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Find here the Daxue Talks episode 20. Learn from Igor Temirov, an expert in pricing strategies, how to protect your margins while engaging customers with discounts in China.

Full transcript below:

Igor Temirov: Yes, good morning. My name is Igor Temirov. I am an expert in developing foreign markets and for the last 5 years, I have been in China helping several companies enter the Chinese market.

Interviewer: Are discount strategies in China a big thing? How do you manage a discount to protect your margin?

Igor Temirov: Yes pricing is a very special strategic point so a practical view you have to deal with two decisions; first at a strategy level. So, you are defining the way you want to price your product; low cost or medium-priced or upper medium-priced or the high-end strategy and you want to get the high prices for your products. So, sometimes you may choose the so-called sandwich pricing strategy when you have one product priced at a high level and the other product you have at the lower level ad you are squeezing your competitors in between. So there are many factors, but this decision about your strategic pricing product policy should be done at the initial stages when you are developing the strategy.

So, once you decide about your pricing in the market then you of course supply more operational pricing strategies and most of the companies follow three steps. So, at the first stage when they are entering the Chinese market or any other market they are trying to apply the same pricing policy as in their home markets or what worked for them in their home market. So, they assume that this could work in the other international markets and in most cases, it does not work. So, after several months they started hearing and listening to their local Chinese managers or local managers who are telling or had been telling them that their pricing should be different and then the second stage; this is the stage when they follow their crowd, so-called. So, by listening to their managers they are applying the same pricing strategies that they see from their competitors and the third stage which is the stage that I wish all the listeners to go as fast as possible. So, this is the stage when you are basing your pricing strategy on research on the understanding of your consumers and for this, you need to do several things.

First of all, you need to study your target audience; your customers. What are the drivers, what are the triggers for their decision-making process for when they’re buying a product? So, which pricing discounts can you know trigger their buying or purchasing behavior and the second thing; this was very successful for our company. It is pricing that is based on their so-called social listening. So, if you talk to your marketing agencies they normally follow all the brands; not only your brands, but they follow all the brands and social listening is a great thing. So, it shows what are the articles, what were people talking about, about your brand, about your category and during the whole year you can define periods of weeks when people actively start discussing your category, your product and this would be the most successful period for your price campaigns or marketing campaigns. This last one worked very well for our company. So, together with a marketing agency we analyzed and we found that in the two weeks of August suddenly customers and consumers started talking about oral care products; about this product and we did a campaign for two weeks. A good thing is that the after effect of the campaign followed up to the almost 11/11, okay?

So, talking about the specifics of pricing in China each country has its own level of discounts that trigger their consumer behavior and some countries, for example, European developed countries 3% discount for one of the most popular categories like coffee can move people to the stores and there will be excitement and a lot of purchasing and buying because it’s a very stable category. Within this level of discount; 3% will not surprise anybody in China. So, in each country, there are three steps of discounting. So, normally it’s like a normal discount then promotion level and then the more extraordinary discounts like New Year, Christmas; like national holidays. So, China also follows this three-step kind of approach to pricing, but the level of the pricing is much higher than in many other countries. So in European countries, if you are pricing or discounting at 50% so people will think, “This product is not good. It is outdated. There is something wrong with this product.” In China, there are a lot of cases when living brands and products are discounted at 50% so normally the pricing in China works this way.

So, the moral price which is like a normal promotion is like a 20% discount during the so-called DM when you have a special place or focused place in a hypermarket or department store which would be 30% discount and twice a year or maybe three time, but companies try two times for Chinese New Year and for 11/11 or for their mid-autumn festival so you will go up to 50%. Saying that I want to mention one interesting thing, so ¾ years ago it was absolutely normal to see during 11/11 in China discounting at 50%. It was like a rule, okay, but probably starting from 2 years ago I think companies started calculating so the discounting at such a huge level does not add to your brand status or brand positioning because it can be very easily eroding the price and the perception of your product and the second thing is people just calculated that it doesn’t make sense and starting from 2 years ago; last year and this year so we can see most of the big brands and famous brands discounting at 30% at 11/11.

Any questions? We will find an expert to answer them. Drop your questions in the comments or send us an e-mail at dx@daxueconsulting.com.

Daxue Talks is a show powered by daxue consulting, a china-based strategic market research company founded in 2010! With Daxue Talks, you will stay up to date with all the latest business updates in China.