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Samsonite adjusts pricing strategy in China

Updated: 2012-10-01 10:50
( China Daily)

Samsonite fine-tunes pricing strategy to stay ahead in China

Having the right pricing strategy holds the key for Samsonite International SA, as the luggage maker searches for answers in China's high-end markets to offset dismal sales in other major global markets.

"High-end products account for nearly 90 percent of the range available in China," says Frank Ma, vice-president of Samsonite Greater China, the Philippines and Vietnam. Established in 1910 in the United States, Samsonite entered the Chinese market in 1997 by mainly selling its products in airports and high-end shopping malls.

Samsonite adjusts pricing strategy in China

Frank Ma, vice-president of Samsonite Greater China, the Philippines and Vietnam, says the Chinese market is different from those of Western countries. [Photo/China Daily]

Though Samsonite has a full range of carry-on bags priced from $70 to $450 in the US markets, in China it sells mainly high-end products ranging from 1,500 yuan ($238) to 5,000 yuan.

"The Chinese market is different from Western countries," Ma says. "In China, most of the products are high-end, and there is no logic in comparing the prices between low-end products in the US and high-end products in China."

Ma says there are several reasons why this is so. "In the US market, a loose thread sometimes can be seen on the stitching of a bag. But in China it is considered a serious problem and a reason for rejection by consumers."

Though the company's high-end products are available in both markets, Ma says there is normally a 20-30 percent price variation due to tariffs and other taxes.

Based on Chinese government policies, if the materials and metal parts are imported and the finished products are only for export, then tariff on these materials is exempt. So products in overseas market sometimes can be cheaper than those in China.

"This is a common problem faced by most of the international brands who have manufacturing locations in China."

That does not, however, mean that high prices are a deterrent to Chinese consumers. For affluent Chinese businessmen who fly business and first class, the stringent quality requirements and high price often gives a sense of exclusivity, Ma says.

After entering the Chinese market in 1997, Samsonite has seen its revenue grow by 40 percent every year, with the margins often higher than its home markets.

In 2007, China became the No 1 market in Asia in terms of revenue, and has since maintained the top slot for most years. Currently the Chinese market accounts for 10 percent of the overall $1.8 billion market, just behind the US market, which contributes 25 percent to the total revenue.

With Chinese outbound travel taking off, the luggage manufacturer is now betting on a resultant surge in business.

Craig Moyes, director of Reed Travel Exhibitions and the founder and co-organizer of the annual China Incentives, Business Travel & Meetings event, projects that by 2015 there will be 100 million outbound tourists from China, thanks to the improved air travel and transport links. In 2011, outbound tourists from China was 70.25 million, according to China National Tourism Administration.

Samsonite currently has two brands in China: Samsonite and American Tourister. While the Samsonite brand mainly targets executives, businessmen and other groups looking for premium products, the American Tourister carry-on bag range is looking to score with the younger generation.

The market difference is also visible in the price tags. A carry-on bag from Samsonite costs 1,500-5,000 yuan, while an American Tourister carry-on is priced between 500 yuan and 1,500 yuan.

With more Chinese customers moving up the economic ladder, Samsonite is now toying with the idea of launching its luxury sub-brand Hartmann, a century-old US bag manufacturer, in China.

Another niche market that the company is eyeing is the outdoor travel gear market with its High Sierra brand. Both brands are likely to be launched in China by the end of next year.

To cater to the growing demands from younger groups in China, American Tourister recently set up a research and development center in Tokyo with a special focus on the Asia market. The series is more colorful and fashionable, appealing to younger users and families traveling for leisure.

Among the Samsonite series, Cosmolite and Cubelite are the best-sellers in China, while in the American Tourister series, Prismo and AT Smart are the most popular.

To cash in on the growing Chinese demand for leather luggage, Samsonite has recently launched its exclusive range of leather luggage.

China is already a major manufacturing destination for many global bag and luggage companies, especially low-end products. According to China IRN, a consulting company based in Shenzhen, China has more than 26,000 bag and luggage companies, with annual output of 80 billion yuan. Yet most of these companies are contracted suppliers for international brands or makers of low-end products.

Ma is well aware of the industry landscape and extremely careful with quality and brand reputation. "It is easier to copy the style and finish, but the cost can vary greatly due to different materials," Ma says, adding that new technology and new materials are first applied to high-end products, such as the Cubelite and Cosmolite series.

A Cubelite carry-on can be as light as 2.3 kg, and "there is no way that the traditional materials can achieve this weight," Ma says.

"Durability is another important quality for bags," Ma says.

"The handle needs to be tested thousands of times, and wheels as well. We also simulate the careless loading and unloading scenarios to test how strong the bag is, and sometimes in extreme environments such as super hot or cold temperatures to see if the materials break under these conditions."

Ma admits US consumers pay more attention to value than the brand name, but he does not think Chinese consumers will act like US consumers in the future, even when they are more affluent.

"Chinese consumers are different," Ma says.

"In Japan, China and South Korea, consumers value big brand names and they love the feeling of exclusivity these brands give them."

wangchao@chinadaily.com.cn

 
 
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