Beijing's Shin Kong Place luxury mall. (Jing Daily)
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Everyone knows Chinese consumers overwhelmingly prefer to buy luxury abroad, but many assume that it’s solely because of the huge price gap between goods in China and those in other countries thanks to China’s high tariffs. According to a new survey by the Chinese-language version of Fortune, lower prices are actually just part of the picture when it comes to their major reasons for buying abroad.
Fortune’s report released yesterday states that 64 percent of Chinese luxury consumers prefer to buy abroad rather than domestically. This number comes after a study by Bain which found that around 70 percent of all luxury items purchased by Chinese consumers were bought either abroad or through daigou channels.
Their number one reason was—unsurprisingly—price. A total of 88.9 percent of respondents cited this as why they bought abroad, and it’s not tough to see why given the fact that luxury goods can be up to 70 percent more expensive on the mainland than elsewhere.
But it’s not just price that’s affecting purchase behavior. Fear of China’s rampant fakes is almost equally important: a total of 83.5 percent said they bought abroad because they knew they would have access to genuine goods. This is not the first time that data has supported the fact that price is only one consideration when it comes to shopper habits—a report released by iResearch in May found that quality, not price is the most influential factor for online shoppers in China (although price came in a close second). Chinese consumers are becoming increasingly fearful of accidentally buying fakes—one study by RedTech Advisors found that 91 percent of online shoppers in China are concerned about counterfeits.
Thanks to a growing price gap between China and Europe as well as Japan due to currency fluctuations, many luxury brands such as Chanel and Patek Philippe have abruptly lowered their China prices to combat China’s expansive gray market. Before brands rush to action to address the cost issue, however, they should keep in mind that price isn’t the only influencer for Chinese luxury shoppers. China's affluent consumers also have high quality standards and want to make sure that they’re getting the real item. In addition, those who are concerned about the price gap are increasingly unwilling to risk getting stuck with an expensive fake through Taobao's rampant daigou scams.
As a result, a brand strategy to address the price gap needs to ensure that perceptions of the brand’s quality and heritage remain intact in the minds of the world’s most important group of customers in order to ensure sustainable, long-term growth.