23
Jul
2014

Luxury price increases; an attraction or deterrent?

The announcement in April by many of the top-flight luxury brands that they were increasing their list prices may have been the result of general economic pressures they have suffered in the past 12 months, or perhaps in the case of China, a means to demonstrate greater luxury status than those lesser known brands. The official line may well be the former and this may in fact be true, but at a time where Chinese luxury consumers in particular are being more selective about their brand choices and more conscious of value for money, have these brands taken the wrong approach?

Those brands that position themselves as affordable luxury may well become the winners with the Chinese consumer in the next few years, and those new brands entering the market have a clear chance to offer and deliver something different to those consumers who may feel that they have been oversold to by the more established brands. Our feeling is that increasing prices will not help soften this attitude, particularly as many of these consumers already have a great deal of product from the top-fight brands and are looking for new products and services to enhance their more personal focused lives.

So as Chanel increase their Le Boy series by 300 Euro’s, brand such as Coach, DKNY and Marc by Marc Jacobs offer discounts on selected products of up to 30%. The desire to grab a bargain is very strong for the Chinese consumer whatever their social and financial status, and if the top luxury brands think that prices going up is going to draw more purchases to them, they are quite wrong. The draw of purchasing overseas was always a result of lower prices, consumers from tier one cities may have less of a focus in terms of travel related to purely shopping and more interest in lifestyle experiences, but you can be sure that they still spend significant sums on luxury items when overseas.

In fact, price parity is becoming a more popular story to tell among brands that want to encourage consumers to purchase in Mainland China rather than overseas. We reported in a previous issue of Luxury Insights China that Hublot had made the bold move of setting its prices in China on a par with those elsewhere in the world, and more recently fashion and accessory brand Kate Spade has done just the same thing. The price differential between a Mainland store and Hong Kong for example is minimal. So is the practice of increasing prices generally and in particular ensuring those in China are higher than other international destinations going to work?

My view is that the Chinese consumer will decide with their wallet and buy products that they like and those that can justify the price. They have products from high- end brands and are more attracted to those brands that enhance their lifestyles now, and are not purely about showing off. The market is more open, and the consumer is more savvy; increasing your retail prices just because you are a luxury brand will not wash with the modern Chinese consumer!

Ken Grant
Ken is the publisher of Luxury Insights China, he is regularly asked for his comments and opinions of the luxury sector in China by the media, and speaks at conferences on the subject. His international marketing experience covers 25 years, and most territories of the world.

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