"How Much did you Pay?"

While here in the US, inquiring as to the cost of anything is generally considered bad form at best, and often more like downright impolite, this is not the case in China. The question "How much did you pay?" or “多少钱?” is commonly asked. It doesn't really matter what the topic of conversation is, a watch, a pair of shoes, or a newly purchased automobile, the question "how much" is almost invariably among friends, family, and coworkers.

However, bragging about how much was paid for an item is a tricky equation. While paying a high dollar (RMB) amount is fine, of greater importance for 99% of the population is what the individual was able to purchase with that money.

In my ten years in China, here is a conversation I never heard:

A. “Wow, great new Prada bag. How much was it?” (again, this question is more common than you would think)

B. “Thanks. You know I’m not really sure, it was an impulse buy as I was walking through Super Brand Mall over the weekend.”

A. “Ah, I know how that is, the other day I was shopping at the Prada store on Nanjing Lu because I needed to get a new handbag, I ended up walking out with three!”

Conversely, here is one version of a conversation I heard countless times:

A. “Wow, great new Prada bag. How much was it?” (again, this question is more common than you would think)

B. “Thanks. Can you believe I only paid 8,500 RMB!?” (that’s about $1,388)

A. “What!? That bag is worth at least 20,000 RMB! I saw it online when I was looking for a new bag a month ago.”

B. “I know, it was so hard to find at that price. I looked everywhere for it in China but it was so much cheaper on Prada’s Italy site. I would have bought it two months ago but of course I couldn’t buy on their website.* Fortunately I have a coworker who was going on vacation in Italy. I asked him to pick one up for me while he was there. He just came back on Friday.”

A. “You are so lucky!”

*this actually is not said out loud because everyone knows it, I have put it in for emphasis for a US readership.

Here is why Conversation #1 doesn’t happen, Chinese shoppers are always searching for a deal. A recent McKinsey report lays out just how intense this search is (full report can be found here):

“Our survey in 2011 showed that on average a Chinese consumer will make 10-12 visits to online and offline touchpoints—including search engines, product sites, and physical stores—before buying an expensive item such as consumer electronics. Actual sales do not always occur at physical salespoints; indeed, 16% of electronics are sold online now, versus 1% five years ago. Our 2014 survey finds that this showrooming effect, where shoppers browse in stores but buy elsewhere (including online), has become particularly intense for the 30% of consumers who carry out mobile research while inside a store. For categories like consumer electronics, only 16% of these consumers, with Internet in hand, make a purchase on the spot at the store. (Exhibit 3)”

McKinsey Survey.jpg

- McKinsey & Co: "China's iConsumer 2015"

What is important for brands to understand about the rise of China’s consumer is that purchases will be made, but their Chinese customers will go to great lengths to make sure they are getting the best price. With over 500 million smartphone users in China, this search has become easier and more immediate. In my estimation, the exhaustive search by Chinese consumers is precisely what prompted Chanel to simultaneously increase its prices in Europe while dropping them in China. Their Chinese shoppers were comparing prices and deciding not to buy in China, and then looking for options on how they could buy from Europe. Chanel likely realized its global pricing inefficiencies were hurting sales in their largest market.

The lesson to be learned for brands everywhere that have even modest brand awareness in China is that your sales to Chinese consumers may not happen inside China. They will look for the best deal, and they will find it. If the best deal is on an international website, the key is to convert the visit into a sale. This relies on a number of factors, primary among them is being able to take a payment.

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