Above: At glo London, Chinese diners prefer authentic British tastes. Below: Gavin White, group general manager of glo London. Provided to China Daily

A year ago when the brand opened its first restaurant in Shanghai, nearly 70 percent of the customers were expats and 30 percent Chinese, but now the situation is completely reversed. Most of the customers at the outlet are in their 30s or 40s, mainly middle-class customers "coming to get an international dining experience", White says.

In a regular Chinese restaurant, it costs 50-100 yuan per person for a decent dinner in Shanghai, whereas the average price for a meal in glo London is 150-200 yuan.

White says that although the company's pricing principle is "keeping it reasonable while making a decent margin", he has his own complaints on the price.

Although there are some importers in Shanghai selling British ingredients, the prices of these materials are often very high. "If you go to the city market where there are imported foods, their prices are ridiculous. We have to charge slightly more than we want because the costs of the important ingredients are very high."

Indeed, it is not cheap to create international experiences - the rent in first-tier cities is soaring along with the property price, while staffing is getting pricier.

"In terms of staffing, Shanghai is no longer cheaper than London, especially if you are looking for English-speaking staff," White says. "The staff turnover is probably the highest; rent is on par, and we pay more for electricity and gas than we pay in the UK."

Gong says the higher prices have created a sense of "exclusivity" for customers.

"If Starbucks lowers its price, the store will be packed with people using free wi-fi; and the same principle applies to other Western restaurants: Low price will attract more customers, which will spoil the overall environment; and the staff will need to work more for the same margin which they can easily gain by charging more."

Changing perceptions

Not all international brands are lucky enough to charge a premium, especially when there are cheaper alternatives. For brands targeting the mass consumers in Western countries, they now find it harder to command a premium in China, as they did some 20 years ago.

To adapt to the changing market, these brands are walking down the altar and shaking hands with the fast-growing middle class in China.

Levi's is such a brand. Ever since it entered China in 2001, its profile was that it made jeans only for wealthy Chinese people. In its home country, the US, a regular pair of Levi's jeans is priced at about $70, and during the sale season, customers can easily get a pair for about $15-$30. But in China a pair of Levi's jeans costs typically about $100-$150. Even during the sales season, discounts on the Levi's brand rarely go under the 50 percent mark.

The situation lasted until August 2010 when the company launched a new sister brand called Denizen. Although the company said it was not specially designed for the Chinese market, it chose Shanghai to launch this brand, the first time it launched a new product in a foreign country. A pair of Denizen costs 299-399 yuan, far less than its sister brand Levi's. The company's target audience for the product is young people in the 18-35 age bracket, essentially customers who are keen to use international brands but not affluent enough to spend $150 on a pair of jeans.

Terence Tsang, head of the Denizen brand, says the brand is targeted at the middle stratum between the premium and the mass market. When customers shop for the Denizen, they also have a chance to know more about the Levi's brand, which they can scale up to in the coming years.

As clothing products are generally made in China, and they have quite a range of alternative products, it is hard for these brands to command a premium price in China, says Preston from Nielsen.

"Higher pricing is often decided by the brand strength of a company," says Preston. "If the brand is strong enough to charge a premium, there is no problem. But if not, they will have to adjust their strategy. It is getting a lot harder for brands to charge a premium unless you have genuine reason to do that." he says.

Apart from consumer products, service brands are also moving down the consumer chain to approach those with decent income but not yet super-rich, as the consuming power in the second and third-tier cities has tremendously increased.

Philippe Garnier, vice-president of sales and regional marketing APAC, Hilton Worldwide, says they are dedicated to introducing more sister brands of Hilton in China.

"It is lucky that everyone knows Hilton, but not a lot of people realize that Hilton has 10 brands, covering a range of products from the five-star Hilton to Hilton Garden Inn which targets the middle-income group."

Only recently has Hilton begun to bring those brands into China, Garnier says. "We are opening hotels on a regular basis, and by the end of 2014, will have at least 100 hotels in China."

Hilton, which has 31 hotels now in China, has a bigger proportion of the international travelers as it has presence in international cities such as Beijing and Shanghai, even as it is also fast expanding in the secondary cities.

"Our new hotels will mainly be in second-tier cities, as we already have a strong presence in first-tier cities," Garnier says.

The Hilton brand is so well established that it is able to lead the market in terms of price in many markets. But as the brand moves further into the second and third-tier cities, the prices will be adjusted accordingly, he says.

The pricing strategies will be different as more hotels come up due to vast disparity between the east and the west, as well as rural and urban areas of China, says Harry Tan, general manager of Days Inn China. While a three-star hotel room in Beijing can command prices of 500-600 yuan, a five-star hotel room in Jiaozuo, Henan province costs only 300-400 yuan.

"The pricing is decided by a number of factors, but the location and the brand are often the key considerations," Garnier says. "It will be a very dynamic process."

wangchao@chinadaily.com.cn

(China Daily 09/28/2012 page1)