Pricing strategy by market: An exclusive Ragtrades study
TL;DR — When it comes to global pricing strategy, apparel and accessories brands need to pay more attention to eastern markets.
Ragtrades recently conducted a global analysis to determine the markets where luxury and contemporary brands’ pricing strategies are disorganized. To measure this, we identified identical products that are being sold at wildly different prices by brands’ e-commerce sites versus their retail partners. This study aggregated data from 20 major luxury and contemporary fashion brands and 50 retailers, and assessed prices across 12 countries, using local versions of each website and each country’s local currency to draw apples-to-apples comparisons. In few cases where prices were not displayed in the local currency we used live conversion rates.
Inexplicable price variations can be a powerful indicator that a brand’s pricing strategy is in disarray. For example: If a pair of sneakers is listed on Valentino’s official Russian website for 34,300₽, but Luisaviaroma is selling the very same sneakers for almost 40% less (21,100₽), those prices are misaligned.
Similarly, if Tsum Moscow is selling the same sneakers for a 20% higher price (41,200₽) that’s also a sign of strategic disarray.
The map below is a visualization of our findings. We’re pleased to share it with the industry, so that our clients and prospects can determine how this issue affects their businesses and take action to address it.
What our analysis found
This map is a visualization of our findings. Green shading indicates that a market is strategically coordinated, because prices are highly aligned. In other words, identical merchandise is being sold for similar prices by brands’ e-commerce sites and their retailer partners. Red shading indicates the opposite: These markets are strategically weak. Retailers are offering significantly different prices than those listed on brands’ official sites for exactly the same merchandise.
The major trend to notice is that prices in the far east, generally speaking, are in a state of chaos. Retailers in China, Japan, and Korea are listing prices dramatically above or below official brand prices. And Russia is the worst offender.
What’s going on here?
Luxury and contemporary brands, most of which are headquartered in the US and Europe, have been historically vigilant about communicating their pricing strategies to distribution partners on their home turf. That’s why prices are most aligned in Europe and the US (slightly less in the US, due to the country’s heavy promotional environment).
Brands have been similarly attentive to pricing strategies in Hong Kong — Asia’s longstanding luxury mecca, where many brands maintain offices. (This explains why Hong Kong is a solitary green outpost in the red Asian landscape.) But with the rise of e-commerce, and complex international distribution schemes, pricing has become much more challenging.
When brands partner with e-tailers who ship globally, it brings their goods to new markets overnight. It’s an enormous task to develop a comprehensive pricing strategy in new local markets, incorporating appropriate global premiums in all possible distribution channels. It’s even more challenging to keep up with currency exchange rates — which can swing abruptly, further skewing prices.
Retailers, for their part, may not even receive geo pricing recommendations from their brand partners for these Eastern markets. Ragtrades has seen this firsthand; some of our retailer clients have complained that they’re flying blind, and can end up inadvertently undercutting their brand partners.
How price alignment affects global strategy
Entering a new market with an underdeveloped pricing strategy can cause serious problems for all parties. When prices are drastically different across sellers, shoppers flock to the lowest price — leaving some holding unsellable, excess inventory.
This merchandise is then bought back at a loss, or dumped on the market at a heavy discount, cheapening the brand in consumers’ eyes. In any case, the retailer’s vital relationships with its brand partners are soured.
Price misalignment is also a threat to global expansion, which is a top priority across the fashion industry. If a brand is trying to enter a market where established distributors offer wildly different prices, they’ll never get traction.
What’s the solution?
Brands and retailers should have data-driven conversations about their geo pricing strategy — especially in East Asia. Considering the impact pricing strategy has on growth and expansion, this should be a priority.
As a brand, if you notice that certain retail partners aren’t attentive to your strategy, you should seriously consider redirecting that business — even if those partners represent a large chunk of your wholesale revenue. It’s better to build your direct-to-consumer business and invest in partnerships with retailers who respect your plans than to jeopardize your brand’s value in the consumer’s eyes.
On the flip side, the best retailers want to partner with brands who are thoughtful about their international pricing and distribution strategies. When it comes to long-term business planning, retailers are just as invested as brands in consumer perceptions. In other words, choosing partners with the right priorities is a win for everyone.
Building up these healthy partnerships requires brands and retailers to have frequent, data-driven strategy conversations. That means you need mutually shared goals, trustworthy data, market-level insight, and a way to control for currency fluctuation in real-time. If you don’t have these capabilities yet, you should be thinking about how to acquire them.
On that note, our study also revealed that Ragtrades clients (both brands and retailers) are the most price-aligned. That’s not surprising, because these companies are working together to enter global markets with a data-driven strategy. For a deeper discussion about global pricing and how it is affecting your business, please contact us.
