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 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]

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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 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