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How to Tackle the Bargaining Economy in China

Spire Research

Most Western consumers expect to play the bargaining game when they enter the street markets of China. But few expect to haggle over high-end laptops and tablets in the tech malls of Shanghai. Yet this is exactly what Chinese consumers do.

For technology companies, China provides a nearly unmatched market opportunity. Chinese adults spend 5559 RMB (approximately $917 USD) on consumer electronics, which is higher than the U.S. average of $483, according to CEA market research. And more than 60 percent expect to spend more – more than any other country.

But the purchasing process in China can be a little different than what consumers experience in the U.S. and Europe.
Xuijahui is the main electronics hub in Shanghai, for example. There, you can find multiple mega malls side by side, dedicated entirely to high-tech devices.  There are literally hundreds of shops that sell computers, cameras, mobile phones, and video-game consoles from world renowned brands.  And bargaining is the order of the day. Where Western consumers are used to fixed prices from large organized retailers or e-tailers, Chinese consumers negotiate passionately to finish the “last mile” of the sale.

Bargaining for high-end electronics: the hidden logic

The negotiating behavior is underscored by a simple fact: the massive oversaturation of retailers selling the exact same products and brands.  

Strolling down the hallways of Metro City in Shanghai, for example, you can find exclusive outlets from many major consumer technology brands ….and that’s just in the one building.  Don’t go across the street or you will find over 100 single brand exclusive stores offering the exact same product.  It’s pretty hard not to make it all about price when three other vendors within 50 feet all have your exact same inventory and marketing materials.

What’s a brand to do?

How should Western vendors manage the last mile of the IT sale in this bazaar-type atmosphere?

First and foremost, understand the very small size and tight layout of the stores. In such locations marketing materials such as standees are far more valuable than large posters with no walls to put them on. 

Secondly, maintain an awesome supply chain management system that replenishes inventory fast, reducing the burden on retailers and the sub-distributors who support them – making them more likely to push your brand.

And lastly, pick winners and invest time in them. The worst way to play this game is to treat everyone equally. Pick the sub-distributors who show more potential. Then run programs that give them a little extra incentive to sell your product. And don’t forget to get your channel managers to do regular meets-ups with them. In China, relationships are like potted plants – they need to be tended to.
Authored by the following researchers from Spire Research: Leon Perera, Chief Executive Officer, Singapore; James Wilcox, Senior Consultant, Client Service, United States of America (Spire Employee); Kathy Chen, Senior Consultant, Research and Consulting, China.