Pricing Strategy in China

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Pricing Strategy in China

 In today’s business, companies turn their back to cutting costs and shift to driving growth with new Pricing Strategies in China. As pricing is the only part of the marketing mix that actually generates revenue, it has, therefore, greater impact than ever before. But with greater impact comes greater responsibility – and customer perception, increased competition as well as an ever-changing economy make it even more difficult to fine-tune the pricing tools to ensure sustainable impact and profitability. You have to ask yourself: what is the best path for our goals to do so?

This logic is true for China, too. However, some distinct characteristics of the Chinese customer/market make it even more complex to find the right pricing strategy for your product or service. Daxue Consulting can provide insights to better understand these unique characteristics of China. Due to our excellent market research, we command a large base of data about the Chinese market. Furthermore, thanks to our extensive consumer research in China or full-service focus groups, we know more than anyone else about the Chinese customer.

As abovementioned, the greater the impact, the more complex pricing strategies are becoming. There is no single pricing strategy which will lead you to assured and sustainable success. In the end, it is your ultimate goal which heavily impacts your pricing strategy, whether you look for market domination, maximizing your profit or creating repeat sales. At Daxue Consulting, we deal with every case individually and work with our clients shoulder to shoulder – until we find the best solution.

Insights: What to Take into Consideration when a Pricing Strategy in China

According to the findings of the BCG, three external forces are determining the value for setting your right price at a point with the highest value extraction – the customer value, the economy and the competition.

Especially the aspect of customer value has a big influence in China. More in detail it means that the perceived customer value immensely affects the pricing strategies in China. First of all, that is, because in China it is possible that prices convey a meaning. For example, 520 (wǔ èr líng) sounds almost the same as the words for ‘I love you’ (wǒ ài nǐ). Also, the number 8 (bā) is highly favored in pricing as well. It has a similar pronunciation with the word for ‘fortune’ or ‘wealth’ (fā), which is also why many Chinese people try to choose mobile numbers, house numbers or any important dates with eights in it.

The occurrence of psychological effects of the prices is another specificity of the part of perceived customer value in China. Chinese customers immensely believe that high prices automatically indicate the best quality and best choice. Also, they buy the most expensive brand to show that they can afford it. Thus, e.g., when operating in a luxury industry it might be important to set the price according to this and always ensure to be the most expensive in the industry. In this case, the price is a feature of the product and one can speak of “prestige pricing”. Moreover, this also shows the role of the competition. The described scenario would mean that you’d find yourself in a reverse price-war with your competitors, which is a specificity of the Chinese market.

Referring to the economy, one can say that the internet and mobile are of enormous importance in China. Technology has invaded many aspects of life with innovative business models changing the way Chinese conceive pricing such as rental over ownership, credit-based payment versus one payment, micro-payment, freemium/premium strategies or hongbao (red package).

Despite these specificities in China, in order to set the right price we use methodologies like the ones used in most countries such as cost-based analysis or benchmarking. However, it is very important to consider a decent amount of qualitative research in order to assess the price perception of your product or service in China which could be very different from the rest of the world.

Our Solutions

Defining the right pricing is much more than putting numbers in a software and applying formulas. It is linked to your core strategy. Whether you look for market domination or maximizing your profit or creating repeat sales, your pricing strategy will be heavily impacted by your ultimate goal.  It is also about dynamics that emerge through new models. Relying on a simple quantitative analysis is as dangerous as relying on a simple qualitative analysis. The perspectives need to be confronted and the necessary tools need to be leveraged. We look at pricing from a higher level.

At Daxue Consulting, we believe that new pricing can only be evaluated through a holistic approach. The questions we would like to answer with our research are for instance:

  • How much can your product or service make your clients save money, efforts or even make them earn money or more efficient? What pain points do you solve and how much can it be valued at?
  • How high can you go in pricing?
  • What pricing model will make you gain market share, increase your profit and increase your value towards your clients?

In order to get the answers, a typical research on pricing could look like this:

Step 1: the first step is about getting the big picture and all the variables to take into consideration. Therefore, we will have an interview with your team to assess the objective for the new pricing strategy. Also, we will conduct some additional research to benchmark and analyze the dynamics at work.

Step 2: in the second step we define the research plan to find the right pricing strategy. Among this research plan, we go through:

  • An assessment of the following: your product or service, the use and perception by your clients, the environment of purchase and use, life cycle position, benchmarking and substitutes. Also, we segment your clientele through desk research, test the product or service and conduct surveys, focus groups and in-depth interviews.
  • The perception of pricing for several occurrences of the products (in vivo test, picture-based or VR-based) with a process of iteration. Features that can change are packaging, colors, options, linked sales, package model, volume/size/weight, environment of the sales (guarantee, promise of the after sales, etc.). Factors that can change through the iterations depend on the product or service and requirement
  • The economic impact of changing in price or pricing models
  • The impact of competing business models and pricing wars or pricing aggressions (creating scenarios through core audiences and versatile audience analysis)

Hereafter, an end report will be given to you which describes two to five different strategies for the next three years over time. Included into this end report will also be a description of the dynamics to grasp the big picture and qualitative approach as well as a cash-flow statement to assess the impacts of pricing. Referring to the different strategies, it is to say that each one is following trees of choices so that you are able to react according to the movement and changes of your competitors and environment.