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Define Shanghai Tang's customer on various demographic/psychographic parametersIn view of the unique features of the Chinese customer, draw a marketing plan forShanghai Tang, covering the following topics:

How can the brand take advantage of the low brand awareness among themajority of luxury customers?How should the brand adapt its strategies based on the Chinese perception ofbeauty?What distribution channels should the brand adopt? Do you think it should go toTier 2 & Tier 3 cities?What range of products should it focus on?What strategies should the brand adopt to target Chinese traveling abroad?

Executive Summary

Shanghai Tang’s Customer

In order to understand Shanghai Tang’s customer, it is important to first understand the overall market for

luxury goods purchased by Chinese customers. There are several characteristics of the Chinese luxury

consumer that can be viewed as broad-based, general features of the market. Once these features have

been outlined to provide a context for the market in which Shanghai Tang operates, attention can then be

turned to the particular customer segment that Shanghai Tang targets.

The overall Chinese luxury market. One of the most salient broad-based features of the Chinese luxury

customer is that the level of knowledge regarding luxury brands is not as well-developed as it is among

most Western luxury customers. This has important ramifications for the China luxury market in general,

because lower levels of differentiation between brands in the mind of the Chinese customer results in a

reliance on other more overt cues to establish perceptions of prestige. For example, Joanne Ooi comments

on branding in China and notes that “You must be expensive, prestigious and international to seduce the

Chinese consumer.”[1] Furthermore, according to an Ernst and Young report cited by the case, Chinese

customers are “more conspicuous customers who took pride in sporting international labels, which they

considered a sign of success and wealth.”[2] Thus, in the Chinese luxury market, price, prestige, and

international brand recognition are generally preconditions for the success of a luxury brand.

 Another unique characteristic that defines the Chinese luxury market is the tension between “Confucian

values of humility and the pursuit of status as a tool for upward mobility," according to Tom Doctoroff of

the advertising agency JWT.[3] This tension has important implications for the segmentation of the

Chinese luxury market because it places some customers at different points along a continuum of

motivations to make a purchase. At one end of the continuum, customers’ motivations are more intrinsic

and related to self-reward that accompanies a purchase. These customers may respond better to lifestyle

marketing messages and products that allow them to complete an ideal self-image. At the other end of the

continuum, customers’ motivations are more extrinsic and associated with conspicuous consumption for

the purpose of establishing status or approval in a social environment. These customers likely respond

more to aspirational marketing messages, and they buy more for prestige rather than to support a

particular lifestyle image. Interestingly, this characteristic of the Chinese luxury market has a geographic

dimension, whereby consumers in Tier 2 and Tier 3 cities tend to be placed further towards the extrinsic

or conspicuous consumption side of the continuum of motivations.

 Two other characteristics that define the Chinese luxury market include a relatively young customer base

and the prevalence of counterfeit goods. Luxury goods customers are primarily working professionals

between the age of 20 and 40, which likely contributes to lower levels of sophistication in terms of

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differentiating between luxury brands. The widespread availability of counterfeits presents unique

challenges and opportunities, perhaps most importantly contributing to the greater importance of

own-stores to ensure legitimacy.

 Overall segmentation of the Chinese luxury market can be represented in the following diagram, with the

two key dimensions of purchasing motivation (extrinsic versus intrinsic) on the X-axis and level of

sophistication (astute versus indiscriminate) on the Y-axis. Four primary customer segments are identified

and positioned on the diagram: the traditional elite, little emperors, new rich, and middle-class

aspirants.[4]

 The traditional elite segment is characterized as wealthy, stemming primarily from business and

entrepreneurial activity or government roles. In addition, the traditional elite has a higher level of

sophistication because they have been consuming luxury brands for a longer period of time than other

segments.[5] In contrast, the new rich, while also including some who have generated wealth through

business, is comprised of recent celebrities and tends to be a younger, more trend-oriented

audience.[6] Even more aligned with a bandwagon-oriented conspicuous consumption perspective, the

little emperor group may have less spending power, but arised from the one-child policy and is supported

by as many as six sources of disposable income: parents and two sets of grandparents.[7] Lastly, the

middle-class aspirant segment has annual income of perhaps US $9,000 to $30,000, is more prevalent in

