With the economic boom, Chinese customers are becoming one of the significant groups for luxury companies among all different kinds of area from fragrance to cars. In the next five years, with the disposable incomes of consumers rising, the demand for premium brands had grown. However, the high import taxes, unstable currency and the huge difference between the retail price in China and Europe, more than 70% Chinese choose to buy luxury brands in other countries rather than in their local boutique.
Due to the large number of customers choose to purchase luxury good overseas, many luxury brands are facing difficulties in developing in China and received profit losses. Additionally, the huge difference in price created another industry called Daigou. Specifically, Daigou means Chinese who either live in Europe or United States, they helped their customers to purchase luxury goods and ship it to China via post. They declared the value of package on purpose in order to avoid the custom tax of Chinese government. This industry has been in the Chinese grey luxury market for years. In order to maintain a healthy relationship between the luxury brands and Chinese consumers, the government established laws specifically to prevent the increasing number of daigou industry. Firstly, Chinese government opened more than 30 duty free shops at airports and borders to try to attract travelling consumers back to speding at home. Moreover, Chinese customs announced new import duties on popular luxury brands and established stricter customs checks at airport and border patrols for travelling consumers.
For the luxury brands, it is a challenge for them to set their retail price in China since it will significantly affect their future growth. Apparently, different luxury companies chose their own methods and regulations to the Chinese market. For example, although Louis Vuitton still raised their retail prices in China compared to Europe, CHANEL decided to narrow the range between China and Europe retail prices. The following charts describes several brands for the price differences.
Hence, how to properly define the retail price in China is a essential question for all luxury companies.