CRI听力:Foreign Brands Chase Consumers in Lower-tier Chinese Cities

Foreign brands are becoming cheaper in China as a result of their pursuit for consumers in lower-tier cities along with competition from the e-commerce market.

However some consumers still think their goods are more expensive than the same ones sold overseas even after the price reduction.

Meanwhile, others are still happy to see the price cut on high quality goods.

"For me, I think the quality is always high here, and with the price adjustment, it makes it more attractive to purchase more products."

Recently, popular Japanese lifestyle brand MUJI and Australia UGG have re-priced products on the Chinese mainland.

This is the third adjustment that MUJI has made in the past year. It cuts some one hundred products by an average of some 20 percent.

Wang Ziheng, a student, visited the store to check out the cheaper items.

"I am a student, my budget is limited. So I am more interested in stationery and food, but there don't seem to be many discounts on these."

In a written response, MUJI says that sales in stores went up by nearly 160 percent in the past two weeks, and that the purpose of price adjustments is to close price gaps among different countries.

Another lifestyle brand, UGG Australia, also made similar moves last month.

However, even after the price changes, products on the Chinese mainland are still some 30 percent to 40 percent higher than in other countries.

Ken Chen, Managing Director of consulting firm L.E.K., says customs duties are one factor contributing to higher prices on the Chinese mainland.

"At least a few years ago when there was less information that signaled what the brand stands for, that price is a strong signal of product premiumness, of safety, of quality. Brands using agents, or even they do it on their own. The percentage (of consumers) might be small of high income earners, but the absolute numbers are just huge. So that they see a ready and able to buy consumer base for their higher-priced products, so why not go for the higher margin?

He also said, as consumers become more sophisticated and exposed to additional product offers on the Internet, they will increasingly be on the lookout for more offers and value for money goods.

In addition, the market has recently become more competitive on the Chinese mainland.

Fast fashion brands such as ZARA and H&M have all brought their home furnishing lines to the market.

Ni Renxia, Marketing Manager of the China Retail Group, says with intensified competition, the brands have to lower prices to capture a broader market.

"The consumption market in first-tier cities has already been saturated, with brands having enough influence. But for the second and third tier cities, such prices are probably a little bit too high. Lower prices may more conform to the purchasing power of these cities, where the markets are still driven by price. If the price is attractive and the quality is not poor, people would be more open to try other brands."

According to research by L.E.K. Consulting, despite the increasing use of e-commerce platforms in purchasing foreign brands, people in lower-tier cities visit and make purchases in physical stores more frequently than those in upper-tier cities.

Economist predicts that by 2020, 66 percent of China's mid-income consumers will come from medium-sized or small cities.

For CRI, I'm Min Rui.