The Higher The Price, The Better? Deconstructing Luxury Pricing Codes

　　 value Price

"The price of luxury goods is based on value pricing," Michel Gutsats, director of MBA and EMBA of Marseilles School of Commerce, France, pointed out that "value oriented pricing" is based on the customer's perception of the value of the company's products to determine the price. The value of luxury lies in their exclusiveness.

Michel Gutsats has organized a study on luxury price changes in Europe and the United States for 30 years in Europe. Research shows that over time, the hours spent on luxury production are not fixed or increased, unlike products in the mass market that will decrease over time. The 35 working hours required by the Hermes scarf are the same as those in 1968. This is also one of its values.

Globally, luxury brands usually develop retail prices based on 3 different regions in Europe, the United States and Asia. The price differences in different regions are also very large. According to the statistics of the Ministry of Commerce, 20 brands of high-end consumer goods, such as watches, bags, clothing, wine and electronic products, are about 45% more expensive than Hongkong, 51% higher than the United States, and 72% higher than France's.

Michel Gutsats analysis: "luxury goods imported from many countries need to pay consumption tax, which sometimes reaches 100% of the export price. In some cases, VAT (including retail price) and local taxes (usually not included in the retail price, plus at the cashier place) are also required. At the same time, the cost of opening stores in different places is different. In Tokyo, the cost of running direct shops and labor is usually in Madrid.

2-3 times, and to a certain extent, it will be reflected in the final retail price. "

According to this calculation, even if China only calculates tariffs, VAT and consumption tax according to the price index of European origin, if the total tax rate is 50%, the price of Chinese luxury goods will be 50% higher than that of Europe.

Price increases are normal.

Based on the above pricing framework, if the US dollar weakens against the euro, the price index of New York will decrease to 90 or 95, which is lower than that of Paris's price index 100. "At this time, the retail price of the United States will of course have a trend of price increase," Michel Gutsats said. "Such a price increase usually happens 2-3 times a year, for example, when the new product catalog comes out, because the US brand does not need to rise in price, European brands will be very careful not to allow prices to rise too fast to remain competitive."

The change of the luxury brand on the basis of the euro exchange rate is the basis of the price increase. Its rule is also a normal price adjustment, and it is the opportunity for the luxury goods merchants to adjust the price before the new products and new products fall in the spring and summer.

Since the beginning of July, luxury brands have launched a new round of price surges in China. Brands like Cartire (Cartier), Rolex (Rolex), Louis Weedon (LV) and Prada (Prada) are all rising in price. Previously, luxury brands had already raised their prices in China.

Ouyang Kun, chief executive officer of the World Luxury Association, said: "as far as I know, luxury brands must follow the principle of rising prices regardless of any reason. They are always going to be above the currency exchange rate and the purchasing power of consumers. In any case, they can not shrink as the currency depreciates, and in any case, they can not reduce the purchasing pressure with the increase of personal purchasing power of consumers."

Besides the change of macro exchange rate, the increase of cost will also reflect the final retail price of luxury goods, which is also one of the reasons for the price adjustment of luxury goods providers.

On the whole, the price rise of luxury goods is also a strategy that brands have to do. "Luxury itself is a specific product of a few people. By raising prices, it can control the level of consumers and the market, retain their exclusive luxury attributes, thereby prolonging brand vitality." Ouyang Kun said.

Since last year, the frequent price adjustment of luxury brands in the Chinese market has not weakened, but there are persistent signs. "If the market does not accept the raise price, there will be feedback and correction, but after the price increase, sales are not affected. There is still market demand. Luxury goods continue to raise prices in the Chinese market," says Chen Zhilong, director of operations at MATZO, China's luxury goods group, A&H.

"It is the psychology of Chinese luxury consumers who are not afraid of raising prices in China and will continue to do so. Now China's luxury market is growing rapidly, and European brands have absolute advantages in China. No matter what policies or competitors level, there are no factors that can hinder their price increase. In the current market environment, they are the best time to raise their prices. Chen Zhilong thinks.