“I don’t agree with what you say, but I will defend to the death your right to say it.” So proclaimed French philosopher Voltaire.
His thoughts on pricing strategy go unrecorded. But last week China’s policymakers made clear their own: if we don’t agree with how you price, we’ll fine you Rmb2 million for doing so.
More surprising than the fine itself was the firm on the receiving end of the punishment: Unilever, one of the world’s biggest multinationals.
On May 6, the National Development and Reform Commission (NDRC) imposed a $310,000 penalty on the Anglo-Dutch company.
The offence? Talking in the Chinese media about planned price hikes. The powerful NDRC – which has been charged with taming inflation (see WiC103) – says that this then sparked a wave of panic buying that cleared supermarket shelves, as consumers looked to stock-up.
The NDRC judged that this meant that Unilever had broken the law, specifically article 14 of the country’s Price Law, allowing the government to penalise the firm for “disturbing market order” and levy a fine of up to five times “illegal earnings”.
On its website the NDRC gave a more detailed explanation of its verdict. It noted that on March 21 and 22 Unilever’s spokesperson Zeng Xiwen spoke to CBN, Beijing News, Shanghai Evening Post, the National Business Daily and Xinhua. In one comment, Zeng was reported as saying that the “whole industry has entered a price hike cycle” and he went on to indicate that prices would rise by 10% the following month. The NDRC said the interviews “enhanced consumer expectations of price hikes, leading to panic buying”.
That mattered more, the NDRC added, as Unilever’s shampoo, skincare and laundry detergent products account for 12%, 12.6% and 15.2% of domestic market share respectively. Talk of price rises from a company spokesperson would encourage the industry to follow suit, it charged.
For company executives it was a classic ‘you’re not in Kansas anymore’ moment. But they chose not to challenge the fine, instead opting for contrition as the wiser course. Unilever put out a statement saying that it fully understood the “national conditions of China and respects the government’s decisions”.
Many newspapers welcomed the censure (even the usually cautious China Daily reacted gleefully with the headline “Unilever gets mouth washed out for remark”) although some saw more negative ramifications in the verdict, including website Netease, which ran an article condemning the Price Law as a legacy of the planned economy.
Caixin seemed to agree, calling the fine “yet another ham-fisted attempt to address inflation”. It saw something legally nonsensical about the whole episode, claiming the Price Law does not prohibit companies from raising prices. The error seems to have been in making the public aware of the increases. But as Unilever has the right to raise prices, what is the difference between an announced price hike and an unannounced one, Caixin asked?
Local bloggers viewed the NDRC’s tactics as bullying too. One weibo commentator noted that Sinopec had been caught asking its 371,000 employees to pen blogs arguing for a petrol price hike (see WiC96). That too looked like an attempt to manipulate prices – so is there one standard for state-owned firms and another for foreign ones?
Perhaps we will soon find out. For the moment, Western firms are scrambling to review the pricing rules. Strategy consultancy Technomic Asia says that, until Unilever was hit under article 14, very few even knew that the Price Law existed. “The only constant in China is finding out how much you don’t know, no matter how long you have been here,” Technomic ruminated.
But it went on to add that Unilever’s chastening experience was a lesson to others. “Right now inflation is the threat and your company needs to be aware of the social and political context in which pricing your products takes place,” it concluded.
Meanwhile, China Daily reported on Wednesday that P&G’s boss, Bob McDonald, said that “raising prices is the last option”. Not surprisingly, Unilever declined to make any comment on its rival’s remark.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.