The Chinese market becomes increasingly more saturated and competitive with foreign brands. While some companies see great success such as Foreo Luna and Gucci, other brands have suffered and been forced to close operations.
Having a sound knowledge of local competition and a suitable pricing strategy is one of the most important parts of a market entry strategy and crucial for future success to maximize sales.
In this article, I cover a wide range of topics and explain how you can perform a competitor price analysis in China.
- What is competitor cost analysis?
- How do I find out what my competitors are charging?
- Calculating your unit cost
What is competitor price analysis?
Competitor price analysis is an essential part of a company’s market entry strategy and can ultimately determine whether you will succeed in a new market or not.
It helps you understand how much other companies charge for their products online and/or offline. From a strategic point of view, the analysis can help to better understand the entry barriers in a market.
For instance, a competitor’s product price can indirectly tells you something about:
- The production location
- Tariffs and import duties
- The distribution and shipping solutions used (effectiveness and efficiency)
- The level of economies-of-scale (manufacturing volumes)
Let’s say that you find a Spanish olive oil (1L) sold on Tmall Global, the cross-border eCommerce version of Tmall. The product price is around USD 5.
My experience tells:
- A 1 liter bottle of olive oil weighs around 2 kilos. It’s impossible to sell a product of this weight by air freight from Europe at such a low price. Thus, a refrigerated shipping solution by sea is most likely used from Spain. The expiry date is several hundred days, meaning that the product is not perishable
- The product is probably not stored in a fulfillment center in Hong Kong as the inbound handling, storage, pick & pack, and last-mile delivery costs are too high. The product is, therefore (most likely) imported to mainland China by sea freight and in large volumes
- As the product is sold on Tmall Global, the Spanish olive oil producer supposedly imports the product in large volumes to mainland China, enjoying economies of scale. The company most likely sell them offline (retail stores, supermarket, restaurants), online on the local version of Tmall.com, as well as on Tmall Global
Keep in mind that products sold on Tmall.com can sometimes also be listed on Tmall Global.
Unless the olive oil company sells the products at a loss to reduce inventory or through aggressive marketing, a setup similar to the above is probably used.
How do I find out what my competitors are charging?
Foreign exporters often approach me and ask how they can conduct competitor pricing analysis. Of course, it depends on what detail you want to analyse competitors’ products. Research can take a few hours up to weeks.
Yet, doing a basic competitor price analysis is not as difficult as many think. Consultancy firms sometimes provide price information by visiting local supermarkets and taking photos of the price tags of different products.
If you speak and/or write Chinese, you can also find valuable information by simply searching around on eCommerce marketplaces.
Tmall.com / Tmall Global
Tmall Global doesn’t only display product prices for Chinese buyers. You can also see the monthly sales volumes. If you press on a product, the price might change depending on in which
The country you live in.
Some background check is also needed, making sure that the listed products are of the same standard and quality as yours. It doesn’t make sense to compare low-quality olive oil with more premium brands, for example.
The content is also of importance and assuring that the competitors don’t sell products in bundles, which can be confusing.
Keep in mind that there are significantly more food products available on Tmall.com and on Tmall Global (tmall.hk). Tmall.com is the local eCommerce marketplace and therefore reaches a larger consumer base and offers superior shipping options for sellers.
One of the major drawbacks of selling on the local marketplace is that you have to fully register the products and conduct product testing.
Kaola is one of the biggest cross-border websites in China that focuses on food and beverage products. Originally created for Australian products, Kaola has grown significantly over the past years but differentiates itself from JD and Tmall.
For example, it focuses on direct outreach and to procure foreign products directly from overseas. With that said, foreigners also have the option to open flagship stores.
The website has many food products on display and you can find a wealth of information just by browsing the website.
JD is one of the main competitors to Tmall with a similar consumer base and product assortment. You can find practically any kind of product here, even if there are more male buyers and electronic products by comparison. Automotive spare parts can also be found.
Often, you’ll notice that Tmall and JD have different brands listed. For example, by searching for olive oil, Tmall has more foreign premium brands available.
The type of products also differs as JD offers olive oil sprays while Tmall primarily has large containers and bottles (1L – 5L).
JD is a good source of price data that you should review in addition to any of the above-mentioned websites.
