To Buy Or Not To Buy -- Nothing in Between

       When play tennis, there is a clear line between someone who know how to play and someone who don’t. For people who know, there is a dynamic range of skill level, either a world champion or a beginner.  However, for people don’t get the essences of tennis playing, they basically spend most of time to pick up the ball.  That is also the case on ‘pricing products’ in China.  It may sound strange to compare tennis playing to pricing, but they do have much similarity.

       China is not an evolving market like America is.  America spent several hundreds years to get where it is now. In its history, the free market keeps the market balanced with minimum governmental intervention. On the contrary, for highly government regularized China, it skids the most of ‘evolving’ part of modernization and artificially inherits the western business models and ideologies, like someone who watched many world-class tennis matches even without an idea what top spin is.

       This would be a problem for many companies coming to China. In an evolving market, pricing is also an evolving process with historical and concurrent price references and various benchmarks. But in China, business entities artificially categorize Chinese customers into so called middle class, white collars, and so on as what they have done in their own more mature home countries with a price reference not rooted in China’s domestic buying power but referenced to the price of their own countries. McDonald’s price indicator may not work for all countries and for all commercial products. For the most of time, the end results of pricing tend to be way above the acceptable range of their targeted customers.  After spend tons of money on strategic planning and business development, the argument may be as simple as this: for 1.3 billion of consumers, if 25% of them buy one item a year, the business would be in good shape. However, sometimes, it is all or nothing.  People either buy, or not buy at all.  When they perceive a product is not priced in their league, no matter how bright and established a brand is, people would simply write the brand off their buying list.  This is particular astute in China’s consumer market. Unlike technology sector, where the choices are fewer and intellectual properties are more important, Chinese customers have to buy at high price.  For consumer market, the competition is very much not in favor of western companies because the pricing always tends to be higher for wrong argument.

       Coffee market is one of the best examples.  The whole coffee market in China has been in limbo for the past twenty years because of the high pricing. For instance, GuoMao is the most well-known office building in Beijing, hosting some of the most well known Fortune 500 companies.  The average Chinese salary working in the building is also one of the highest in China. Its coffee shops also have one of the highest revenues in China. However, the problem is that the coffee shops’ high revenue is due to large number of foreigners working in the building.  The overwhelming majority of Chinese in the building never visit the coffee shops, most of them not even once per year. The high price is already beyond what they can consider coffee as a beverage. When that mentality is settled in, they write off coffee and coffee house entirely.

       So is true for clothing stores.  Levi’s and Nick are all more expensive in China than in the US when China has yet to have a clothing chain compatible to Americans’ GAP, or Foot Locker.  The market is open and large for grab, but unlikely to happen if international companies cannot get their pricing right. The important thing is not how much to profit from per item sold, but what the bottom line is and how many items to be sold, which is particularly true to a 1.3 billion consumers market.

       For any non-luxury products brands, if its intention is to gain the top 5% of income consumer group, it may not gain even 0.1% of the whole consumers. People’s mentality is either to buy, or not buy at all, either in my league or not in my league.  If and when market entry pricing is right, there can be a series of products set on different price, and then there is a play. After all, a company needs to have a battle ground before to have a battle.  Otherwise, they may very likely be fighting for imaginary customers when the customers are not theirs at the first place.