Why Chinese consumers look abroad for products, Value vs. Price.
As Chinese shoppers have grown wealthier since the “Reform and Opening” of the early 1980’s, purchasing behavior has changed dramatically along with tastes and preferences. However, one thing has remained constant and will for at least another generation, the tireless search for value. Across purchases of everything from automobiles, to clothes, to household staples, the only questions that really matter are: “What did you get?” and “How much did you pay?”
The desire to get a deal is ingrained in every facet of the Chinese purchasing process, from haggling over the price of meat at the local wet market, to buying the latest fashion from Jimmy Choo. Prior to purchase, Chinese consumers conduct a much more exhaustive search for a better deal, both online and offline, than their American counterparts. No element of the purchase goes unconsidered, from sticker price, discount, delivery costs (and who might be able to help with delivery) to maintenance and expected lifetime of the product. The key motivation for such an exhaustive search is the real and perceived value of the product. Is it 100% authentic? How popular / desirable is the product among friends and colleagues? Is it a status symbol? While the elements of the ‘value proposition’ varies widely across industries, one rule applies uniformly across all purchases no matter how large or small, if two individuals have purchased the exact same item, the one who paid less wins.
Because today’s eCommerce market allows consumers to easily compare prices across storefronts worldwide, and Chinese shoppers use it to an even greater extent than their US counterparts, this causes a number of possible effects for brands. For those brands and products whose prices domestically in China are higher than they are abroad, Chinese consumers first look abroad to make the purchase. This is why luxury purchases by Chinese travelers are the highest in the world, projected to spend an average of $7,000 per traveler in 2015. These shoppers aren’t just buying items for themselves, but also for friends, family, and other close associates.
One does not need to spend a lot of time figuring out why demand is so high. A quick perusal of Tmall.com, Alibaba’s B2C online mall, features a wide range of international brands. However, while the price of a McDonald’s hamburger in Beijing and New York are close, domestic prices in China can often be much higher than they are abroad. When it comes to categories including cosmetics, designer fashion, and beauty products, it is not uncommon for prices to be marked up as much as 100%, and sometimes even more than that.
Juicy Couture, an extremely popular women’s fashion brand, sells their Whirlwind Floral Maxi Dress on juicycouture.com for $188.00, equivalent to CNY ¥1,145, if you are shipping to an address in the United States. If the shopper wants to purchase from juicycoutoure.com and ship to China the price inexplicably increases from $188 to $301 or RMB ¥1,869, after which shipping and duties are added bringing the total cost to RMB ¥2,322 or $381.69. The price for the same dress on Tmall is not much better, RMB ¥2,090 or $343.60 at today’s exchange rates.
For a Chinese consumer, the obvious preference is to purchase from juicycoutoure.com and ship domestically in the US. However, there is no way for these millions of consumers to make a purchase from Juicy Couture’s website (or many others) using a preferred method of payment including China UnionPay, AliPay or TenPay. Juicy Couture’s checkout cart has a very common problem, inserting a Chinese billing address for a payment is not possible when shipping within the US. In this situation and many others, family, friends, and a host of third party service providers are relied upon to meet the demand and solve the problem. It is a huge opportunity that is being missed by a very savvy brand.
This is but one example in a laundry list of brands and items that are in demand internationally precisely because they come with a significant mark-up in China. Chinese consumers are looking overseas to buy products, and when they do find a way to make a purchase it is more likely than not they will then brag to their friends and family that they got the same dress on sale at Tmall for 1/2 the price, but only if brands and eCommerce platforms allow them to.
Next up, a detailed look at payment options facing Chinese consumers when purchasing overseas.