First Impressions: A Fair Price at Hongqiao Market
July 28, 2011
I spent Sunday afternoon hanging out in Hongqiao Market. I have never had such an experience. The market seems to be one of the must see tourist spots in Beijing, which was apparent from the ratio of foreign to Chinese shoppers. All of the westerners there appeared very proud and happy to bargain for the price of their gifts. They really seemed to be enjoying the struggle for a price, which, once the purchase was brought back home, could be used not just as a souvenir, but as a sign of ingenuity and fiscal prowess to show off to family and friends. They would be able to show off the prizes of their journey (mostly fake of course) with a proud, 34 tooth-smile, expressing their feeling of being very smart dealers and arbitrage brokers; a very western image in my opinion. Those of us from the West lead a very decadent lifestyle, and at times, looking around the market, I must say I almost felt somewhat ashamed of this image. It seemed very greedy to me. But then of course I ran across a couple of interesting things myself that I had to have and, eventually, bought (though not at the price the vendors asked me for). This bargaining however was not so much of a nuisance as, since it is a totally new thing to me, I actually quite enjoyed the “game” you must play when haggling. The question is though whether I played skillfully or not.
The bargaining though, really got me to thinking about what a fair price would be for each good I began bidding on. In the pursuit of quality I believe that a “fair” price does exist. I am not necessarily strictly speaking of the Hongqiao market experience, but broadly and macro-economically speaking, this is a matter of facts. Chinese prices are low, and the rest of the world has taken notice. This is good. This is especially good for China. One question, is what is the source of these low prices? How fair can the wages in the countryside really be given the large wage gap with the major coastal cities? I think that the real trick to valuing quality and fairness is to take a step back and think about what it is that we really value.
My flat mates here in Beijing are from Liverpool, England. They happen to be very smart and very good with their money. We were sharing our thoughts and experiences from Hongqiao market together, and one friend, Dan, related to me how he bargained for a watch, and I must admit I had a good laugh from the way he acted telling his story. He managed to pay 30RMB for it. To start, the vendor asked for 185RMB. He said “Five!” The girl went for 150. This went on for some time and he even acted several times as if he was leaving, unsatisfied by the price, insisting for 5. This of course is not a fair price, and probably doesn’t even cover the delivery expenses from wherever it is the watch came from, or at least so I would guess. In any case, in the end, he paid, for a functioning watch, approximately 3 Euro. Personally, I would take in several factors first before settling on a price: How long will the watch last? How resilient will it be to stress and hits? What about the materials that were used? The total of these costs may come to around 1 Euro. Of course these are things that I can’t know for sure, but can only guess. On the other hand I can ask myself: according to my experience, what is the fair price for that object?
I chose 50RMB as a fair price for a (fake) lighter that in my country would cost about 50 Euro. Maybe I paid too much (The glee with which the vendor sold me the lighter confirms these suspicions. I am not handsome enough to earn a smile that big.). She initially asked me for 200. I told her my “fair price” and I went away when she asked me for 180RMB. I repeated the move until she sold it to me for 50. I chose my reserve price and resisted any further effort from her. I left no space for bargaining. Maybe she perceived that she would be able to secure a large margin from my particular wallet. In my opinion though, 5 Euro for a refillable lighter with paintings of Chinese opera on it is pretty fair. It will be a nice reminder of my Chinese experience, lighting cigarettes back home with the spoils of my Chinese bargaining experience. However, I must keep in mind that the long-term quality has yet to be determined.
I do hope that a balance between overall quality and a sustainable business model can be achieved though. To bring an example from back home in Italy, I’d like to take a moment to examine the coffee company Illy. How is it that Illy coffee is more expensive than anywhere else? For one, Illy’s coffee pursues sustainability and corporate social responsibility. In order to have a more valuable final good the Illy’s board of directors decided to pay higher wages to its workers abroad, higher than the average local workers’ wage. It is their belief that this will increase quality, since there will be a set of more sustainable incentives. Humble Peruvian workers will likely deliver a better quality coffee in order to extract even more money out of this partnership. They recognize the chance that Illy would appreciate their efforts towards quality and thus be able to reap potential rewards. So the value chain will benefit from a new way of sourcing goods throughout the world. This theory was explained to me by my Thesis advisor (who also happens to be the Illy Finance Chairman): more and more value will be added along all the value chain until the final consumer is reached. The end result is that this consumer will be happy to pay a premium price for an above average product and superior service. Of course there is PPP (purchasing power parity) to consider in the weights of opinions all over the world regarding fair prices. But if we would like to live in a sustainable “world-village”, I believe we need to broaden our views. We should not to just take care of our little garden, but survey the whole land. Thus, maybe if we start thinking about our personal “fair prices”, we can reach a common consensus of one.
-Marco Tommaso Rossini, CPG Marketing Intern