Racing to the bottom isn’t a strategy. It’s a symptom.

Price wars aren’t a competitive strategy. They’re a symptom of a missing capability: the ability to raise what customers think your product is worth.

I recently watched a talk at Fudan University by Yang Ying, better known in China by her online handle “Yanzhijing.” Her background is unusual for a beauty founder: Tsinghua biology, a PhD in cognitive neuroscience, brain-computer interface research, and now CEO of a premium skincare brand. She told a story that stuck with me.

A seafood tycoon she knows, one of those export-era Zhejiang billionaires, moves hundreds of millions in revenue a year. His net margin: 1 to 2 percent. When he heard her skincare sells for 3,000 to 4,000 RMB, he lectured her. “You should press your profit right under your nose. Barely survive. Choke your competitors to death. That’s how you build scale.”

Her silent reaction: maybe let the fishermen earn something too.

I’ve spent a decade watching Chinese companies go global, and I’ve seen this logic everywhere. Quotes that only go down. Negotiations that only concede. Entire supply chains where nobody makes money, and everyone calls it “fierce competition.” My read now is that it isn’t competition at all. Yang has a better name for it: a mental imprint. Volume must be cheap.

Pricing is an allocation, not a number

The most valuable thing in her talk was a simple three-line model:

Cost ──(producer surplus: the whole chain's margin)── Retail price ──(consumer psychological surplus)── Perceived value

The distance from cost to retail price is producer surplus. Your margin, your distributor’s margin, your suppliers’ margin, everyone splits this segment. The distance from retail price to what the customer thinks it’s worth is consumer psychological surplus: the “I got a good deal” feeling. You cannot skip this segment. When it hits zero, customers feel ripped off and never come back. And nothing in brand marketing is more expensive than acquiring a new customer.

So pricing was never “cost plus some profit.” It’s an allocation between these two segments. Kazuo Inamori’s line “pricing is management” is about exactly this.

Here’s what matters: only one line in this model can be actively moved. The perceived-value line on the far right. Push it up, and both segments expand at once. Everyone in the chain earns more. Fail to move it, and there’s only one direction left to squeeze: cost. The supply chain. The fishermen. Your own 1 percent margin.

That’s where the imprint comes from. In the export-OEM era, perceived value was fixed by the client. Cost was the only variable you controlled. Forty years of muscle memory later, companies building their own brands still only know how to work the left side of the model. Livestream hosts shouting “we crushed the price for you” are the same imprint, reinforced daily.

You can’t raise perceived value without trust

So how do you move that line?

Yang’s context is premium beauty in China, and her answers are experience, technology, and brand. She told a story about Prada hosting a private party at a wildlife park for two clients who each spend 20 million RMB a year, complete with wildlife biologists and silver tableware. Extravagant, sure. But that 20 million was going to be spent somewhere. The only question is who’s capable of earning it. Her exact words: why can’t a Chinese company earn it?

Move this question to global markets and my answer is: the ceiling on perceived value is set by trust. Looking through the trust-gap lens I use for Chinese brands abroad — the gap between what a company can actually deliver and what local consumers believe it can deliver — the wider that gap, the lower the perceived value customers will grant you, and the thinner your pricing power.

Going global is harder than the domestic game for a specific reason: the anchors are set before you arrive. Category price expectations (everyone “knows” what a power bank should cost). Country-of-origin bias (a China-brand discount baked into many categories). Zero brand history (no memory working in your favor). At home you can grind through with channels, endorsements, and time. Abroad, all three anchors press down on you from day one.

Which means Chinese brands racing to the bottom abroad usually aren’t being stupid. They’re being rational: if trust won’t move, perceived value won’t move, so survival lives on the cost side. The problem is that rational short-term choices compound into a long-term trap. Every discount lowers where customers place you. The lower they place you, the harder trust becomes. It’s a self-fulfilling downward spiral.

Watch price rigidity, not sales volume

How do you know whether you’re climbing out of that spiral? Yang offered a metric I like a lot: price elasticity, the percentage change in volume divided by the percentage change in price. Her definition is blunt but accurate. If you can raise prices and still clear inventory, you’re a luxury brand. If you can only clear inventory by discounting, you’re a commodity. The higher your elasticity, the weaker your brand.

The beauty of this metric is that it can’t be performed. Buzz can be bought. Seeding campaigns can be bought. “Brand tonality” can fill a three-hour meeting. Price rigidity doesn’t lie: either you dare to hold your price, or you don’t, and customers vote with money.

One piece of arithmetic to go with it. At a 30 percent gross margin, a 20 percent price cut means you need to sell 200 percent more, triple the volume, just to earn the same gross profit. Yang says most livestream rooms never run this math. I’d add: most global-expansion teams don’t either. GMV up 40 percent after the big promo, and nobody in the retro asks how much permanent damage the discount did to price rigidity.

For teams seriously investing in trust, this metric has one more use: the financial proof of rising trust is rising price rigidity. If a year of content, reviews, and localization has every trust signal trending up but your discount dependence hasn’t dropped, the trust hasn’t converted into pricing power. You may be doing surface work.

Closing

Most Chinese companies passed the product test years ago. The course they still owe is daring to price. Behind pricing courage is the ability to build trust. Behind that is the willingness to give it three to five years.

Every point of margin you leave to your supply chain has to be paid for by a point of trust your customers grant you.

Adam Yang | 10+ years in China-to-global expansion. Former Twitter Greater China gaming lead, former Quora Greater China lead. Newsletter: Adam’s notes

Source: Yang Ying (Yanzhijing) talk at Fudan University, via video shared by Yangyi on X