase includes ~40% of purchases abroad
Official account WeChat equivalent of Facebook page, used Notifications pushed to followers” WeChat chat page,
to gather followers, send push notifications increasing likelihood of engagement; unlike Facebook,
(brand articles) and redirect them to other WeChat is primarily a daily communication app
sites (EC channel)
Mini program Mini-websites/apps that are native in the Seamless integration with all WeChat features (e.g.,
WeChat operating system WeChat Pay, social sharing), unlike traditional websites or
social networks in the West
33
WeChat Moments Social sharing platform similar to Instagram, Ads can be integrated with other functions (e.g., EC,
widely used by WeChat users messaging, Official Account); ad load also much lower (1
per 24 hours), ensuring higher visibility
Weibo Social media platform, similar to Twitter Richer media content (e.g., photos, video, live streaming);
higher emphasis on celebrities & KOL news
OTV Online TV sites, with TV series and movie Non-paying viewers are shown advertisements; higher
catalogue, similar to Netflix flexibility to feature native brand ads within content
Daigou Getting friends/family or others to purchase Driven by desire to avoid higher-priced goods in domestic
and bring back goods from abroad market
34
DMP Data management platform; for ecosystem/ Digital ecosystems in China own or partner with apps
brand to store and analyze pools of covering a wide variety of daily activities, creating an
consumer data especially rich data platform
User tags Labels assigned to a group of consumers' Rich datasets allow ecosystem to work with brands to
data in the DMP (e.g., “interested in create highly customized user tags
fashion”, “high-end consumer”)
Smart Retail Tencent's recently launched initiative to Tencent's cloud capabilities combined with WeChat’s
digitally enable brands and retailers diverse functionality (e.g., payment, CRM) provides a
unique proposition to partners
35

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China Luxury

1.8mn Chinese luxury consumers 2620 consumers

​€ billion, retail value ​€ billion, retail value

​2/27/21 ​2/27/21 ​2/27/21

​2/27 ​2/27 ​2/27 ​2/27/ ​2/27 ​2/27/

educated, ​2/27/21 ​2/27/21 ​2/27/21 ​2/27/21

Source: BCG X Tencent Luxury Study, 2018; BCG MAC database 5

0:00- 8:00- 16:00-

Discovery Research Purchase Payment Delivery After sales

1. ~1/3 of offline purchased volume comes from ROPO

Chinese KOL important touchpoint to reach luxury

Low-tier luxury consumers active in digital; cluster-

Marketplace dominates luxury e-commerce, yet

Over 50% of luxury consumer attention is online, mostly

… attention focuses platform consolidated by super APP

​Dominance of mobile time by Tencent

Chinese KOLs important touchpoint

Top 30 Tencent KOL accounts by % of followers among luxury users

• Brands should work with Tencent’s analytics to identify

Source: BCG X Tencent Luxury Study, 2018 12

Brand Official Account becoming an

Average views per Official Account article (indexed)

Note: Average views of last 3 articles on WeChat Official Account

ROPO is the dominant

1. Researched Online, Purchased Offline

Digital is crucial to reach and convert consumers living

Pure online 8% 9% 16%

Note: Abroad purchases includes asking friends/family to purchase abroad

Location-based cluster approach helps amplify brand

Chuzhou (Tier 5) is less than 20 mins train to

Consumers from Liaocheng (Tier 4) typically go

Marketplace dominates luxury e-commerce, yet social-

​ Generalist ​ Mono-brand Social media ​ Luxury ​ Online ​ Off price

​ 51% ​ 23% ​ 11% ​ 8% ​ 7% ​ N/A

​ 23% ​ 33% ​ 2% ​ 32% ​ 4% ​ 6%

Source: BCG X Tencent Luxury Study, 2018 17

Chinese KOL important touchpoint to reach luxury

Low-tier luxury consumers active in digital; cluster-

Marketplace dominates luxury e-commerce, yet

Social gifting SCRM tools Online sales platform

A broad KOL amplification

e.g., Online celebrities as SA

range of tools LBS ads/shopper instant discounts Scan and go / order

game Impression-driven marketing tools: QQ Music, OTV, news, etc.

Licensed IP for promotion and product differentiations

Data-driven member management

Store-level shopper profiling and traffic analysis

Social gifting SCRM tools Online sales platform

LBS ads Targeted messages in Wechat

Impression-driven marketing tools: QQ Music, OTV, etc.

Gucci: Online conversion leveraging social media

Data-driven member management

Store-level shopper profiling and traffic analysis

fan base and social sharing

Better Product Sales Brand

Engagement Exposure Enablement Exposure

Social gifting SCRM tools Online sales platform

LBS ads Targeted messages in Wechat

Impression-driven marketing tools: QQ Music, OTV, etc.

Apparel brand: Link KOL with mini-

Data-driven member management

Store-level shopper profiling and traffic analysis

program to accelerate conversion

€ billion, retail value € billion, retail value

2/27/21 2/27/21 2/27/21

2/27 2/27 2/27 2/27/ 2/27 2/27/

educated, 2/27/21 2/27/21 2/27/21 2/27/21

Dominance of mobile time by Tencent

Generalist Mono-brand Social media Luxury Online Off price

51% 23% 11% 8% 7% N/A

23% 33% 2% 32% 4% 6%

Key success factors Key success factors