From guest-blogger Other Lisa, cross-posted on her blog, The Paper Tiger
Here’s a little break from geo-politics, democracy or lack thereof and killer flu. In China, Buick is a prestige brand:
Consider Buick, often considered a grandpa’s car in the United States. In China, ”Buick is an expensive car, and has a very big name,” said Yan Lili, 30, a corporate manager in Beijing. ”I’d love to own one.”
The difference in perception is partly because of market conditions. Buicks were among the first foreign cars on Chinese roads, and both the cars and their promotional campaigns impressed Chinese consumers.
Partly, that’s because the bottom end of the consumer market in China extends far lower than it does in the United States. ”Compared to local cars,” Bell (Edward Bell, head of planning with the advertising firm Ogilvy & Mather Beijing) said, Buicks ”are expensive; they’re big; and they’re foreign. And so they’re as much of a status badge as an Audi.”
That’s allowed Buick’s parent, General Motors Corp., to charge its Chinese consumers about $37,000 for a Buick Regal that retails for about $23,000 in the United States. Yet GM’s Chinese buyers get only one-third of the three-year bumper-to-bumper warranty American consumers get.
But Buick is far from the only American brand that’s caught the fancy of the Chinese consumer:
In Beijing, freezers selling Haagen-Dazs ice cream stand proudly in the lobbies of five-star hotels. The price for a pint of Swiss vanilla: $10, compared to around $3 in the United States.
”Part of the reason for such pricing is simply extra costs, such as transportation and duties,” said Eddie Lu, marketing manager with Haagen-Dazs in Shanghai. But more significantly, in China Haagen-Dazs has sidestepped its US image of being a premium supermarket brand to position itself as the deliverer of a uniquely luxurious culinary ”experience”, Lu added.
The strategy is working well because ”there’s a ‘reward yourself’ lifestyle here,” said Lu. ”People don’t mind paying for prestige items, especially if they are foreign.”
And here’s something to consider the next time American politicians start going off on cheap Chinese goods undercutting American products – American companies are greatly overcharging their Chinese customers. Why? Well, because they can:
A recent survey of 1,800 US businesses in China by the American Chamber of Commerce in Beijing found that the profit margins for 42 percent of them were higher than their average worldwide margins.
A little-discussed reason US companies enjoy pricing freedoms in China is that the country’s newly created middle-class lacks product awareness….
…With the state having a vested interest in corporate profitability, local media, which is mostly state-controlled, does hardly any consumer reporting. Since most Chinese consumers can’t read US publications, both because of China’s controls on access to foreign media and natural language barriers, they have no independent perceptions of brands, their image or their history, making it easy for companies to create perceptions through marketing campaigns, Bell said.
Here’s the bottom line, according to Bell: “Many American brands were drowning and looking for a lifeboat — then China came along.”
1
By Gordon
Haggen-Daz sucks!
I’ve heard people claim that it’s the best ice cream on the market, but I don’t think so.
I tried it in Hangzhou and not only was it over-priced and average tasting – the service was lousy. The dumb ignoramous behind the counter wouldn’t even give me a double scoop (one dip on top of the other) on a cone. She said they couldn’t do that (nevermind that I wanted to pay for it).
arrgghh..I left. That was about as dumb as the water guy refusing to sell me three bottles of water for the water cooler in my apartment because he didn’t think I needed that many. (again, nevermind that I was paying for it).
See what I mean about customer service in China? They have a long way to go in this department.
August 21, 2005 @ 12:28 am | Comment
2
By Other Lisa
Haagen-Dazs not my favorite either. I mean, if you are going to get commercial ice cream, Ben & Jerry’s RAWKS! Trader Joe’s makes a great house brand too.
Okay, this is my own personal benchmark for China modernization – when they get a Trader Joe’s, I am SO there!
August 21, 2005 @ 12:30 am | Comment
3
By Sam_S
I don’t know about Haagen Dasz, but most of that big premium on Buicks is the government’s tax! Not that a corp. would never gouge, but in some cases, the extra price is money that never makes it to the company. When it does, in China, don’t forget the Chinese co-owner is getting half!
August 21, 2005 @ 12:35 am | Comment
4
By Other Lisa
Sure, Sam. But from what this article is saying, the corporations are charging much higher prices for their goods in the first place.
Did you read the part about $40 sundaes???
Now, that I’m sure has as much to do with the Chinese side as the American side. But really!
August 21, 2005 @ 12:45 am | Comment
5
By bingfeng
other lisa,
medical reform is a big topic here, wonder if you have something to say about it
August 21, 2005 @ 1:01 am | Comment
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By Martyn
bingfeng, haha, care to guess what the the next TPD post is all about?
