China Business Blog and Podcast

To say that “price is King” in China is like saying its crowded here.  In China, price is King … it is also Queen, Jack and Ace.  Known for its street markets where buyer and seller are in a locked cage match over an item of purchase, only the strong negotiators survive.   You can talk all you want about a product’s features and functions … but in China, you will soon get to the price.  I was walking through a Shanghai street market once when a proprietor tried to get my attention, yelling in Chinglish, “Hello, how much??”  The recovering sales manager in me had to stop and say, “Listen, dude … first you establish a product and then a price!”  Price is so important in China that it is not rude to ask someone how much they paid for something – a coat, a car or a house.  There is probably a privacy law in the U.S. that would prevent this from happening.

So when the Chinese government wants to encourage consumer spending, they are up against some interesting challenges.  Remember that only 34% of China’s GDP is supplied by consumer spending (in the United States of Easy Credit, it is over 70%).  China is a land of savers, of people who don’t trust the social security network and figure they will need to foot the bill for their parents’ and their own retirement.  Kinda limits your spending at present when you are your 401(K)  for the future – but I bet these personal 401(K) did better than mine last year!

Last week, one of my senior managers and I had lunch with a professor at a local business school whose expertise is in automotive.  We were talking about the dismal state of the car market in China where sales have dropped precipitously over the go-go years in recent history.  We pondered when and how the market could come back and, as with all consumer purchases, the conversation quickly turned to price.

As we discussed the importance of price, my senior manager made a very good point.  She said, “You know, in the West, you have a price in your minds that you are willing to pay and, if you can find it, you buy it.  But in China, our price comparisons are always against our friends and neighbors and we are always afraid that we will pay more than others will.”  In other words, in the West, something is a good price if it meets our own expectations; in China the price is good if it beats what my neighbor just paid.  Suddenly, it made sense to me – I thought that, when people ask how much I paid for something, they are just being nosy (like when they ask how old you are, what your salary is or how much you weigh!), but really, they are gathering market intelligence.

So the logical result of this intra-societal comparison shopping is that when prices are falling, everyone in China stops buying because they are waiting for the market to hit rock-bottom.  Everyone’s Pay-dar is on the Super Sensitive setting and the rumor mill runs rampant with pricing alerts.  We are seeing this, in particular, with the big-ticket items such as cars and real estate.  In the West, the auto market stinks because people can’t get financing.  In China, they don’t need financing because everyone pays cash – but what they can’t find is the confidence that they are paying “The Lowest Price.”

That said, the China retail market is doing OK, thank you very much.  Reports say that China retail sales reached RMB 290 bln (US$ 42.6 bln) during the Spring Festival Holiday this year.  It was also just announced that retail sales in Shanghai reached RMB 453.7 bln (US$ 66.7 bln).  Both of these figures are double digit growth over the previous year – again, compare that to ANY other part of the world at this time and China is a superstar.

But the lift off point is still some ways out.  The indicators will be rising Consumer Price Indices, an improving stock market and rising (or at least stable) housing prices.  Until then, look for China retail tactics that include massive sales and price-slashing.  People will likely be pretty open to buying something that says “NEW PRICE TODAY – DRASTICALLY REDUCED FROM YESTERDAY” because everyone knows someone who bought one yesterday!

This entry was posted on Sunday, February 8th, 2009 at 8:35 pm and is filed under automotive, China, consumer goods, retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.