Retail Stores & Supermarkets
Visiting retail stores and supermarkets, for example, can be useful if you reside in China. Employees or partners can also manage this kind of price research on your behalf.
It can also give you a good indication of how other smaller or domestic brands compete with larger companies. Recently, I visited a supermarket in Vietnam where you could see a local brand placed next to Red Bull in the assortment.
As you can see below, the product is almost identical to Red Bull but priced around 14% lower. This is a marketing tactic to lure local buyers. By offering a slightly cheaper product, buyers can get enticed to pay a lower price for a similar product.
Red Bull (right) and a local Vietnamese energy drink (left) brand displayed in a supermarket in Vietnam. The price difference of around 14% tells us that the Vietnamese brand wants to offer a similar product but compete on price.
Visiting one or more trade fairs can help you expand your network, learn about the latest market news, and also get insights about competitor products.
By visiting trade fairs and doing market analysis continuously, online as well as offline, can help you get an edge in the long run.
There are plenty of fairs in mainland China where many are held in the bigger cities like Shenzhen, Beijing, and Shanghai.
While visitors can sometimes visit the fairs for free, as long as they sign up, exhibitors have to opt-in for packages that include booths and assistance.
Examples of food trade fairs available include SIAL, FHC China, and BIOFACH China.
Calculating your product price
It’s time to review how you can calculate your product price and what drives the costs. We focus on direct costs as it’s difficult to estimate/calculate indirect costs.
I also want to mention that we focus on estimating sales prices when selling online and on local eCommerce marketplaces.
Marketplaces fees can reach considerably high amounts, especially in the beginning when sales volumes are low. It’s important to allocate a budget for the market entry not assuming that one can break even.
Entering the Chinese market requires much planning, time, and patience. It’s generally not the first market to take on, but something to consider when you’ve matured/maximized sales in other markets, like in the US or Europe.
Marketplace fees differ between marketplaces and the sales models. Looking at the two most popular eCommerce platforms, Tmall and JD, we find the following marketplace fees:
- Initial deposit
- Category commission
- Yearly service fee
The initial deposit differs but stretches from around USD 25,000 to USD 30,000. It’s a one-off fee and refundable if no issues occur between you and buyers/the platform, and that has to be settled.
Category commissions differ between product types. In short, this means that the platform collects a percentage of the sales price. Typically, products that are difficult to be produced in China or that are in high demand have a lower commission rate.
Finally, there’s also a so-called yearly service fee (name differs depending on the platforms). This fee is paid annually and usually ranges between USD 1,000 – 5,000 depending on product types.
It’s paid for you as a seller to use the marketplace.
Selling 1000 pcs of supplements weighing around 80 – 100 g/can for USD 30 cross-border would result in a platform cost of roughly USD 6 on Tmall Global (excluding the deposit).
That’s around 20% of the total sales price in the first year (if estimated sales of 1000 pcs in the first year).
Logistics costs can also make up a significant part of the sales price, at least if you use air freight and need cooled storage. Using a bonded warehouse is cheaper than Hong Kong fulfillment centers on average and an option I recommend for long-term operations.
The three options sellers use are:
- Direct shipping (air freight to end customer)
- Hong Kong fulfillment
- China bonded warehouse
Direct shipping is the most expensive option but also the fastest. It’s not suitable to use this mode of shipping for long-term operations. Hong Kong fulfillment can be suitable at a start, something we explain more in this article.
The least costly option is to use sea freight and a bonded warehouse in China, which I generally recommend as a long-term solution. Chinese bonded warehouses are located in free trade zones and become increasingly competitive.
Expect to save around 25% – 75% on fulfillment and last-mile delivery costs by using a bonded warehouse instead of a fulfillment center in Hong Kong.
Marketing costs are sometimes overlooked by sellers but can make up a significant part of the final sales price. It all depends on consumers’ current brand awareness, competition, and sales targets.
Typically you have to set aside 5% to 30%, depending on the margins. Initial costs to hire third-parties like Tmall Partners and eCommerce agencies can cost tens of thousands and sometimes hundreds of thousands of US dollars.
Again, China is not a market to enter unless you have a long-term plan and have a sufficient cash flow and financial backing.