Tier 2 and 3 cities, and balances status-oriented conspicuous consumption with a more conservative

attitude towards spending money, resulting in high levels of education in terms of pricing and brand

prestige if not in terms of more subtle brand positioning.[8] Shanghai Tang’s target customer. Against this backdrop of the Chinese luxury market in general,

Shanghai Tang’s target customer can be described on some key demographic and psychographic

dimensions. On the issue of demographics, it is interesting that Executive Chairman Chermont somewhat

distances Shanghai Tang from the notion of using demographics to target customers, explaining, "I dislike

the idea of core customers, as if people below or above a certain age shouldn't wear Shanghai Tang.”[9]Rather, Chermont voices a preference for behavior for behavior and attitudinal-based targeting, saying

that he would define the target “as sophisticated working and traveling people, sophisticated personalities,

with standards."[10] Joanne Ooi augments this description by adding that the prototypical Shanghai Tang

customer is a genuine individualist: “Definitely, our customers are not followers. In fact, they enjoy

looking different from the crowd,” and they “enjoy wearing their cosmopolitanism and cultivation on

their sleeve, as a badge of honor.”[11] Hence, in the context of the overall luxury market in China, Shanghai Tang is seeking to carve out its

own space among customers who seem most similar to the traditional elite segment described above. 

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As a subset of the traditional elite segment, the customers Shanghai Tang targets have a high level of

sophistication and brand awareness relative to others in the China market. They seek to purchase luxury

products that contribute to the realization of a particular kind of self-identity associated with their

individualistic nature. However, it is also important for them to broadcast their individualistic nature to

their peers. They desire to be noticed, perhaps more so for the features and style of their clothing and

accessories than for wearing the brand in and of itself.

Marketing Plan

 In providing a market plan for Shanghai Tang to best attract its target customer, focus will be on three

aspects: an analysis of the current situation, a recommended product assortment and price positioning, a

suggested approach to channel management and distribution, and mechanisms of promotion. Through

these points of focus, prominent issues will be addressed, including: low brand awareness, the unique

Chinese conception of beauty, the propensity of Chinese customers to purchase when traveling abroad,

and the emergence of Tier 2 and 3 cities.

 Analysis of current situation. Currently, Shanghai finds itself in a challenging situation given that

Chinese luxury customers are typically attracted to brands that have first been established internationally.

Shanghai Tang was first launched in Hong Kong, then tried to grow abroad with stores in New York and

elsewhere, but was largely unsuccessful in those international cities. Now, the brand has receded with its

attention focused on China, but faces the dilemma that a large portion of its business is attributed to

foreign tourists who purchase while on the Chinese mainland. Therefore, a marketing plan for Shanghai

Tang needs to establish new ways of resonating with the target Chinese customer.

 Product assortment and price positioning. Given the current situation and its target customer, Shanghai

Tang’s concept is well-positioned to appeal to an educated, elite clientele. Joanne Ooi is an ideal leader of

the design team. Her extensive research of on Chinese history and tradition is an asset in the creation of

unique collection embedded in an exotic Chinese narrative: “cultural roots for every single product.”[12] Such positioning affords Shanghai Tang a wide range of possible product offerings. However, the scope

of possible product assortment should be limited to items that capitalize on the values that are central to

the target customer. In particular, the products must convey the individualism and sophistication. For

example, Shanghai Tang’s foray into wedding gowns is perhaps a mistake in this respect. Although

weddings are unique and special events in the life of potential customers, wedding gowns are not a

sufficient opportunity for the customer to realize their individualism because they are basically worn just

once. They do not contribute sufficiently to the customer developing their own narrative about the

lifestyle they are trying to create for themselves. Similarly, fragrances fall short of the ideal product for

Shanghai Tang in this respect: they do not say enough about the person making the purchase.

 That said, ample opportunity for licensing other accessories and even housewares does exist. Jewelry,

eyewear, and especially shoes and handbags are ideal product categories that can leverage the unique

positioning of Shanghai Tang’s design and also allow for higher levels of quality to be built into the

product in order to appeal to the more educated and sophisticated target customer who will be attuned to

these attributes of the product in addition to merely the brand name. Furthermore, as the target customer

is likely a frequent traveler, durability and utility as an attribute of shoes, handbags, and even luggage,

presents an opportunity for Shanghai Tang to differentiate from other brands that rely more on brand

name than on product functionality. Just as Shanghai Tang strives to offer a unique narrative steeped in

China culture, it should present a compelling narrative involving quality and craftsmanship.

