Price control is a critical issue for brands and an essential part of long-term development, yet it is particularly difficult in China. Most Chinese consumers are price-sensitive and show limited loyalty to individual brands or channels. The retail landscape is highly fragmented, with numerous international brands and a constant stream of new domestic players backed by China’s manufacturing strength. Competition among both channels and brands is therefore intense, often forcing participants into price wars.
Price erosion generally comes from two sources: distributors and sales channels.
Distributors may cut prices when a brand appoints more than one of them and they compete to move inventory. They may also do so when they cannot meet brand-imposed targets and need to capture additional market share.
Channel operators usually discount simply to win market share.
First, parallel imports are permitted in China, and the legal framework generally allows resale price erosion.
Second, powerful channels can effectively compel brands to accept their discounting rules.
So how can a brand make price control workable?
- Limit the number of distributors. For small and medium-sized brands without offline distribution, one principal distributor may be enough; another option is to appoint a single master distributor for China.
- Segment channels by behavior. Use disciplined, negotiable channels as primary sales outlets, while treating less disciplined platforms such as Pinduoduo as clearance channels for products approaching expiry, imperfect goods or discontinued lines.
- Offer different pack sizes or product specifications for different channels to reduce direct, like-for-like competition.
- Take a long-term view and communicate regularly with distributors. Do not let pressure for indiscriminate expansion destroy the brand’s pricing architecture.