Pricing in Vietnam

An Expert's View about Sales in Vietnam

Last updated: 4 Mar 2011

The overriding factor in pricing for the Vietnam market is the low level of per capita income. While consumers want quality and understand that quality comes at a premium, most buying decisions are highly price-sensitive.

 

Imported products generally must incorporate the following elements into the pricing structure:

• Import agent fees (typically 1 to 2 percent of the invoice)

• Customs duty. As of a result of the implementation of the U.S. – Vietnam BTA, the Government of Vietnam has granted permanent Normal Trade Relations (NTR) duty rates to goods of U.S. origin. While these are the lowest tariffs levied, they still may be as much as 50 percent on nonagricultural products. With Vietnam’s accession to the WTO, many tariffs have fallen, or will fall, further.

• Value-added tax (VAT) in the range of 5 to 10 percent is levied on the landed cost when the goods change title

• Luxury/Consumption Tax (especially autos, beer and alcoholic beverages)

 

Price plays an important role in the consumer's perception of the product. Although Vietnamese consumers expect to pay a premium for a foreign label or brand, in practice, the actual number of consumers who are willing to pay the higher price is limited. Most Vietnamese buyers are very price-sensitive, as one would expect given the low per capita income. With the abundance of less expensive products in the form of smuggled or counterfeit goods and “copycat” brands, competition is keen. Market analysts agree that one exception to this generalization is consumer durables. Many Vietnamese view the purchase of big-ticket consumer items as both a status symbol and an investment. Therefore, they want to buy the best in terms of quality and durability.

 

Practical Considerations:

• Import taxes, value-added tax (VAT), luxury tax/special consumption taxes, customs service fees, and delivery delays can quickly price products out of the market or cut margins. The fragmented distribution system creates multiple layers of wholesalers, dealers and vendors, with markups at each stage. Moreover, foreign suppliers are often frustrated by their inability to maintain control over the product's pricing. Random and frequent price fluctuations are common, as many local distributors and wholesalers under-cut prices to achieve a faster turnover or withhold goods to prop up prices.

• One important pricing cycle to note is linked to the Christmas Holiday and the Lunar New Year “Tet” celebration (several days between late January and mid February, depending on the year). As there is a flurry of buying in the few months preceding these holidays and little activity immediately afterwards, price hikes and reductions follow accordingly.

• While individual incomes are rather low, purchasing power may be higher than expected as a result of the extended family organization, which is still quite common in cities (and nearly universal in the countryside). Unmarried adult children commonly live with parents, as do the eldest son and his family. Thus, several wage earners can pool earnings within a household. Similarly, less income is spent on housing per person, and unmarried adult children in particular may be able to spend a large percentage of their income on discretionary purchases. For larger items such as consumer durables, relatives may pool funds to provide one another low interest or interest-free loans in rotation.

 

 

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Posted: 08 July 2010, last updated 4 March 2011

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