After analyzing the travel retail segment in China, there are four action steps all multinational companies in the region need to take in order to capitalize on the growing opportunities of the outbound Chinese consumer market.

1. Tailor offerings

Multinationals must change their brand emphasis from “travel retail” to “traveler retail” to target demographic and behavioral variations among Chinese tourists and to facilitate sales to those travelers via all retail channels. In many cases, multinationals can increase the ease with which they offer these products to Chinese consumers when they travel. Retailers can offer the same products to both travelers and traditional customers to ensure a consistent product range and branding. However, multinationals do offer a limited range of traveler-exclusive products for two reasons: a) to encourage impulse consumption (“You can buy certain products only at this airport.”), and b) to avoid pricing conflicts.

Sources: FrontierView analysis; World Tourism Cities Federation; Ipsos

2. Optimize Channel Partnerships

It is critically important for multinationals to identify competitive travel retailers and consider strategic alliances or M&A to expand retail channels and capture sales opportunities—especially for consumer goods multinationals that are not sophisticated enough to go direct. Many traditional retailers have also begun to target the traveler segment. For example, Walgreens bought Alliance Boots, which owns a worldwide chain of airport stores, to gain traction in the international/travel retail channel. To complement sales efforts, multinationals should also engage other key players, such as Chinese online travel agencies (e.g., Ctrip), hotels in tourist destinations, Chinese players seeking to go global (e.g., Alipay) and Chinese ride-sharing services.

Source: FrontierView analysis

The downtown duty-free shops are a new emerging trend in China. They help maximize sales and branding efforts by serving Chinese travelers in downtown locations where they are likely to spend more time shopping than they would in airport duty-free shops. They also help to mitigate cost pressures because downtown rents are lower than airport rent.

3. Enhance traveler marketing

Leveraging travelers’ sensitivity to advertising abroad and launching effective online and offline marketing campaigns are also effective travel retail strategies. While multinationals already have infrastructure within China to gather consumer insights and implement marketing initiatives, airport and in-flight advertisements, global consumer loyalty programs, and international sales and branding partnerships will increase the impact of their marketing efforts. There are multiple steps that can be taken to enhance the offline marketing efforts:

  1. Encourage retail operators to alter product displays and promotions to take advantage of peak travel times for targeted travelers.
  2. Develop “travel exclusive” offers to boost impulse purchases in airport and downtown duty-free shops
  3. Work with your travel retailers to develop distinctive loyalty programs that will allow you to maintain contact with travelers for future trips.
  4. Engage Chinese travelers by co-offering promotional programs with local travel agencies, which can attract tourists to visit downtown duty-free shops and expose them to in-flight advertising for your products.

Similarly there are multiple options that MNCs can use to enhance online marketing:

  1. Broadcast marketing messages and offer services to Chinese travelers abroad through online portals used mainly by the Chinese community, such as WeChat/Weibo.
  2. Partner with online travel agencies to influence traveler decisions; the top tourist guide mobile apps in China in 2014 were Tuniu travel guide, Mafengwo and Qyer guide.

4. Leverage travel insights

Use airports to gauge trends and coordinate with regional sales teams to monitor traveler sentiment, share consumer data and enhance internal synergy. Essentially there are three aspects which can be covered:

  1. Gauge local consumption trends via travel retail: Several multinational luxury brands view boutique stores in airports as “control towers” for analyzing market trends and identifying overseas locations where they might want to open new stores.
    • Example: A luxury goods company opened three boutiques in Italian airports to test the waters in the country.
    • Example: A multinational specializing in cosmetics and beauty products relaunched a brand in China, partly because during its absence from the Chinese domestic market, travel retail kept the brand visible to Chinese customers overseas, and 70 to 80 percent of their travel retail sales are to Chinese travelers.
  2. Communicate policies and traveler behaviors with local teams: Multinationals must note the regulatory specifics in different markets, such as varying sales allowances at airports, and constraints on advertising in certain countries (e.g., limits on commercials for alcoholic beverages in Thai airports).
    • Travel retail sales can be volatile as a result of visa policy changes, travel season fluctuations, and shifts in traveler sentiment. Most recently, the MERS outbreak reduced the flow of Chinese tourists into Seoul, and anti-corruption enforcement has impacted luxury consumption among affluent Chinese travelers in Europe.
  3. Travel retail and regional teams co-develop marketing strategies: Coordinate with regional teams to co-develop marketing strategies and contingency plans to address evolving local trends and significant events that may affect traveler decisions.
    • The anti-corruption drive in China is hurting high-end businesses, and several multinationals are making the shift toward lower-end products to target Chinese travelers.
    • When airport travel retail units identify travel trends, information can be shared with the corresponding regional sales teams to optimize global resource allocation.

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