MCM China Phase 1

China Luxury Digital Playbook No ordinary love – the changing relationship between brands and Chinese millennials Tencent x BCG luxury consumer insight study

Tencent data Consumer survey

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

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 162 409 +6%

31% 327 +4% 105 247 98 95 28% 27% 28% 222

69% 40% 72% 73% 73% 32% 162 105

2015 2016 2017 2024F 2017 2024F

True luxury Accessible luxury 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

2 Copyright by© 2017 The Boston Consulting Group, Inc. All rights reserved. Source: BCG Luxury Market Model more female educated, young, better They are very Source 100) = (base population general the to compared represented under or is over group the whether1. TGI measures Education Gender : BCG X Tencent Luxury Study, 2018 Study, Luxury Tencent XBCG Age TGI TGI TGI 1 1 1 Primary school <18 47 8% 100 12% 18 Male 148 36% 29% 54 - 24 High school 145 16% 25 140 32% - 30 College degree 31 13% 111 - 35 321 63% Female 28 36 176 71% 88 6% - 40 Graduate Graduate Ph.Dor Average 505 8% 24 41+ 6% 3

Top 4 20% 4

Shandong Tier 1 22% 11 Jiangsu

Sichuan Zhejiang

Tier 2 22% 32 Luxury consumers 7%+ Guangdong 5-7% 3-5% Tier 3 1-3% 36% 2,158 0-1% and below

% 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 87 +QQ

Mobile 45 games

50% Tencent 30 News

Tencent 27 Music

0% Tencent 18 Video News Video Music

Discovery Research Purchase Payment Delivery After sales

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) 7 Copyright by© 2017 The Boston Consulting Group, Inc. All rights reserved. Over 50% of luxury consumer attention online, mainly mobile super APP

Chinese KOL important touchpoint to reach luxury consumers

Brand Official Account becoming an impactful way to 6 reach and engage trends re- defining the Research online purchase offline (ROPO) is the dominant purchase pathway rule of game 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

Earned Traditional Discovery touchpoints by consumer attention traffic: 18% media: 3% Organic Online/mobile traffic: 29% 3% 4% Offline 14% Other digital media traffic: 26% 29%

100% Social content 7% traffic: 24% 8% 11%

12%

KOL (on Brand Social Brand web Digital Third-party EC Store Offline word- Online word- TVC/Print/ Total WeChat Media (WeChat and mini- impression- of-mouth of-mouth Event/OOH and Weibo) and Weibo) program based advertising1 1. Primarily Moments ads and OTV ads 9 Copyright by© 2017 The Boston Consulting Group, Inc. All rights reserved. Source: BCG X Tencent Luxury Study, 2018 1 … attention focuses platform consolidated by super APP

Dominance of mobile time by Tencent

WeChat Social Weibo QQ 2017 share of time spent on smartphones (%) Mini-program Tmall E-com Store Taobao

Tencent News & info Weibo Baidu News Tencent Facebook 50% 22% Baidu Music QQ Music Xiami Music Music

Tencent OTV Youku iQiyi Video China US

e.g. Honor Games of Kings

10 Copyright by© 2017 The Boston Consulting Group, Inc. All rights reserved. Source: BCG China Internet Trends Report to reach luxury to reachluxury consumers Chinese 11 Source: BCG XBCG Source: 1 % 10 2 % 10 3 Top 30 % Tencent • • Tencent which long which with work should Brands consumer target by your liked or followed top While Luxury Study, 2018 Study, Luxury KOLs KOL KOLs - accounts by % of followers among luxury users luxury among followersof by % accounts tail tail important touchpoint touchpoint important KOLs have widest reach, they are not necessarily necessarily not are they reach, widest have are most relevant most are Tencent’s Gogoboi 1 analytics to identify identify to analytics Becky’s Fantasy 2 Mr.Bags Average: 3 .2% 3 11 2

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved. impactful way impactful Official Brand Account becomingan Source Account Official WeChat on articles 3 last of views Average Note: : A Brand accounts on WeChat, BCG analysis BCG WeChat, on accounts Brand verage views per Official Official per (indexed) views article verage Account • • and/or co and/or Brands views >100k hit can articles brands' top though average, on article per views ~20k can invest resources to make content more engaging, engaging, more content make to resources can invest - develop new content formats with with formats content new develop to reach and engage and reach Tencent 12 3

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved. Source: Online, 1. Researched - Store Store solo purchase pathway purchase ROPO domestic 20% BCG XBCG Tencent Store Store solo - abroad Purchased Luxury Study, 2018 Study, Luxury 8% is the dominant dominant is the 1 Offline ROPO China 32% – ROPO 58% abroad ROPO 26% - 1 Showrooming 3% Online 12% - solo Total 100% Our observations • • JD (e.g. offering luxury develop further China in platforms solo Online ROPO – – Toplife lack of stores of lack and/or pricing to due abroad buy consumers of online ~45% store entering before online themselves educate buyers luxury New Tmall relevance driven by: by: driven relevance ) Luxury Pavilion,Luxury to grow as EC as grow to - inspired 13 4

Copyright © 2017 by The Boston Consulting Group, Inc. All rights reserved. 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 64% 56% 51% (research online, purchase offline)

Pure offline 28% 29% 27%

Pure online 8% 9% 16%

Showrooming 1% 5% 6% (research offline, purchase online)

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

Chuzhou (Tier 5) is less than 20 mins train to Nanjing (Tier 1), I travel there to buy luxury Shenyang

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 Emerging Guangzhou Shenzhen Top Tier — Luxury brand Sales Manager Cluster

Note: 18 official clusters defined by Gov based on proximity and intensity of economic activities 15 Copyright by© 2017 The Boston Consulting Group, Inc. All rights reserved. Source: BCG MAC database 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, Farfetch) (e.g. VIP) Pavilion, JD, JD Toplife)

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

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

Chinese KOL important touchpoint to reach luxury consumers

Marketplace dominates luxury e-commerce, yet social-linked shopping rapidly emerging

17 Copyright by© 2017 The Boston Consulting Group, Inc. All rights reserved. rule of the rule re toolsrange of A broad - defining the defining game LBS O2O E.g. E.g. treasure O2O hunt game E.g. E.g. Online celebrities as SA ads/shopper instant discounts Social Online to offline to Online gamification/engagement KOL LBS Social Social gifting and and - linked gift cards amplification Moment Moment Ads coupons Impression Licensed IPLicensed promotion for Store 1 - level shopper profiling Data - driven marketing tools: - driven member management Offline to offline to Offline New New retail application Offline Offline engagements Instore Instore ‘ /interactive /interactive Scan Scan Wechat SCRM and and go/order tournaments and and For tools screen Work’ product product differentiations and and QQ 2 traffic traffic analysis Music, Music, OTV Targeted messages in Personalized online offerings Wechat , etc. Online to online to Online Online Online sales platform Wechat Online content Online content social social mini mini store, store, mini programs marketing OA articles, articles, - Wechat program and and OA 18