Pricing Strategy – Travel Shopper and Middlemen

28 août 15
Chanel cut price in Asia on 17th April to standardize prices on three of its best-known handbags, which is distinct to the global luxury goods price rising trend in the last 30 years, and lead to a price-cut trend among luxury brands.

We all know about the huge pricing power of luxury companies in the luxury goods industry, which is presented by the upward trend of global luxury goods price in the last 30 years. The reason behind the increases is either to help the brand differentiate from the high-end ones like Michael Kors, or to follow the pricing strategy known as “Veblen goods”, the price of a quilted Chanel bag has on average risen by 70% in the past five years. 

With a differential pricing strategy by geographies, Mainland China’s hefty taxes on luxury goods expand the price gap between the Mainland China and Europe. Especially during the last three years, the euro’s depreciation against the RMB has stretched this gap even further. Meanwhile, the Internet and “Global-trotting Shopper” have made it both harder for luxury brands to hide the higher prices in China and easier for Chinese consumers to find third-party luxury sellers online – Daigou, or to buy luxury goods abroad.

 

According to a survey published by Bain & Company in 2015, Chinese consumers bought 30% of luxury goods in Mainland China, while the remaining 70% is made abroad, among which purchase from Daigou presents 15%. Global Blue tax shopping data show that in 2013, Chinese people were the world's largest luxury goods overseas buyers, accounting for 27 % of the total refund amount. 

The standardizing price strategy of Chanel, which included a 20 per cent price increase on the price of its bags in Europe with a decrease of 20 per cent in China, reduce the price gap from 40% to 5% between Mainland China and Europe. This decision will enable Chanel to promote relationship with Asian clients by pushing Asian local consumption, and better control their image by combatting grey market. 

Chanel’s move came after Patek Philippe and TAG Heuer. Meanwhile, most luxury brands cannot afford the risk of potential float of exchange rate after such price adjustments, as Europe local client has less interest of luxury goods. Despite the standardizing prices strategy in favor of the development of future online transactions, some brands, like Hermes, said that due to the importance of local customers, they would not raise the European prices.