Though it risks relegating its brand to a lower tier, Tesla's
marketing strategy could prove a model for other imported brands,
which have come under fire from China state media and regulators for
allegedly ripping off shoppers with inflated prices.
In an unusual blog post last month, the firm detailed the
lower-than-expected 734,000 yuan ($121,400) China price tag for its
high-end Model S electric car. The price, still 50 percent higher
than in the United States, includes only "unavoidable" taxes and
transport costs, it said.
"If we were to follow standard industry practice, we could get away
with charging twice as much for the Model S in China as we do in the
United States. But we're doing things differently," Tesla said in
the blog on January 22, posted to consumers through popular Chinese
social media channels.
The blog, titled "A Fair Price", drew overwhelming support from
China's active netizens. One reader survey on popular site QQ.com,
which received over 80,000 votes, showed that 90 percent of
consumers supported the U.S. carmaker's move.
Analysts said the lower price strategy could deter premium segment
buyers, who are usually willing to spend extra to guarantee quality
"Price transparency helps because people see that as different, but
the lower price itself, I don't see a big impact from that," said
Andreas Graef, Shanghai-based principal focused on automotive at
consultancy A.T. Kearney.
Car makers often charge steep mark-ups in China. Daimler AG's <DAIGn.DE>
high-end Mercedes-Benz SLS AMG model costs 3.1 million yuan
($509,000) in China, according to its local website, 150 percent
above its starting price in the United States. Volkswagen AG's <VOWG_p.DE>
Audi TT Coupe costs 519,000 yuan ($85,800) in China, over twice the
U.S. starting price.
While other auto firms already offer price rebates to lure China
buyers, Tesla is the first to make a clear statement about charging
Chinese shoppers the same as in overseas markets, turning
transparency into a neat marketing ploy.
"It's not just about the pricing strategy, but more to show how to
communicate with Chinese consumers in the context of a more
transparent pricing world," said Shawn Wu, Shanghai-based project
manager at consultancy SmithStreetSolutions.
Last year, Tesla's total car sales were around 22,500, mostly in the
United States. The California-based company, which plans to open
stores in 10 to 12 Chinese cities by the end of 2014, says it
expects China to contribute to one-third of its sales growth this
Foreign makers of products ranging from milk powder to handbags have
traditionally been able to charge steep premiums for high-end
products in China, where the price is often closely associated with
quality and prestige.
But, with closer attention from state media and increasingly aware
shoppers, consumers have grown dissatisfied with artificially high
prices, said Oceanne Zhang, leader of market insights for
consultants Kantar Retail in Shanghai.
[to top of second column]
"They can just check overseas prices or travel abroad and they
realize what they are paying extra for is not a premium in other
markets. It's only a premium in China," she said.
Firms including U.S. retailer Wal-Mart Stores Inc <WMT.N> and coffee
house Starbucks Corp <SBUX.O> have attracted the attention of
China's state television and regulators due to their high prices.
China Central Television (CCTV) has targeted international carmakers
for high prices before. A report in December singled out firms
including Audi and Jaguar Land Rover, owned by India's Tata Motors
Imported milk powder firms have also come under the spotlight over
their high prices, with Mead Johnson Nutrition Co <MJN.N>, Danone SA
<DANO.PA> and New Zealand dairy Fonterra Co-operative Group Ltd <FCGHA.NZ>
all scrutinized last year.
Tesla's strategy, it hopes, will break the mould of high price
setting of imported products, said Veronica Wu, Tesla's new chief of
China operations who joined the California-based carmaker in
December from tech giant Apple Inc <AAPL.O>.
"I hope it will. I think it is the right thing," Wu said inside
Tesla's flagship store in Beijing, its first in China, which opened
for business late last year. High prices prompted CCTV to say the
market had become a "treasure bowl" for global carmakers last year.
The risk is that by lowering prices, Tesla could sacrifice its
premium edge as well as reduce its margins in China, though analysts
said the focus on transparency could help the U.S. firm
differentiate from rivals.
The real benefit for Tesla's "fair price" model will be if it can
win over shoppers, skeptical of being conned by high prices of
rivals. And going by online chatter, the signs look good.
Social media posts mentioning the Chinese name for "Tesla" jumped
over seven-fold overnight to 3,502 on January 23, the day after the
blog post, with the vast majority in support of the carmaker's
"At last, a business with conscience," said one user on China's
Twitter-like Weibo. "It's good to see something else other than
monopolies and pricing cartels in China."
(Additional reporting by Norihiko
Shirouzu in Beijing and Shanghai newsroom; editing by Jeremy
[© 2014 Thomson Reuters. All rights
Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.