World Luxury Association: Adjustment Of Global Pricing Strategy For Luxury Goods

Since the beginning of this year luxury goods Brands are planning to raise product prices in succession. A recent visit by reporters found that luxury brands such as CHANEL, DIOR and CELINE have increased significantly. At the CELINE counter, the price of large ordinary leather "Smile Face Bag" is 20000 yuan, which is 3000 yuan higher than the price of 17000 yuan before the price increase, an increase of about 18%; CHANEL's "CLASSIC Series" double cover large leather bags cost about 37500 yuan before the price increase, and 41200 yuan after the price increase, an increase of about 10%; The price of the classic DIOR "LADYDIOR" large sheepskin bag was 32500 yuan, an increase of 3500 yuan or 12% compared with 29000 yuan before the price increase.

Although some staff of luxury brands explained the reason for the price increase as the increase of raw materials and sales volume, in the opinion of insiders, price increase has become a marketing strategy to promote sales of luxury brands. Kailin Katerina, assistant executive officer of the China Representative Office of the World Luxury Association, told reporters that luxury brands have the highest profit retention rate in China.

In this regard, the World Luxury Association issued a global pricing formula for luxury brands. Taking leather goods, clothing, bags and other fast moving consumer goods as an example (excluding jewelry, watches, cosmetics and perfume), the average composition ratio of different countries and regions is as follows:

Chinese market:

The price composition formula of the global luxury brands of the World Luxury Association: 5% of raw materials+10% of processing costs (including design, finished product processing and transportation)+45% of profit retention rate (brand pricing and annual price increase)+8% of advertising and public relations activities costs (annual)+6% of the annual expansion costs of exclusive stores (including commercial convenience)+10% of the cost of human resources team (annual)+import tariffs The average value of comprehensive tax rates such as VAT on consumption tax is 16%=retail price in China

North American market:

The price composition formula of the global luxury brand of the World Luxury Association: 5% of raw materials+10% of processing costs (including design, finished product processing and transportation)+30% of profit retention rate (brand pricing and annual price increase)+12% of advertising and public relations activities costs (annual)+15% of the annual expansion costs of the franchise store (excluding commercial convenience)+18% of the cost of the human resources team (annual)+import tariffs The average value of comprehensive tax rates such as VAT on consumption tax is 10%=retail price in North America

European market:

The price composition formula of the global luxury brands of the World Luxury Association: 5% of raw materials+7% of processing costs (including design, finished product processing and transportation)+20% of profit retention rate (brand pricing and annual price increase)+12% of advertising and public relations activities costs (annual)+20% of the annual expansion costs of exclusive stores (excluding commercial convenience)+30% of the cost of human resources team (annual) +Tax rate of imported goods in the third country is 6%=retail price in European market

In view of the phenomenon that the prices of luxury brands in various countries continue to rise, Ouyang Kun, the chief representative of the World Luxury Association in China, believes that it should be a global behavior for brands to increase prices repeatedly, but the proportion of increase will vary according to the different consumption power of each country, especially in China, where luxury brands will have 1-2 price increase cycles every year at the beginning of the launch of new products, The increase is generally between 10% and 30% depending on the category, and some limited edition goods will be higher. The price will also be adjusted according to the sales of stores in countries and regions and changes in market demand. In these different regions, the price base specified by the brand is quite different. In Europe, where most luxury brands are of origin, if the price base of luxury goods is 100, for New York, Brands usually set a base slightly higher than the origin, such as 110 or 120. Countries in other regions of the Americas, based on the reference price in New York, set the final price index according to different tax rates, operating costs, consumer affordability and other factors of each country, which belongs to regional pricing. The local regulation of brands based on the consumption capacity of the country where they are located is the main reason why luxury goods are expensive in China. This regulation is based on the purchasing power of consumers in the Chinese market. Because the Chinese market is large, and the purchasing power is also large, plus the Chinese consumers' psychology of buying up or not buying down, the pricing strategy in the Chinese market must be higher than that in other countries.

The reporter asked the national price department about this, and the relevant staff said that the price increase of luxury goods was not within the scope of price regulation. A few days ago, an expert from the Ministry of Commerce said that if the tax reduction policy for luxury goods could be implemented, it could not only keep some luxury goods consumption in China, but also drive the development of surrounding industries and regional businesses, and enhance the international image of the city. Of course, tax reduction is not exactly the same as price reduction. Ouyang Kun also believes that as long as the domestic pursuit of foreign luxury goods is not reduced, even if the tax is reduced or even abolished, the price of domestic luxury goods may not fall, but it will expand the profits of dealers. Therefore, Ouyang Kun believes that the policy of binding tax and price reduction may be feasible, but it needs further research by the government departments.

In addition, it is necessary to fundamentally change the reality that foreign brand luxury goods are overpriced in China, and change the current consumer preference for foreign brands. On the one hand, it is necessary to cultivate healthy consumer psychology and habits, and on the other hand, it is necessary to enhance the competitiveness of domestic enterprises. Enterprises should focus on providing high-quality products and services, and cultivate high-end consumers' recognition of domestic brands.