It comes as no surprise that to luxury brands, Chinese VIPs are those that spend the most. Reports on just how much vary. McKinsey reports that VIPs drop at least 150,000 renminbi a year on luxury goods. Accounts from real VIPs suggest that number is much higher.
Wall Street Journal reporter Laurie Burkitt recently interviewed a young woman in Beijing who said she spent about 20,000 renminbi on luxury products every one or two months. “She also said that in order to become a VIP in some instances you need to spend at least that much. And at Hermes, you need to spend a whole lot more, buying about five or six limited edition bags per year,” Burkitt reported.
And the fact that the VIPs keep spending mean that brands have worthwhile incentives. Few retailers publicly offer details about everything a VIP receives in an attempt to preserve the uniqueness of the experience for those paying for it. “They want this to be an exclusive, extravagant experience for a VIP to make them feel really special and provide some sort of impression on them so they will go home and tweet about it on Weibo, which is very similar to Twitter, and tell all their friends, so that other VIPs will go in and do just the same – buy a lot of products and go back and tell their friends,” said Burkitt.
But long gone are the days when a simple cocktail party or domestic fashion show could be used to reward brand loyalty. As Chinese consumers become more experience driven, international travel often plays a role in VIP incentives. There are reports that Hermes shuts down their Paris store to fly in Chinese VIPs for private shopping events. Feeling special is a big motivator for the VIPs to keep spending. Burkitt reported that the VIPs were “much more likely to buy products if the staff made them feel special. And this is a big reason that some of them enjoy shopping abroad because they feel they get better treatment than they do in China.”
It’s clear that the VIP system is working for Western brands with a Chinese presence: Chinese buyers account for at least 24 percent of their luxury sales, “so it does factor into a brand strategy,” Burkitt said.
But it’s not only Western brands feeling the benefit. Chinese jeweler Chow Tai Fook recently hosted a diamond showcase at the Grand Hyatt Hotel in Hong Kong for 150 VIPs. For them VIPs tend to be young, affluent, and interested in diamonds – even though the jeweler deals predominately in gold. Chow’s Tai Fook’s VIP customers buy about 60 to 70 percent non-gold products, said Adrian Cheng, executive director of Chow Tai Fook responsible for VIPs and marketing.
Chow Tai Fook is in the process of revamping its VIP program in Hong Kong, according to Women’s Wear Daily. They have doubled the entry-level status of the VIP program to 200,000 Hong Kong dollars, or $25,786 in purchases per year. Chow Tai Fook employs a 3-tier VIP system, with the uppermost echelon on VIPs spending 1 million Hong Kong dollars, or $128,394, a year. The jeweler currently maintains 50,000 to 60,000 VIPs in its programs, and hopes to raise that number to 200,000 with money-back rebates, exclusive products, personalized service, and extended concierge service, according to Cheng.
Cheng, too, sees that customers are maturing, that they seek “experiential luxury” or “a luxury lifestyle associated with Chow Tai Fook,” he said, adding that the company has arranged activities such as wine tastings, heritage tours around Paris and exclusive residential viewings.
A special VIP website for Chow Tai Fook customers is expected within the next 6 months and will begin overhauling the VIP program for Mainland China as well. Currently, the mainland boasts 700,000 VIPs.
photo credit: james creegan