Price models evolve in China

03 October 2012

BEIJING: Brand owners like Coach, Hilton Worldwide and Nestlé are adopting nuanced pricing strategies in China, where rapid market growth is offering unique opportunities.

Coach, the US luxury group, currently sells bags from RMB3,000 upwards, or $475, in China, a figure roughly $175 higher than in America. Its prices, however, are 40% to 60% below those for most European rivals.

"In fact, price discrepancies exist in all countries for all brands," Jonathan Seliger, its local CEO, told the China Daily. "There are many reasons for the price difference. This includes the cost of transportation, marketing and the opening and operation of stores."

"We have been in the US for over 70 years and are the overwhelming number one brand there," he continued. "This automatically allows for scale efficiencies. We do not yet have that in many international markets, including China."

Samsonite, the luggage maker, today draws 90% of Chinese sales from premium lines. In the US, it sells products commanding between $70 and $450, but in China it focuses on goods available for $240 or more.

"The Chinese market is different from Western countries," Ma says. "In China, most of the products are high-end, and there is no logic in comparing the prices between low-end products in the US and high-end products in China," said Frank Ma, vice president of Samsonite Greater China.

Hilton Worldwide aims to have 100 hotels up and running in China by the end of 2014. The additions to its local portfolio will mainly be based in second tier cities, and span a variety of pricepoints.

"It is lucky that everyone knows Hilton, but not a lot of people realise that Hilton has ten brands, covering a range of products from the five-star Hilton to the Scandic which targets the middle-income group," said Philippe Garnier, vice president of sales and regional marketing, APAC, at Hilton Worldwide.

He added: "The pricing is decided by a number of factors, but the location and the brand are often the key considerations. It will be a very dynamic process."

Nestlé, the food specialist, is also seeking to meet the distinctive needs of buyers. "You don't calculate the cost and then decide the price; that's really what we did 20 years ago," says Daniel Lutz, SVP of Nestlé Greater China. "Today we sell value to customers."

For its part, H&M, the fast fashion chain, utilises a flat pricing structure around the world, only making slight amendments depending on exchange rates, according to Karl-Johan Persson, its chief executive.

"We cater to all styles, as long as they are interested in fashion, and want great value for money," he added. "Many years of experience gives us knowledge of logistics, materials, supply chain, buying in huge volume without using any middlemen, all of which help keep the costs at a minimum."

Data sourced from China Daily; additional content by Warc staff