Pricing Strategies: How to Win Over the New Chinese Consumer

October 29, 2021

A woman holding credit card

In recent years, domestic upstarts have been increasingly outpacing foreign brands in the Chinese market. Industry expert Jan Yang explains how this is mainly due to the West’s misconception of the modern Chinese consumer, and reveals what pricing strategies brands can implement for success.

Why is it important to understand the New Chinese Consumer?

Foreign brands in recent years have struggled to make a mark in the Chinese market. A lot of this is down to the fact that they act on the misconception that the Chinese consumer is price-conscious and fascinated by foreign brands.

However, while Chinese consumers still love a bargain, there have been significant changes in economy, demographics, and urbanization that have led to a paradigm shift in the country’s commercial landscape.

What has changed?

Not only have urban populations increased, but it has never been easier for consumer brands to connect with customers in rural areas. Reaching a previously untapped burgeoning middle class in tier 3 or tier 4 cities unknown to people outside of China.

With 68.7 percent of the Chinese population now active internet users, and improvements in internet infrastructure, as well as the expansion of delivery networks, consumers and brands are now able to connect anywhere from a variety of platforms.

Not only that, but young people are fast becoming more active consumers. For example, Gen Z account for 15 percent of the population, while contributing 30 percent of total consumption. These digital natives have significantly different consumer journeys to older generations, and Chinese brands are rising to the challenge.

Who is the New Chinese Consumer?

Chinese consumers still love bargains but if the price for feeling good is higher, they will pay it. In other words, in the price-value relationship, value wins over price for the New Chinese Consumer.

The New Chinese Consumer is Self-Aware

There was speculation that financial uncertainty amidst the pandemic would cause consumers to cut spending. There might be some truth in that, but we also saw the opposite happening in China. Weary customers would treat themselves by trading up their consumption. More and more Chinese people are embracing the maxim “living in the now”, and consumerism seems to be the way to go.

The New Chinese Consumer loves China chic

Meanwhile, foreign brands have become considerably less attractive. Thanks to China’s economic rise, younger generations have grown up more comfortably. They pursue individualism, have national pride, and no longer look to the West. This means that when it comes to competing for the New Chinese Consumer, it is a level playing field for all brands. Overpriced foreign brands struggle and falter.

Case Study: MUJI

  • The brand MUJI means “no-brand quality goods” in Japanese, and used to be a cool brand in China
  • Launched in China in 2005. The business grew steadily, and MUJI positioned itself as affordable luxury brand – a striking distinction in comparison to its standing domestically, where prices were considerably lower
  • In 2014 MUJI responded to declining sales by announcing a new pricing policy
  • By mid-2019, the brand had conducted 11 rounds of price reductions in the Chinese market
  • The price concessions made things even worse for MUJI. With repeated significant discounting campaigns, it was confirmed to consumers that they brand wasn’t accurately translating its product value into their prices
  • To this day, MUJI has yet to recover lost ground

What can foreign brands learn from Chinese companies?

The mistake MUJI, and the like, made was believing that the solution lies in pricing low or high. When really it is about identifying the right customer groups and productizing the price that the respective group is willing to pay.

Let’s take the automotive industry in China as an example. Foreign brands like VW and GM used to dominate the passenger car market in the country. Now, only two foreign brands, Tesla and BMW, made it to the Top 10 electric vehicle (EV) models in China in 2020.

Chinese EV makers can contribute much of their success to how well they base their pricing strategies on a particular consumer segment. Some of them open up new demand with high-end cars with advanced value-added features, while others focus on low-end price segments with ultra-slim product offerings.

Case Study: NIO

  • NIO targets High-End EV Drivers
  • Its flagship model ES8 is priced at around 70,000 US dollars (448,000 Chinese Yuan) and comes with unique and innovative features appealing to affluent Chinese consumers
  • In 2020, NIO delivered 43,728 vehicles in total, increasing its sales by 112.6 percent year-over-year
  • NIO has successfully cracked the premium car market which used to exclusively belong to foreign brands

How to win over the New Chinese Consumer

In order to successfully attract the New Chinese Consumer there are three key aspects to consider:

  • Phygical (Physical and Digital)
    The debate about whether businesses should be solely online or offline has been settled. It has to be both. The rising demand for a seamless shopping experience is blurring the boundaries between which channels are used to gain information, and which platforms are used for purchase.
    This is why brands must adopt an omnichannel sales strategy, if they are to succeed anywhere – not just in China. Whether it be physical or digital, a product or service needs to be there when consumers are.
  • Social
    Social media is one of the most underestimated tools for foreign brands in China. New consumer brands know their customers from day one, involving them in product development, marketing, and even sales. Chinese EV makers, like NIO, realized 70 percent of their sales through brand followers and communities during COVID in 2020.
    For younger generations, especially Gen Z, the experience that a brand provides is equally, or even more important than the product – something Chinese brands like NIO have understood and use to their advantage.
  • Glocal (Global and Local)
    In recent years, western brands have found it increasingly difficult to copy paste their Global USP, and brand identity to the Chinese market.
    While it is important to be loyal to the spirit of your brand, Chinese consumers have different habits and preferences that don’t necessarily coincide with western tastes. This requires extensive, but worthy, market research for brands to understand how to tailor their identity and product line to the Chinese market.
    Moreover, the New Chinese Consumer rightfully demands something unique, made especially for them. Many leading consumer brands have already picked up on that, introducing China-exclusive lines. It is an investment well spent.