August 21, 2005 @ 1:04 am | Comment
7
By bingfeng
bingfeng, haha, care to guess what the the next TPD post is all about?
Posted by Martyn at August 21, 2005 01:04 AM
———–
failure of chinese medical reform?
August 21, 2005 @ 1:14 am | Comment
8
By Other Lisa
Bingfeng, we shall see…it will be posted shortly…
August 21, 2005 @ 1:21 am | Comment
9
By bingfeng
thanks, lisa and martyn
when trying to open paper tiger tail, i have this:
Sorry Leider
Anonymouse is out of order because of a technical update! Starting 8/22/2005 Anonymouse will be back at your service to protect your privacy!
August 21, 2005 @ 1:26 am | Comment
10
By Other Lisa
Phoeey.
Well, Bingfeng, everything I’ve been posting on paper tiger the last few days I’ve also been posting here, so you aren’t missing anything. But still, the whole thing is annoying and deeply silly. You know, I really like going to China, and I really would like to move back there some day – but stuff like this makes me wonder if I’m completely out of my mind…
August 21, 2005 @ 2:05 am | Comment
11
By Stephen Frost
People in Shenzhen might think of Haagen-Dazs rather differently.
August 21, 2005 @ 5:40 am | Comment
12
By Dan in China
I have to say that I think Haagan Dazs ice cream isn’t half bad . . . I myself have purchased a pint or two for $10 in Hangzhou.
Last time I was back in the States visiting my mother, I saw Haagan Dazs pints on sale at Wal-Mart, two for $5. I bought two. My mother thought I was crazy, and pointed out that I could have bought an entire gallon of store-brand ice cream for a $1.50.
It is good ice cream, though.
August 21, 2005 @ 10:22 am | Comment
13
By dezza
On a Chinese consumer related note: partly due to the immense wealth Chinese consumers have accumulated so quickly, they are massive shoppers when they go to places like Hong Kong and Europe.
Friends of mine who have been on these European tours for Chinese see Chinese men clutching huge wads of 500 euro bills throwing money around like monopoly money. One guy bought 5 rolex watches without even inspecting them..naturally he paid with cash. I’ve heard some retailers raise prices a few times the regular price when they are expecting the Chinese tourists to show up..
macao is another destination where chinese throw their money around.
it just makes me wonder where all this ‘hard earned’ cash comes from…rich people in the west/japan don’t really spend like this do they?
August 21, 2005 @ 11:11 am | Comment
14
By Jerome Cole
Frankly, China’s new rich have much more money than taste or good sense. The way that people tolerate shoddy, overpriced goods is just amazing!
August 21, 2005 @ 11:55 am | Comment
15
By Martyn
Macau?! The amount of mainland money frittered away in Macau must be an amazing figure. Nevermind the tour groups that crowd into the basement of the Lisboa with their HK$100 chips, the real gambling is done behind closed doors in the VIP rooms.
I wonder how much embezzled cash has been squandered in Macau over the years.
August 21, 2005 @ 12:16 pm | Comment
16
By Imagethief
The Other Meaning of
August 22, 2005 @ 6:01 am | Comment
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By Imagethief
The Other Meaning of
August 22, 2005 @ 6:06 am | Comment
18
By Todd
“42 percent of them were higher than their average worldwide margins”…I’d like to know what percentage of readers were fooled by this statistic. If 42 percent are higher than average, then the other 58 percent of surveyed businesses have profit margins lower than their worldwide averages. In other words, most of these companies charge less for their products than in other countries. This statistic actually suggests quite the opposite of what it was used to illustrate!
August 22, 2005 @ 7:26 pm | Comment
19
By Sean
Good catch Todd.
Also, I think this may have something to do with branding. I’ve heard that this is difficult in China, and quite counterintuitive. Making prices so high so that only ‘baofahu’ yuppies can afford them automatically makes them desireable.
Guys, this is a country where a diamond-studded cellphone series was the talk of the town. And the knock-offs have been incredibly popular.
Charging reasonable prices makes you common. That’s not good for building a brand name for the future China.
August 23, 2005 @ 1:43 am | Comment
20
By Gaby
Realy good site!
September 16, 2005 @ 6:46 am | Comment
21
By JENNIFER
I DONT THINK THAT hAAGEN DAZS HAS THE BEST ICECREAM SO I DONT KNOW WHAT U TALK ING ABOUT
January 24, 2006 @ 1:27 pm | Comment