1. What is a luxury brand and how is it different than a mass market brand? How does one build a luxury brand? 2. What might have accounted for Shanghai Tang’s unsatisfactory early results in building a global luxury brand? What could they or should they have done differently? 3. What strategies did they use to promote the brand? What worked and what didn’t work? How did they expand the brand? Was it a good strategy? 4. How has Shanghai Tang positioned itself relative to other luxury brands? How might that improve? Is it important to be brand positioned relative to competitors?
A Luxury good is defined in economics as a good whose demand increases more than proportionally as income rises, income elasticity of demand. This makes the demand for the good change inconsistently with respect to income. The result is that a luxury good may become a normal good or inferior good as income rises. Conversely, a mass market good is a good whose demand decreases as income rises due to substitution. Mass market brands create the largest potential market by lowering costs and have cheaper prices to appeal to the largest possible market.
When building a luxury brand, one must understand what these types of goods focus on. Luxury brands are built on designs and product quality. Luxury brands can be classified in to two classes; they can be a story brand, trying to sell a story, or a history brand, selling the history of the brand/designer to the consumer. Luxury brands can focus on detail and quality in their products and on high end fashion. To build a luxury brand, one needs to consider all of these areas to become successful. Shanghai Tang is a brand that is trying to transform itself into a luxury brand from its modest beginnings.
Shanghai Tang has taken steps to try and transform its image from that of a Chinese Emporium into a worldwide luxury brand but has had unsatisfactory early results. The weak foray into the luxury market was due partially to the initial lack of product differentiation. The products sold by Shanghai Tang could be bought down the street for half the price so there was no reason to pay Shanghai Tang’s high prices. Another issue that they had was the lack of distinction and separation from their other products. Shanghai Tang comingled their luxury items with those of their normal mass market goods in their stores and on their shelves.
By doing this, items that were to supposed to be luxury goods become ordinary goods by association and since Shanghai Tang didn’t distinguish their luxury items, the consumers didn’t either. This resulted in the lack of credibility with the local Chinese people and of those in the fashion industry. What Shanghai Tang should have done was separate their high-end products from the low-end products and/or used a different brand name to distinguish it. Like Kmart and Wal-Mart which both sell a premium brand like Martha Stewart, they separate their premium brand from their ordinary run of the mill label.
This would at least differentiate a premium brand from their normal brand. Another option Shanghai Tang could have done was to either open different stores or section off parts of their stores so that the consumer felt there was an experience in buying Shanghai Tang’s luxury items. By either having distinct sections of the store or having an altogether different store front to sell their luxury goods; Shanghai Tang would then allow consumers to feel that buying Shanghai Tang luxury items were distinct.
By opening new store fronts to sell their luxury items, Shanghai Tang would have distinct labels that catered to and differentiated the market. Examples of such are: Brand| GAP| Armani| Toyota| Best Buy| Normal| Gap| Armani Exchange| Toyota| Best Buy| High-end| Banana Republic| Giorgio Armani| Lexus| Magnolia Audio Video| Shanghai Tang promoted their brand through different means to distinguish them and gain recognition. They implemented a multifaceted strategy to: 1. Build local relations 2. Open premium retail locations 3.
Sponsor regional events These strategies helped to make the name Shanghai Tang a known brand locally and in regional markets. The problem with this is strategy is that their customers were not the local Chinese. Their strategy seems very confused and almost bipolar. Shanghai Tang wanted to sell to local Chinese and therefore focused on localized public relations. They also sponsored events relevant to each regional market which was in-line with their consumer base target. But there was a big problem, Shanghai Tang placed their stores in prime retail locations, opened shops in world-renown hotels and opened shops in airports were most of the traffic was foreigners and tourists.
Shanghai Tang’s real customers seem to be the wealthy foreigners and tourists with the means and money to travel and stay in world-renown hotels. This consumer base would not be watching a lot of local events and have few local contacts. Their strategy seems to have been out of focus and targeted at the wrong consumers. I feel that Shanghai Tang’s strategy was out of focus and more of an effort to save money then build a Chinese luxury brand.
One of their strategies that did work was the partnering with famous local designers. This brought Shanghai Tangs some credibility which was sorely needed. By partnering with famous local designers, they were able to expand the product line into jewelry, accessories, hats, t-shirts, and eyewear. While this is a good strategy to initially gain recognition and notoriety, if Shanghai Tangs wants to become a competitive luxury brand, this is not a viable long term strategy. What this strategy does do is to give consumers a cheaper way to access the famous local designers through Shanghai Tang but once these designers leave, so goes the consumer.
What Shanghai Tang needs to do is to use this momentum from the local designers and start building and its own designs in-house to sell Shanghai Tang branded designer goods. By doing this, Shanghai Tang will keep its own designs and although the designers may leave, the consumer will associate the designs with Shanghai Tang instead of the designer. This will pull the brand ahead of the designer in the view of the consumer. So where does this leave Shanghai Tang? When compared to other luxury brands, Shanghai Tang is in a bad position.
They don’t know who their customers are and are advertising to the locals when their real customers are foreigners and tourists. They have also made their brand secondary to the designer’s names and have not made moves to strengthen their own in-house designs. Shanghai Tang still has room to improve but this will take time. Shanghai Tang needs to focus on and know who their customers are. They also need to build Shanghai Tang as a design house that keeps putting out designs that people want and by promoting the brand instead of the designer; then brand will strengthen instead of having their designs out sourced.
This will build a consumer base of Shanghai Tang which will perpetuate its growth and notoriety among the other luxury brands. Another option Shanghai Tang has is that it could also refocus its strategy and instead of bringing the outside world to China with a melding of Chinese and modern design but bring the Chinese designs to the western world. Throughout the case, Shanghai tang seems to try to command a premium price to make consumers think it is a luxury good. To actually command that premium, Shanghai Tang needs to show consumers that their goods are designed with quality and detail in mind.
By showing that their brand is able to stand among the other luxury brands will entice consumers to be willing to pay the luxury premium. Shanghai Tang still has a long way to go and to push its brand as a premium brand; changes need to be made at a core level in marketing, brand image, and experience (buyers). Customers need to feel that the brand is something special and that by owning a piece of Shanghai Tang is something special in its own right. By doing so will grow Shanghai Tang into a luxury brand that will then be more on par with other worldwide luxury brands.