Luxury: Hidden Price Logic In Collective Price Increases

The cost is never Luxury goods The real cause of price increase. Arguably, product price = production cost + R & D cost + market Promotion expenses + sales expenses + management fees + exchange gains and losses + reasonable profits + brand premium. But the pricing principle of luxury goods has never been identical with the pricing of ordinary consumer goods. His first priority is to maintain the fundamental character of high price, which is the spiritual value of luxury goods. The value of luxury goods is psychological value. General consumer goods emphasize functional value.

In recent years, the major brands have been raising the price of luxury goods and high-end consumer goods. This rising price is dominated by high-end cosmetics Estee Lauder. "We do have some products that have been priced." A Estee Lauder insider told reporters that some products including Estee Lauder, Clinique and other brands began to raise their price from 5% to 8% in July 1st. At the same time, Cartire, Rolex and LV, PRADA and other luxury. brand Also added to the list of price increases.

In fact, because of the obvious price difference between luxury goods and high-end consumer goods at home and abroad, a large number of consumers in the mainland of China choose to buy overseas and have an impact on these brands' Chinese businesses. In the industry, the intention of the government to lower taxes is to keep consumption at home by narrowing the gap between the domestic and foreign markets. Under strong policy expectations, the major brands will speed up the layout of the Chinese market in exchange for a broader market.

　 The logic of price increase

This is the second round of price increases this year. At the beginning of the year, luxury products including LV, Chanel and Hermes have already raised some of their products. This time, more brands including high-end cosmetics, leather goods and watches have been priced. In the context of inflation, Estee Lauder explains the reasons for the price increase as the company's raw material costs and R & D investment, labor costs, logistics costs and so on.

However, for high value-added luxury goods and high-end consumer goods, price increases are not simply cost drivers. "Price increases are in line with the brand strategy of high-end consumer goods. These brands need to maintain a continuous climb in price to ensure their high end, while the slow rise in prices will be eliminated by the market." Gao Jianfeng, general manager of Boge consulting, said.

Cai Sujian, chief executive of China Luxury Goods Association, also believes that in the face of China's rising household consumption power, high-end consumer goods enterprises need to maintain their brand's high-end positioning through regular annual price increases, and "low price brands will become mass consumer goods".

Estee Lauder insiders said that the price adjustment is not a global price increase behavior of the company's products. Different countries will adjust according to the local market situation, but it is unclear whether other countries have recently raised their prices. According to "China business newspaper" reporter, at present, the pricing decision of luxury goods and high-end consumer goods has not only considered the consistency of all market prices, but will be priced according to different markets. If LV has a price adjustment system based on different markets, Burberry also has a global pricing framework. In ensuring that the overall profit target can be achieved ultimately, all regions can give advice on the final pricing based on the benchmark assessment.

But unlike daily consumer goods, these big brands are clearly not worried about the impact of sales. "Price increase is also a means of promotion, especially when inflation expectations are low, and consumers are less sensitive to product prices, more emphasis on product quality and brand connotation. Price increases can contribute to sales growth over a period of time." Gao Jianfeng said.

At the same time, in the view of the industry, China's high-end consumer brands are relatively few, and the lack of competition has also increased the brand of foreign brands.

　　 Tax reduction disputes

Half a month ago, the Ministry of Commerce announced that it would lower tariffs on high-end consumer goods to narrow the price gap between the products at home and abroad.

At present, when most of the international high-end consumer brands have landed in China, a large number of consumers in China also take the "shopping list" to the airport duty-free shops, Hongkong or Europe and the United States to buy. In 2010, the scale of overseas purchasing market based on cosmetics and luxury goods reached 12 billion yuan. The direct reason behind this is that the domestic price of the same commodity is obviously higher than that of foreign countries. According to Yao Jian, a spokesman for the Ministry of Commerce, the Ministry of Commerce has made a statistics. According to the survey, 20 brands of high-end consumer goods, such as watches, bags, clothing, wine and electronic products, are priced at 45% higher than those in Hongkong, 51% higher than the United States, and 72% higher than that in France. The price of the products is five higher than that in the United States. This leads to over half of the consumption of high-end consumer goods and luxury goods in China.

The high import tax rate is one of the main reasons for the spread of high-end consumer goods at home and abroad. Take cosmetics as an example, the import link should pay 30% of consumption tax, 17% of value-added tax and 10% of customs duties. Therefore, the Ministry of Commerce announced that it would reduce tariffs on high-end commodities, including cosmetics, high-end liquor and tobacco varieties, which triggered widespread controversy including the Ministry of finance.

But does tax reduction mean the price of luxury goods and high-end consumer goods? Cai Sujian believes that these brands should maintain their high-end market positioning through high prices, so lowering taxes will not directly change the price of luxury goods. However, with the gradual reduction of the tax burden on luxury goods and high-end consumer goods and the improvement of the sales channels of these brands in the Chinese market, the price gap between domestic and foreign products will be narrowed in the long run.

Ding Liguo, President of the first retail network and chairman of the international perfume and cosmetics foundation of China, said: "while reducing the tax burden on imported brands, our country's top priority is to cultivate its own high-end consumer brands and compete with foreign brands. Otherwise, foreign brands will accelerate to enter the country and control the market, and the pricing power of products is also in their hands."

　　 The distress of foreign brands

Faced with the serious outflow of high-end consumer goods and luxury goods in China, Shen Xiangmei, managing director of Estee Lauder China, once expressed his distress to reporters: "on the one hand, I feel very proud because we have molded the brand so successfully, on the other hand, it will feel distressed, because this money is not counted in the sales performance of Chinese companies."

But this distress may not last long. An industry insider told reporters that in China, we will reduce the strong policy signals of luxury and high-end consumer goods tax, and in 2012, China's luxury consumption will exceed Japan's becoming the world's largest luxury consumer country's strong market expectations. The major brands will use more resources and capital in the Chinese market to get more consumers.

"Before purchasing overseas, there was no small impact on the major brands in China, but the headquarters reflected this problem more ambiguous because the revenue of headquarters was not affected. But in the long run, with the increasing importance of the Chinese market, the right to speak will be bigger and bigger, and the headquarters will also treat China as a more independent market, paying attention to the construction of the Chinese market and the continuity of sales and services, and leaving the market in China. Gao Jianfeng analysis.

Now the major brands have already laid the Chinese market ahead of schedule. Mainly in the following aspects: first, the development of e-commerce, such as Estee Lauder set up network sales, online prices consistent with the entity store, the purpose is to use the network as an important means to supplement the channel to cover a large number of non central cities. Two, the mainstream luxury brands, including LV, are fully open to the two or three line market. "In order to introduce these brands, real estate developers not only give a certain rent free period, but also pay money for decoration, which also speeds up the sinking of major brand channels." One industry insider said.