This has really surprised me about Asian business practices. It doesn’t apply to every market, but in some (many?) there seems to be little competition on price. For example, on Ruten many of the same goods sell for very similar prices. Likewise, whole sections of town will be devoted to one product or industry. The fabric section near Taipei Main Station, for example, and other parts of town show rows of stores selling nearly the same products at nearly identical prices. In Tokyo, there’s a whole section of town devoted to selling fake food to go in restaurant windows.
This clustering of similar stores and prices doesn’t happen much in the States as I recall. In fact, many businesses there require landlords to agree to a no competition clause so that a similar store can’t open near it.
Any insight into how this clustering of stores and prices works here? Are they looking for opportunity of outcome or what?
Its a recognized practice and has a name I can’t remember.
The principle is that if you have a shoe shop all by itself, nobody’ll know where you are, whereas if you’re on a street known for shoe shops, you’ll get more business.
I think there is a business quote that holds true for the Asian market. It says something like “If you are going to open up a pharmacy, open it up right next door to the most successful pharmacy in the city.” Perfect example: the go-kart race tracks in Kending. One entrepreneur probably had a niche market money maker, and all his mates flooded the market with exhaust fumes right next door to him and down the road… and around the next corner …and over the hill…
I used to live in a small town on a high street with the highest density of antique shops in the world, and they all did very well, for exactly the reason sandman mentioned (he must have had someone helping him . . . ).
Considering what passes for directions in Asia, it may have been the only method for people to find such a shop. They might also be related or share the same supplier(s) in sort of a cartel.
Having other businesses cluster around a successful business sounds like a reasonable explanation. That wouldn’t happen in the States usually because of the non-compete clauses most people insist on.
But what about prices? Why do so many of those places charge nearly the same prices? If you opened a small shop next to a successful business and you sold nearly the same thing, wouldn’t you want to lower the price to attract more customers?
[quote] If you opened a small shop next to a successful business and you sold nearly the same thing, wouldn’t you want to lower the price to attract more customers?
[/quote]
Not if you didn’t want your shop to mysteriously catch fire one night.
[quote=“Formosa Fitness”]But what about prices? Why do so many of those places charge nearly the same prices? If you opened a small shop next to a successful business and you sold nearly the same thing, wouldn’t you want to lower the price to attract more customers?[/quote]Or you have the exact same suppliers or the shop next to you is your uncle’s. They’ll also split up diversification and specialize in different specialties such as in a clothing street, one shop does silk, another does wool, and another does tie dye.
It’s also to do with the density and frequency of clients. For instance in many holiday towns in Taiwan the business only exists on weekends and holiday periods, going from a midweek absolute dearth of clientele to a mind numbing jam of people on weekends that overwhelms the infrastructure. So you these shops or services exist precisely for these periods only.
This model wouldn’t work well if you had to pay minimum wages, benefits, fines and taxes to local government. But in poorer countries this can make sense, a few hours of sales commission equaling an average monthly wage.
There is a town called SanYi in Miaoli famous for it’s Chinese style wooden sculptures and products made from local pine trees. It literally has over a 100 shops selling what looks like the same stuff. On closer inspection there are some differences but very little. However the shops stay open because one sale per week of this expensive product is easily more lucrative than the average Joe working for somebody else in Taiwan.
As for camera street shop etc. in Taipei I think they are a hangover from the time that people would make special trips to buy such items. The clustering effect is probably weakening and sales dropping but not enough to justify moving off somewhere else when you have an existing clientele and many of the owners are probably elderly which also leads to resistance to change.
Finally it’s a cultural thing for some products/services…i.e. the famous food of the locale, if you visit you have to try or buy the product as people will be expecting you to do this.
When we were first going out, I asked the current mrs. the chief why in blue jeezis didn’t just ONE of the cabbage sellers at the market decline to jack up his prices after a typhoon that never even came near where they were grown, surely, I submitted, steeped in wide-eyed yet annoying naïveté, the one guy who has his cabbage at the same price as last week is going to make out like el bandito proverbiale?? Wouldn’t he? Huh?
