For those hoping that luxury goods prices will drop in China…that’s not happening.
Luxury products already have quite a high premium in mainland China compared to other markets in the world. However, consumers be warned – this premium is on track to become even greater.
Benefit Cosmetics was the first to start the trend by increasing the pricing of its products in late December. Several brands soon followed suit. SK-II’s Essence Lotion saw a 4.7% price increase. Prices of Christian Dior’s beauty, skin care, and perfume products were up by 30% in January. And sales representatives from Chanel have also suggested price increases on its products soon.
“The price adjustment this time is based on regular checks of our products,” says a Chanel China spokesman. “It is also a result of rising labor costs, raw materials and operating costs combined with exchange rate fluctuations.”
Of course, China’s market condition for luxury goods remain comparatively favorable and foreign sellers are trying to make up for a deficit in other markets, notably Europe, by tapping further into the spending power of the Chinese consumers.
“Despite there being an ever-increasing craving for luxury products in China, brands are raising their prices anyway in the hope of introducing an imbalance between supply and demand,” says Zhou Ting, head of the Fortune Character Institute, a professional institute that specializes in studying how the rich lives. “For one thing, brands can burnish their images by introducing limited editions of their products. For another, the profit margins of these products will be pushed to a maximum, although profit margins in China are already greater than in any other countries or regions.”
But you can be sure that Chinese consumers are price sensitive. Certainly, brand loyalty, innovative products, and a successful CRM program can help deter some of the risks from price increases. China’s largest lifestyle publisher, Trends Media Group, reported that between 30 percent to 40 percent of Chinese consumers are loyal to brands in these five categories of luxury goods — clothing, automobiles, jewelry, watches, and cosmetics and perfume – based on an annual survey conducted in 20 Chinese cities.
However, for those luxury consumers who are able to travel, they have shopping options abroad.
photo credit: dior