Ignoring China’s outbound traveler segment can be costly

With rapid expansion of metropolitan areas, there are 100 Chinese cities with 2013 GDP exceeding 165 billion yuan and average populations of 7 million, making Chinese cities important origin markets for tourism. Supported by urban reforms, the number of China’s urban households is expected to grow from 232 million to 311 million between 2010 and 2020, with 92.7 percent of urban dwellers earning more than $7,500 annually in 2020.

China has experienced exponential growth in the number of outbound travelers, with 107 million trips last year. Most outbound Chinese travelers are from coastal regions where multinational corporations already have strong presence; accordingly, tailoring a retail strategy for these sophisticated customers will be critical. Multinationals should target Chinese travelers abroad by enhancing organizational synergy, using existing infrastructure to pre-empt competition and designing tailored sales and marketing strategies for specific Chinese traveler segments.

In 2014, Chinese global shoppers alone accounted for one-third of the world’s tax-free shopping, and overall disposable income levels will continue to grow throughout inland and western provinces in the coming decade. Therefore, a strategic game plan to capture those sales will be critical for multinationals targeting this emerging market segment.

But before multinationals finalize their game-plan for the emerging segments, it’s necessary to understand the key trends of these consumers:

  1. APAC destinations are becoming popular: With the Asia-Pacific region home to the most popular destinations for Chinese outbound travelers, the number of Chinese tourists reached 86.51 million in just the first ten months of 2014, far exceeding the number of Chinese visitors traveling to other destinations. The boom in travel from China is effectively boosting consumption in those destination markets, especially in popular tourist spots like Hong Kong, Macau, South Korea, Japan and Thailand.

ChinaTravelSegment1

  1. Most travelers are from coastal China: As most of China’s outbound tourists are currently from Tier 1 and Tier 2 cities in coastal provinces, multinationals should leverage existing infrastructure in those areas to enhance branding and refine product mix, which will provide them with first-mover advantage when targeting global shoppers from China. Companies should also use online channels for more effective marketing to reach Chinese global travelers in the emerging city clusters.

ChinaTravelSegment2

  1. Affluent travelers will take the lead: This segment will contribute around 41 percent of Chinese travelers in 2020 as compared to 21 percent in 2010, while the inexperienced ratio will reduce from 56 percent in 2010 to 33 percent in 2020.

ChinaTravelSegment3Sources: Frontier Strategy Group analysis; Boston Consulting Group

  1. Understanding Chinese travelers consumption patterns is a must. Cosmetics and perfume are the most popular product categories among Chinese travelers, which is why many skincare and beauty brands have begun to target travel retail as one of their biggest market segments. Duty-free shops rank as the top sales channel for Chinese tourists overseas, as indicated by more than 80 percent of survey respondents. In addition, Chinese tourists traveling to cities in Japan and South Korea prefer to shop in large-sized department stores and duty-free shops, while tourists traveling to cities in Europe and the U.S. prefer to shop in brand franchise stores and discount stores.

Check back next week for part 2 of our blog series on China’s Travel Segment.

For our latest China research, FSG clients can visit the client portal. Not a client? Email us at info@frontierstrategygroup.com to learn more.

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