Money talks as shoppers seek status

The high-end allure

Whenever people have more wealth, and therefore more disposable income, they trade up, said Gao Xudong, senior research fellow and vice-director, Tsinghua University Research Center for Technological Innovation. "And this is especially evident in the Chinese market."

Gao is also the former director of the MBA program at Tsinghua University.

"It is a rational choice for high-end brands to price higher in China," Gao said. "China is still a hierarchical society where people need brands to label their social status, and there is demand for every social class."

US bag brand Coach obviously detected this trend. As of June 30, 2012, Coach had 96 retail locations across China and revenue has achieved a 60 percent growth in the 2012 financial year.

It doesn't deny the price disparity between the Chinese and US market, and is fully aware that Coach bags have been a big catch for these consumers, and even a must-buy "local specialty", for Chinese consumers traveling to the US.

While Coach bags in China generally start from 3,000 yuan ($475), most bags in US outlet stores are under $300, with some under $100.

Jonathan Seliger, president and CEO of Coach China, says price disparities stem from unavoidable factors.

"In fact, price discrepancies exist in all countries for all brands. There are many reasons for price differences. These include the cost of transport, marketing, and the opening and operation of stores.

"We have been in the US for 70 years and are the overwhelming No 1 brand and this allows for scale efficiencies. We do not yet have that in many international markets, including China."

Seliger is well aware of the purchasing agents and the line of Chinese customers outside of Coach factory stores in the US.

"We are happy to see increasing engagement with Chinese customers in both China and overseas," he said.

"As Coach offers monthly 'newness' and products tailored for local markets, we believe the accessible pricing and local promotional initiatives are attractive for local consumers," Seliger said.

"We do not offer traditional products that last for 10 plus years like European brands," he adds.

He stressed that Coach products in China are priced at around half the price of traditional European luxury brands.

"In terms of pricing, all our products in each market are priced at 40 to 60 percent of the cost of European brand products. Coach has always been positioned as an accessible luxury brand, since our inception in 1941."

The unique positioning differentiates it from European brands which are at the top of the pyramid targeting only a small group of exclusive customers, as well as those "mass market" brands appealing to the general public.

"We work with the fast growing middle class in China. We want to be selective but not exclusive."

According to analysts, one Chinese tradition also helps brands to charge higher prices in China - the gift culture. China may be the nation that likes to give the most. Gifts are woven into the culture.

According to a report by Bain & Company, more than 25 percent of luxury products bought in China are for giving as gifts.

Jeff Gong, director of Beijing Vogue Glamour Brand Marketing Inc, a brand consultancy, said there is a huge difference between Chinese and Western consumption behavior. "While the Europeans love to keep the good stuff for the family, Chinese people present it to guests or to others as a gift."

Dale Preston, managing director of retail measurement at Nielsen in China, said pricing varies depending on the sectors, but what people are ultimately after is "value for money", whether it is for self-use, or as a gift.

"If you are a premium brand, you can give customers a good story and history. For products displayed on the shelf, like shampoo, tell them what the product can do for your hair and whether it can make your hair shinier or prevent damage. If the product can deliver what is promised, the brand image will be solidified," he said.

Gao, from Tsinghua University, said Chinese people will always be attracted to high-end brands.

"The social hierarchy won't disappear anytime soon, so Chinese people will keep chasing brands."