[quote=“sandman”][quote] If you opened a small shop next to a successful business and you sold nearly the same thing, wouldn’t you want to lower the price to attract more customers?
[/quote]
Not if you didn’t want your shop to mysteriously catch fire one night.[/quote]
Yup, or even find your lease cut off, your market space taken away, and/or your supply suddenly drying up.
The term I’m familiar with is price-fixing, with a healthy dash of cartelizing.
Yes, why wouldn’t everyone keep their prices high? It’s more money for them.
Also, the clustering of businesses is not uncommon outside the West. Back in the day, every medieval town in Europe tended to have streets devoted to a certain profession or trade, and you can still see this in some places. Istanbul has a lot of streets like that. As mentioned, it makes it so much more convenient than travelling all over the city to find such shops and compare their prices.
another reason the prices may be the same and also justify the close locality is “price checking”
in the Uk the electronics stores such as Dixons/Currys and others all employ teams of people to check the other person’s shop for pricing. Very easy to do if youre next door so any price reduction is instantly transmitted across the whole market (much like internet pricing).
Two end results,
(free market ideal) each price is reduced to the lowest point at which costs and profits are acceptable to the trader so further reductions reflect some either
a. finding more efficient distribution/sales, ie, cutting out middle men (WalMart)
b. taking less profit so generating more sales (Ford)
c. raising more per sale by uniqueness (Apple)
(real world) Price lethargy, since a reduction will be simultaneously reflected throughout the market, a price reduction is not advantageous, in fact, is disadvantageous since you will gain less profits so prices are retained (Taiwanese Small Shops).
I was noticing that premium ice cream here goes for about the same price. Haagen Dazs, Movenpick, etc. are all charging about the same for a pint. But the Russian ice cream place was charging considerably less than their competitors. It was about NT$20 cheaper per pint than the others IIRC.
I bought one and it seemed to be on the same level as the others. It was one of the few examples I could think of where they were clearly competing on price.
I’ve been wondering what makes the Russian ice cream place different ever since.
There is enough cheap clutter available in Taiwan, 50NT$ lunchbox places, ‘pizza’, burgers, spaghetti … cheap coffee, cafe8, 85C …, cheap tea (700cc) for almost nothing …
I was noticing that premium ice cream here goes for about the same price. Haagen Dazs, Movenpick, etc. are all charging about the same for a pint. But the Russian ice cream place was charging considerably less than their competitors. It was about NT$20 cheaper per pint than the others IIRC.
I bought one and it seemed to be on the same level as the others. It was one of the few examples I could think of where they were clearly competing on price.
I’ve been wondering what makes the Russian ice cream place different ever since.[/quote]
I was noticing that premium ice cream here goes for about the same price. Haagen Dazs, Movenpick, etc. are all charging about the same for a pint. But the Russian ice cream place was charging considerably less than their competitors. It was about NT$20 cheaper per pint than the others IIRC.
I bought one and it seemed to be on the same level as the others. It was one of the few examples I could think of where they were clearly competing on price.
I’ve been wondering what makes the Russian ice cream place different ever since.[/quote]
Brand names are everything. Many lesser brand products are made of the same materials in the same factories as those with brand names. Sew a little label on one and not on another and you can charge a fortune more. Russian ice cream is not as cool anything with a European name. The more accents, diacritic marks and so on one can add to the name of the ice cream, and thus, the harder one makes it to pronounce, the more one can charge for it. The rule is though that you can’t cheat by using an alphabet other than the Roman alphabet. I’m thinking of opening up a chain with the menu written only in Icelandic and charging 10,000NT/cone, which, incidentally, is probably the total capital of Iceland right now.
Most companies just use a formula to calculate their margin.
Usually just something like “price * 1.2”.
It follows some lame US rules that have been made in the 60’s and still get teached here.
Its enough to survive in Taiwan.
Also as GIT in alluded too, dropping the price can lead to an erroneous suggestion of low quality. This could actually lower your number of customers and competitiveness for mid-end to luxury products.
