By Adina-Laura Achim
‘Consumers want experiences, not products’ has been a B2B go-to headline or panel discussion phrase for some time now. In fact, we often hear that they crave it. But what does it really mean – especially in terms of your Chinese customer? What are the psychological undertones unique to Chinese culture that prompt interest in the experience, and how does it balance with, rather than dominate the product?
The term ‘experience economy’ isn’t particularly new, being previously referenced in a 1998 progressive paper titled ‘Welcome to the Experience Economy’ by B. Joseph Pine II and James H. Gilmore. It emphasised how economic success and technological advancements pushed the world toward the experience economy. According to the writers, consumers “unquestionably desire experiences, and more and more businesses are responding by explicitly designing and promoting them.”
More recently, the concept has come to the fore thanks to a generational shift in both knowledge and values. The so-called development of the Chinese millennial consumer has been well-documented, as has their spending power. Their previous and ongoing ‘experience’ with fakes is one strong reason for their demand for an authentic experience. Just to put things into perspective, a decade after the baby formula scandal, a consumer report from McKinsey & Co showed that 53% of people surveyed would still rather buy a global baby formula brand.
Chinese millennials came to age in an era when China turned into a global superpower. The country is a high-tech giant that has strong leadership and superior might; thus, younger generations are confident about the future, being optimistic and patriotic. In an article by Niro Sivanathan and Nathan C. Pettit published in the Journal of Experimental Social Psychology, titled “Protecting the self through consumption: Status goods as affirmational commodities,” the authors introduce a correlation between the high consumption of status-infused products and low self-esteem. Of course, the reverse is also valid. Basically, confident and optimistic individuals demand fewer items, instead seeking more enriching experiences. And according to Patrick Lawlor from Investec this is the case of Chinese millennials: instilled with patriotic pride and optimistic about the future.
From this perspective, we can understand why Chinese luxury consumers are investing in experiences alongside luxury goods – and according to a 2017 report by the Boston Consulting Group titled ‘Metroluxe: Countering Complexity in the Business of Luxury‘, experiential luxury grew by 9% in China. Furthermore, the report points out that there’s a “shift from owning to being.”
We spoke to Kathy Gallagher, CEO APAC of luxury lifestyle company, Quintessentially, whose business goes beyond bookings and into experience. “Our Chinese members seldom just ask for ‘bookings’, as these requests are usually already fulfilled by their Personal Assistants or loved ones. The extraordinary services Quintessentially are called upon to fulfil are commonly around making their overseas journeys seamless. Our discerning Chinese clients are conscious with regards to cultural differences in the places they visit and therefore want to indulge into a local experience in the most appropriate ways, through a master or a curator. Experience stays in the mind and the right experience drives loyalty and advocacy. This is particularly key for Chinese clients.”
Also in the experience space is Altagamma. “According to True-Luxury Global Consumer Insight research, carried out by Altagamma with the Boston Consulting Group in 2018, experiential luxury grew more than personal luxury and reached EUR 590 billion (over a total of EUR 920 billion spent worldwide by luxury customers), with an increase of 5%. Between 2018 and 2025 experiential luxury will grow 2pp faster than personal luxury and is estimated to reach EUR 851 billion,“ said Stefania Lazzaroni, General Manager of Altagamma, speaking with The Luxury Conversation. Lazzaroni determines that consumption is forecast to grow with an annual rate of 4-5% “driven by Chinese customers, who will represent 40% of the luxury market by 2025.”
Given the expansion of experiential luxury, Altagamma launched ‘Altagamma Italian Experiences, dedicated to International and High-End tourists.’ As stated by Lazzaroni, ”the aim of the project is to offer a unique opportunity to reach the heart of the Italian brands, recognized worldwide as icons of excellence, creativity, and craftsmanship. The experiences include exclusive visits to the Altagamma member companies: ateliers, design houses, company headquarters and production areas, wine-tastings at world-renowned vineyards, meetings with entrepreneurs.”
There is also a link between the rise of social media and the experience economy. In a highly digital world, the pursuit of engagement is a brand raison d’être. Chiming in with this, adventurous experiences, trips, and exotic destinations are gaining more traction (likes) on social media sites than just a product; consequently, social media lovers are especially keen to invest in trips and unique encounters.
