Chennai / Mumbai: International companies selling luxury brands in India are going all out to woo consumers, with the Indian units selling goods at a reduced margin, or even invoicing products cheaper from the factories so that they can price them the same way as any overseas market, to whet the appetite for their brands.
Consumers can buy these international brands at the same price anywhere, commonly called uniform pricing.
“It is a myth that the rates are different,” said P.H. Narayanan, brand manager of Omega, a luxury brand of the Switzerland-based Swatch Group. “We need to educate the buyers that the price difference between Indian and Swiss markets” is non-existent, he added.
Narayanan said the Swatch Group has moved towards uniform global pricing, as a result of which the variance in prices between any two markets would be less than 5%. The Swatch Group owns brands such as Omega, Breguet, Blancpain and
Pricing it right: The Swatch Group has moved towards uniform global pricing, as a result of which the variance in prices between any two markets will be less than 5%. It owns brands such as Omega, Breguet and Tissot.
According to a study done by consultancy Technopak Advisors Pvt. Ltd, the market potential for luxury and very premium goods and services in India is estimated at Rs64,000 crore and is growing at 14% every year. The calculation is based on 1.6 million households earning more than Rs45 lakh per year and spending more than Rs4 lakh on luxury or very premium products.
The move by global brands is significant as duties levied in India are higher compared to those in other countries such as China or Singapore.
In India, the total duties and education cess add up to 57%, whereas in China and Singapore it is 25% and 15%, respectively.
The duty structure in India for luxury products includes a basic customs duty of 12%, a countervailing duty (CVD) of 16% on 65% of the maximum retail price (MRP), special additional duty of 5% and an education cess of 2%.
“All luxury brands have moved or are moving towards uniform pricing,” said Saloni Nangia, associate director at Technopak. “The target consumers are price conscious as they travel abroad more frequently.”
Nangia added that international companies treat it (the loss or reduced margins) as part of their investment for developing the Indian market, along with other expenditure such as brand building and establishment of retail shops. “Most of the international players have succeeded in reducing their prices,” she said.
Karishma Manga, manager (marketing), Dior Watches, a part of Louis Vuitton Moet Hennessey (LVMH), said her company, too, has moved towards uniform pricing. LVMH has achieved this by reducing the margins at the level of the Indian subsidiary.
Apart from invoicing at lower cost, international companies are also reducing retailing margins to bring down prices.
Not everyone is finding it that easy. If companies have franchised their operations in India, it is difficult to reduce the margins, Saloni said.
Rauf Ansari, managing director at Phoenix Watches, which handles 15 brands in India, including Cartier, said that based on the duty component of different products, the end price is reduced accordingly, through crunching of margins at the Indian subsidiary’s level.
“As part of an international pricing policy, all products retailed in India follow the same global price point,” said Anna Bredmeyer, marketing manager (India) for MontBlanc, the German lifestyle brand that is best known for writing instruments, and is a luxury retailer for travel bags and watches as well.
Bredmeyer who also represents Italian menswear brand Canali and the Swiss watchmaker Girard Perregaux in India, confirmed that both these luxury brands also follow an international pricing model for their retail operations in the country.
Explaining the rationale behind uniform pricing, Narayanan said that if the prices weren’t the same across the world, it would be difficult to tell where the sales were coming from. For example, if lots of Indian consumers buy Omega watches from Dubai or Singapore, the sales data of those markets would show significant increase, but the domestic market would not. A uniform price will help arrest this type of diversion of sales.
Though the market for luxury products in India is estimated at Rs64,000 crore, the portion tapped so far by the international and domestic companies is not known, as data is not easily available. Of the estimated total, jewellery constitutes 27% of the market spend, followed by apparel at 16%, digital accessories at 13% and watches at 8%.
Archana Rai from Bangalore contributed to this story.