Consumer Microsegmenting for Success: South Korea Duty-Free's Post-Pandemic Loyalty Overhaul

Post-pandemic travellers have shifted their shopping behaviours and preferences, prompting duty-free retailers to rethink their consumer engagement strategies to foster recovery and growth. In response, South Korean duty-free operators have introduced new loyalty programmes tailored to specific consumer microsegments, offering more personalised benefits. To thrive, brands are moving away from a one-size-fits-all model in the design and management of their loyalty schemes.

Global duty-free recovery hinges on Asia Pacific, with China at the forefront

Travel, both outbound and domestic, has surged and is on track for recovery following the pandemic. Duty-free retailers anticipate a similar scale of rebound with the reopening of borders. Global spending on duty-free shopping, therefore, is projected to reach USD73 billion in 2024, with nearly half – approximately USD31 billion – coming from the Asia Pacific region, especially China.

A large share of Chinese consumer spending has remained within the country, with domestic tourism now the preferred choice for many. Before the pandemic, South Korea was a popular destination for Chinese duty-free shopping, with around 70-80% of revenue coming from affluent Chinese tour groups and daigous (personal shoppers). However, South Korea's duty-free industry is now struggling to return to pre-pandemic performance levels due to the sluggish recovery in Chinese consumption.

Unlocking consumer engagement through microsegment tailoring

In addition to losing sales from key source markets, South Korean duty-free retailers are also adapting to changing traveller behaviours and preferences. Increasingly, more travellers are opting for independent trips over group tours. For example, 32% of Hyundai Duty Free’s sales in South Korea during Q1 2024 came from fully independent travellers, a 15-percentage-point increase from the previous year. This shift underscores the need for more refined customer segmentation to effectively engage new traveller types.

In a post-pandemic world where pricing advantages for impulse purchases are diminishing, duty-free retailers are rethinking their strategies, with loyalty becoming a crucial factor for sustainable growth. 

One in four Asia Pacific respondents are more inclined to spend directly towards loyalty programmes to receive better rewards, surpassing the global average

^{Source: According to Euromonitor's Voice of the Consumer: Loyalty Survey, fielded March to April 2024}

By tailoring rewards and benefits through loyalty programmes to suit different traveller segments, retailers aim to deliver a more seamless and personalised shopping experience, fostering stronger customer loyalty.

South Korea’s duty-free titans: Developments and trends

South Korean duty-free retailers are creating loyalty programmes centred on consumer microsegmentation. These programmes offer tailored benefits and rewards that align with the preferences of distinct target audiences.

• Hyundai Department Store is targeting growth by appealing to foreign travellers with the launch of a dedicated membership service, H Point Global, in February 2024. Unlike Hyundai's existing physical card-based membership, H Point Global is an app-based service designed for the convenience of travellers. This loyalty programme offers perks tailored to enhance the travel experience, such as restaurant reservations, tax refund assistance, and translation services at key locations like Hyundai Seoul. The app ensures a seamless experience across Hyundai's retail brands, including department stores, outlets, and duty-free shops. Hyundai's duty-free operations have grown by 15% compared to last year, thanks to an expanded airport duty-free area and increased spending by independent travellers.
• Lotte Duty Free is focused on increasing engagement and customer loyalty among younger generations. In May 2023, it launched a paid 3-month membership, Young Travel Club, specifically targeting Koreans in their 20s and 30s. The first and second phases of the membership sold out within a week.

One in five Generation Z respondents in South Korea are willing to pay for premium features in loyalty programmes, a rate higher than the global average

^{Source: Euromonitor’s Voice of the Consumer: Loyalty Survey, fielded March to April 2024}

In July 2024, Lotte introduced the third edition of Young Travel Club to further attract young domestic customers. This paid membership offers benefits and gift packages tailored to the consumption preferences of younger generations, including welcome gifts from niche skin care brands, Melixir and Dewy Cel, as well as cash vouchers via digital wallet, LDF Pay. In the first half of 2024, one third of Lotte Duty Free’s new members were in their 20s, making them the largest group among new sign-ups.

• Shilla Duty Free has seen growing interest in its whiskey offerings and, in response, has launched a new paid 6-month membership, called Shilla & Cheers, designed to enhance benefits for whiskey enthusiasts with unique experiential rewards. This membership is available to Korean passport holders, offering up to 20% discounts both online and in-store at Shilla Duty Free. Additionally, members enjoy exclusive experiences, such as premium whiskey tasting at Shilla Hotel's "The Distillers Library" or a whiskey pairing dining course.

Learn more about latest loyalty trends and travel shopping in our reports, The New Loyalty Playbook: Strategies from Leading Brands and Shopping Events, Holidays and Travel: Asian Beauty Shoppers’ Occasion-Based Purchases.