An experience delivers much more valuable social media cachet that does a photo of a mere product. The South China Morning Post points toward a survey commissioned by MWYO, involving 2,040 students aged 15 to 24 interviewed about quality of life, future plans, and career prospects. According to results, 45.3% of students suffered from FOMO (Fear of Missing Out).
Hardly surprising that under this amount of pressure, Chinese millennials seek a healthy lifestyle and mindful experiences. As stated by KPMG, a strong motivator for luxury consumption is self-reward. 40% of buyers mention that they consume luxury “to pamper themselves” or to “enjoy the luxury experience.”
According to KPMG, these feelings of self-pampering and self-reward are emotive drivers of growth for the experiential luxury market. “The implication for experiential luxury marketers is to deliver on this emotive cue to customers rather than being preoccupied with exclusivity and discernment,” says their study.
These positive, optimistic young Chinese consumers – with more disposable cash than their western counterparts, partly thanks to living at home and the one-child culture – believe that everyone can own a designer bag, accessory or beauty cream; however, not everyone can afford a lifestyle dominated by inconspicuous consumption. The UHNWI and HNWI are able to spend on this ‘highest form of luxury’: education, quality healthcare, and enrichment activities. In China, the super-rich started investing in medical travel, education programs, and trips abroad. Luxury is no longer limited to buying products.
Today, Chinese consumers want to go deeper into luxury, understanding the production process and learn about craftsmanship and provenance. KPMG highlighted that connoisseurship-based luxury is on the rise: “In addition to serving as a practical means of investment/value maintenance, collecting unique artifacts are also a great way of reflecting personal taste and discernment – something which could also be defined as a status need,” says the study.
Heritage-relevant companies have understood that connoisseurship-based luxury is creating a close relationship with the buyer, thus luxury brands began proposing educational programs. The South China Morning Post also wrote about the bespoke courses offered by Van Cleef & Arpels, Berry Bros & Rudd, Christie’s, and Sotheby’s.
Starting this fall, L’ÉCOLE School of Jewelry Arts, supported by Van Cleef & Arpels will launch 17 courses and “a full-year program that includes Workshops for Young People, Evening Conversations and curated exhibitions showcasing jewelry arts from the most magnificent private collections, as well as creations by contemporary artists.”
Andrew Quake, John Paul APAC CEO told The Luxury Conversation that “concierges are discovering that luxury consumers are increasingly interested in craftsmanship, design, heritage, and construction.”
According to Quake, ”luxury retailers are creating one-of-a-kind experiences and services for clients, where the experience and service is becoming even greater than the luxury product itself.” Quake notes that experiences are more engaging because luxury consumers can talk about them and post them on social media. “The experiences are ones that money cannot buy, which encourages clients to indulge in luxury. The experiences are services that are unexpected and unpredictable, which makes them desirable for social media, and for consumers,” says Quake.
As China became the biggest market for red wine, wine merchants took note and started offering specialised courses and trips to European wineries. Berry Bros & Rudd “made a winemaking experience in Bordeaux available to its Chinese clients through a partnership with Viniv, a French winery.” Wine lovers travel to Château Lynch-Bages, where they learn about the history and flair of the French wine-making process.
The expansion in uncharted territory is another change incited by the shift in consumer behavior. Some (usually) cautious luxury brands grew beyond their core business and began investing in the experience economy. LVMH purchased Belmond luxury hotel group for $3.2 Billion and Christian Louboutin announced the opening of a boutique hotel in Portugal. Furthermore, Versace, Giorgio Armani, and Bulgari are already in the luxury travel business.
It’s clear that no luxury brand should restrict the experience to services, but is able to involve the experience in the purchase of the product also. The rise of China’s “retailtainment” and the new retail model demonstrate how immersive technologies (VR, AR, and MR), the proliferation of big data, the development of O2O initiatives, and the promotion of retail-as-a-service business models are changing the luxury industry (featured photo from Space NK’s immersive retail experience in Shanghai).
Nowadays, luxury businesses are able to become the custodians of their brand experiences, engaging consumers at multiple points of entry and prompting heightened engagement, satisfaction and loyalty.