Fast fashion: Shein is no shoo-in for pricey IPO

As TikTok took over the world, a low-profile Chinese company known for its cheap
wedding dresses joined the land grab. Videos of people trying on cheap, trendy
clothes from Chinese fast-fashion group Shein have become a genre of their own.

Shein has achieved remarkable growth. Viral videos playing to viewers’ short
attention spans have tapped unprecedented demand for garments, home furnishings
and pet accessories, all of which Shein provides at less than $10. The group has
made heavy and effective use of social media marketing. Here, influencers receive
commissions for posts featuring Shein outfits. Fledgling Gen Z video makers cannot
be caught wearing the same thing twice.

Shein ships most of its products directly from China. This allows it to avoid import
taxes. A provision in US tariff regulations waives import tariffs if the package’s fair
retail value does not exceed $800. Shein’s biggest market is reportedly the US.

Shein is expected to grow faster than peers. It has a target to more than double
sales over the next two years. It was valued at $66bn in its last private fundraising.

This abstract has been adapted from the Financial Times, written NOVEMBER 28
2023

Article: https://www.ft.com/content/4080eb70-2fec-4494-8c83-dcf64c83501a

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Pearson Edexcel GCE Business
1.3.3 Pricing strategies

1.3.2 Branding and promotion

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Additional question using the full article:

Exam style questions:

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Evaluate whether Shein’s cost plus pricing strategy or promotional strategy have
been the main reason behind its success (20)

Shein have used a very effective promotional strategy, as they have taken into consideration
social trends e.g. they way people now engage with promotional material and they have
adopted a promotional strategy using viral marketing. Through using tiktok they have been
able to tap into the young consumer market ie Gen Z, that are highly fashion conscious. Not
only has viral marketing been a cheaper way of promoting their clothing range compared to
above the line promotion methods such as advertising, but it has also allowed them to keep
up with trends e.g. everyday use of social media platforms to communicate across the globe
accessing a huge mass clothing market with millions of potential customers.

However, although their promotional strategy has contributed towards their success in the
clothing market, viral marketing can also be very risky, as they would be allowing other
people, that Shein have no control over create and spread messages. This could be
damaging to the brand if the wrong message is shared. Additionally, their promotional
method could be limiting as there are many potential customers that Shein could access if
they chose a variety of promotional methods. The elderly generation may not have access or
choose to use social media platforms, such as tik tok, therefore they could be missing out on
a wider target market.

Shein’s low cost-plus pricing strategy has certainly contributed towards its success. The
cheaper wedding dresses and trendy clothes have most definitely been Shein’s USP. By
shipping its clothing wear from China, it avoids import taxes to the USA, if it doesn’t exceed
$800. This allows them to keep their variable costs down, enabling them to charge lower
cost-plus prices e.g. less than $10, than its competitors such as H&M and Zara. In a time
when inflation is high and cost of living is an issue for many global customers, low prices are
highly appealing to a mass clothing market.

However, although cost e.g. economic manufacturer plays a part in the design mix,
aesthetics and function are equally important with clothing items. If Shein just focussed on
low cost manufacturing to offer low prices they could very easily come unstuck. It is clear
that an additional reason why they continue to get repeat purchases must be that the quality
of their clothing must also be reasonable and a contributor towards its success.

As with many businesses that operate in a competitive market, a combination of all elements
of the marketing mix are important. Without considering the interdependent nature of the
product, price, promotion and place, Shein may find that they do not have the right balance
in informing, persuading and differentiating their clothing range. However, despite this, it is
evident that the low cost-plus pricing strategy that Shein offer is the main contributor towards
its success, allowing it to offer something that other clothing companies don’t offer. They
have clearly found a gap in the market that isn’t currently being filled by other clothing
companies. Their low prices appeal to a large market of consumers who are interested in
fast fashion. By paying low prices, these customers can regularly change their clothing
keeping up with trends and fashions, especially given that Gen Z cannot be caught wearing
the same thing twice. Therefore, its pricing strategy could be the main factors increasing the
demand for Shein’s clothing and contributing towards its success.

A level 4 response
Accurate and thorough knowledge and understanding, supported throughout by relevant and
effective use of business behaviour, well developed chains of reasoning and a full
awareness of competing arguments leading to balanced arguments and an effective
recommendation.

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