Intl brands' pricing strategy in China

At glo London, Chinese diners prefer authentic British tastes. [Photo/China Daily]

Changing perceptions

Not all the international brands are lucky enough to charge a premium, especially when they can get cheap alternatives. For brands targeting the mass consumers in the western countries, they now find it harder and harder to command a premium in China, as they did some 20 years ago.

To adapt to the changing market, these brands are walking down the altar and shaking hands with the fast-growing middle class in China.

Levi's is such a brand. Ever since it entered China in 2001, it kept a high profile that it made jeans only for wealthy Chinese people: In its home country, the US, a regular pair of Levi's jeans is priced at around $70, and during the sale season, customers can easily get a pair for about $15-$30. But in China a pair of Levi's jeans costs typically about $100-$150. Even during the sales season, discounts on the Levi's brand rarely go under the 50 percent mark.

The situation lasted until August 2010 when the company launched a new sister brand called Denizen. Although the company said it was not specially designed for the Chinese market, it chose Shanghai to launch this brand, the first time it launched a new product in a foreign country. A pair of Denizens costs between 299 yuan and 399 yuan, far lesser than its sister brand Levi's. The company's target audience for the product was young people in the 18-35 age bracket, essentially customers who are willing to consume international brands but not affluent enough to spend $150 on a pair of jeans.

Terence Tsang, the former senior vice-president of Levi's, says the brand is targeted at the middle stratum between the premium and the mass market. "When customers shop for the Denizen, they also have a chance to know more about the Levi's brand, which they can scale up to in the coming years."

As the clothing products are generally made in China, and they have quite a range of alternative products, it is hard for these brands to command a premium price in China, says Preston from Nielsen.

"Higher pricing is often decided by the brand strength of a company," says Preston from Nielsen. "If the brand is strong enough to charge a premium, there is no problem. But if not, they will have to adjust their strategy. It is getting a lot harder for brands to charge premium unless you have genuine reason to do that." he says.

Not only the consumer products, but also service brands are moving down the consumer chain to approach those with decent income but not yet super-rich, as the consuming power in the second- and third- tier cities has tremendously increased.

Philippe Garnier, vice-president of sales and regional marketing APAC, Hilton Worldwide, says they are dedicated to introduce more sister brands of Hilton in China.

"It is lucky that everyone knows Hilton, but not a lot of people realize that Hilton has 10 brands, covering a range of products from the five-star Hilton to the Scandic which targets the middle-income group."

Only recently has Hilton begun to bring those brands into China, Garnier says. "We are opening hotels on a regular basis, and by the end of 2014, will have at least 100 hotels in China."

Hilton has a bigger proportion of the international travelers as it has presence in international cities such as Beijing and Shanghai, even as it is fast expanding its presence in the secondary cities also.

"Our new hotels will mainly be in second-tier cities, as we already have a strong presence in first-tier cities," Garnier says.

The Hilton brand is so well established that it is able to lead the market in terms of price in many markets. But as the brand moves further into the second- and third-tier cities, the prices will be adjusted accordingly, he says.

The pricing strategies will be different as more hotels come up due to vast disparity between th

e east and the west, as well as rural and urban areas of China, says Harry Tan, general manager of Days Inn China. While a three-star hotel room in Beijing can command prices of 500-600 yuan, a five-star hotel room in Jiaozuo, Henan province costs only 300-400 yuan.

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

wangchao@chinadaily.com.cn