 Building quality into the products also allows Shanghai Tang to resolve the apparent conflict between

luxury and traditional Chinese perspectives on humility and beauty. Shanghai Tang should adhere to a

principle that style ought never to subvert quality and functionality. Joanne Ooi is in perfect alignment

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with this principle, and adhering to it would allow Shanghai Tang to also transcend the “costumery”

aspect of some of its previous products. To the extent that products are “edgy,” they should so in the

manner in which they are functionally superior, whether through materials or design, to the products

available to everyday consumers.

 In order to effectively communicate the higher level of quality of its products, Shanghai Tang should

price its products higher than it has priced them to this point. Higher price points will further separate

Shanghai Tang from its association with souvenir-like novelties for tourists, and instead send a stronger

signal that the assortment is meant for the elite target audience.

 Channel management and distribution. Shanghai Tang is in a difficult position with respect to channel

management and distribution because the target segment is quite narrow. With a narrow target, Shanghai

Tang should desire a high level of control over sales channels in order to maintain the utmost consistency

of perceptual cues and experience designed specifically for the elite, sophisticated and educated target

customer. However, such a narrow target segment implies that Shanghai Tang will likely need to survive

on relatively low revenues, which will make it difficult to acquire and maintain ownership of assets such

as physical store locations and the fixtures and properties inside them.

 The choice, therefore, is for Shanghai Tang to operate with a greater number of franchised locations and

accept lower levels of control over sales channels, or to instead maintain strong control with ownership of

fewer locations. The second option is the better alternative for Shanghai Tang, especially when

considering that the target customer is likely a frequent traveler. Shanghai Tang should strive for prime

locations in Tier 1 cities and should anticipate a relatively high frequency of high dollar transactions from

its target customers, who may visit the store infrequently. These customers may purchase large quantities

of goods on a single visit because their purchase motivation stems from the desire to cultivate an image of

their own ideal self. For Shanghai Tang, this translates into the potential to sell across multiple lifestyle

product categories, but that potential will demand an educated and skillful in-store sales team, which

provides further support for a high-control and ownership model of channel management for Shanghai

Tang. 

 Working further up the supply chain, the fact that individualism is one of the key components of the

brand’s essence suggests that Shanghai Tang’s products will likely entail small production runs in order to

ensure the uniqueness of the assortment. Since small production runs are more costly and demand some

manufacturing flexibility, Shanghai Tang should strongly consider integrating backwards and maintaining

ownership over the manufacture of its products. As its own manufacturer, Shanghai Tang will also be

able to more closely control the quality of its products and perhaps even offer customization to further

appeal to its target customer. 

 Promotion.

Conclusion

[1] Shanghai Tang: Taking Chinese fashion to the world, p. 6.

[2] Shanghai Tang: Taking Chinese fashion to the world, p. 6.

[3] Shanghai Tang: Taking Chinese fashion to the world, p. 7.

[4] Segmentation map created by incorporating elements of two different consulting research reports:

KPMG’s “Luxury Brands in China” (2006) and McKinsey’s “Understanding China’s Growing Love for

Luxury” (2011).

[5] Traditional elite segment drawn from both KPMG’s (2006) “traditional business elite” and McKinsey’s

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(2011) “luxury role models” segments.

[6] New rich segment drawn from KPMG’s (2006) “new luxury shopper” segment.

[7] Little emperor segment taken directly from KPMG (2006) with elements included from McKinsey’s

(2011) “fashion fanatics” segment.

[8] Middle-class aspirant segment taken directly from McKinsey (2011)

[9] Shanghai Tang: Taking Chinese fashion to the world, p. 5.

[10] Shanghai Tang: Taking Chinese fashion to the world, p. 5.

[11] Shanghai Tang: Taking Chinese fashion to the world, p. 8.

[12] Shanghai Tang: Taking Chinese fashion to the world, p. 4.

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