The aisles of the Yolo electronics and appliance outlet swirl with activity on a humid, 99 degree Saturday afternoon in Shanghai. Fans blow hot air, and young people jam the ground floor to check out the dazzling assortment of MP3 players and mirrored, candy-apple red and sequined mobile phones. Up on the third floor, the Chinese shopper finds the more mundane essentials of modern life: apartment-size air conditioners, water heaters, refrigerators, microwaves and clothes washers. Once status symbols, these appliances have since yielded their social position to the 28,000 renminbi ($3,500) LCD-screen TVs and home entertainment systems one level below. It looks like a trade show. Each brand's products stand in a booth-like space because each manufacturer leases its own floorspace from the retailer. Today, a confused-looking customer in the Whirlpool booth stares straight ahead as she's tag-teamed by a pair of saleswomen describing the features of a new washer. Mid-summer is the slow season for washers, and she receives a lot of attention. The woman's husband stands back, silently listening. "He will make the decision," whispers Cora Cai, a product manager for washers with Whirlpool Corp.'s operation here. A Shanghai native, Cai herself falls into the "aspirational status seeker" customer category that Whirlpool is now targeting in this mad free-for-all, Chinese market that has enraptured global marketers with its growth potential while humbling them with its local idiosyncrasies and sheer competitiveness. Once a land of limited selection and tight supply where Western-style concepts such as convenience and conspicuous consumption were rare, China has evolved into a complex market of eager new consumers of all types of goods and services. Cai, for instance, recently took delivery of a shiny new Buick locally manufactured at the General Motors joint venture with the Shanghai Automotive Industry Corporation Group and is studying to get her MBA at a local university. In response to this market evolution, the Asian strategy of Whirlpool is changing. The company has realigned Asian operations from a product focus to a customer focus and is attempting to move the washer portfolio toward the higher end, where margins are better. The change was overdue. Geographically speaking, Asia is Whirlpool's smallest market, accounting for just $416 million of the company's $12.2 billion in global sales in 2003. Sales last year increased a marginal 6.6% in this fast-growing sales region that includes India, China, Australia and Southeast Asia. Mark Hu, executive vice president of Whirlpool Asia says the realignment is not unique to Whirlpool. It reflects a fundamental change in the Chinese market. Long gone are the days of surplus demand, when products were pushed out and snapped up by eager new consumers. Today, product features, the latest technology and high-quality are top priorities for everyone. The challenge is to align such efforts and resources around customer desires. "Shanghai is very expensive, our investment was very expensive, our equipment is very expensive," Hu says. "Here, in order to quickly get to scale in China, we were trying to tackle the low end of the market, where there is much bigger volume. There's a disconnect there. . . . "We have to accept this is what we have on the ground. These are the assets. How can we get the most value out of it?" The answer in part is developing products with the features and other characteristics that appeal to higher-value consumers. This emphasis on innovation is one facet of a customer-centric strategy that's familiar to anyone who has picked up a business magazine over the past 15 years. In their efforts to put the customer first, many manufacturers have beefed up their research and development programs, trying to use innovation to distinguish their products from competitors. They've also attempted to be innovative in how they deliver services to customers, in their dealings with distributors, and in how they merchandise products. Innovation alone, however, as Whirlpool executives now believe, is not enough. Such activities need to support a broader strategy that develops brand loyalty among customers. By increasing it's following of loyal customers, the theory goes, because they are less price sensitive and buy repeatedly over time, a company will be able to drive revenue growth and improve profitability. It's a brand-focused approach that Whirlpool executives think applies as much to appliances, which are purchased every seven years on average, as it does to tortilla chips and breakfast cereal. The effort, explains David Swift, executive vice president of North America, began several years ago with detailed customer studies in several regions consisting of 40-minute interviews with some 20,000 people. Armed with this data and with the assistance of a consulting firm, the company built a model that helps identify the key drivers of customer loyalty by brand and by country. This past spring the company completed its second round of data collection, expanding the number of regions and timing the results so that they can feed into to its strategic-planning processes. "It's totally changed the way we think about the budgeting process, which in our industry historically was very capital driven," says Swift. "Now, it's turning that on its side and starting with the consumer, [asking] what's going to drive loyal behavior? Then, what are the investments we need to make in engineering, service, in our call centers, in training of our people, in our capital? Everything aligned toward what will help drive that loyalty." This focus is augmented by a customer loyalty index, an internal measurement standard that Whirlpool can use to track the position and progress of its brands. Underscoring its strategic importance, the company has attached a significant amount of at-risk pay for senior managers to the positive movement of this index. The study revealed that a major driver of customer loyalty for the Whirlpool brand in the United States is social responsibility. It's an area that had always been important -- for a number of years the company has donated a free range and refrigerator to every home built by Habitat for Humanity -- but it had never been a core focus. In response, Swift explains, mindful of not wanting to come off as gauche or tacky, the company sponsored a 30-stop concert tour this summer by country music diva Reba McEntire, with much of the proceeds to benefit Habitat. The marketing goal: to make people think differently about the company and its brands. "What we're learning is that customer loyalty is more emotional than it is rational," says Swift. "I've told my team here that we will declare success with customer loyalty when we have consumers with tattoos like they have for Harley Davidson." This past spring, building on the previous results gained in other markets, Whirlpool completed its first customer segmentation study in China. It's triggered a new way of looking at the market, says Mark Hu. Instead of the traditional perspective of a manufacturing company -- with products segmented according to product features, such as automatic or not automatic, high end (most expensive) and low end (cheapest) -- they're breaking the market out by types of consumers. For example, 19% of Chinese consumers fall into what Whirlpool has categorized as "pragmatists," people in lower income brackets who tend to live in more rural areas, who are less educated and older. Key touch points for these consumers are price, cost of ownership and reliability. Another 20% of the Chinese market consists of the previously mentioned "aspirational status seekers." These people are younger, upwardly mobile, and more educated. They are people for whom price isn't the primary issue. "With these customers, for us to be successful, it's not just a pure pricing game. We can create value through other means," Hu says. In addition to the latest features, these people want premium brands, easy access to product information, responsiveness and good service relationships. The current challenge for Whirlpool in China is building up the internal capabilities to deliver on such promises. This includes managing a network of authorized service centers that are not company employees, making sure they perform as required and monitoring that performance. For this customer segment social responsibility is also a top concern, just like it is in the U.S. The universal inference being that if a company is responsible and gives back to the community, its products must also be good. "In China we have had ad hoc activities, donating to this and that, flood victims and whoever, but we have never done this in a very cohesive manner," Hu says. "At this local level, we never thought that [social responsibility] would be relevant to the local consumers. On the contrary, it is relevant and important." As a consequence, Whirlpool China is now formulating a long-term strategy so that it can devote the appropriate resources to the right causes in a proactive and systematic way. People prefer to work for socially responsible companies, too. This is important as Whirlpool ramps up its technical centers and tries to hire the most talented graduates from the local universities. It currently employs 240 mechanical and electrical engineers at its two technical centers for global fabric care in Shanghai and microwaves in Shenzhen. Executives say they expect to triple the number of engineers in China over the next three years, enticing them with ongoing training, advancement opportunities, special projects and the possibility of overseas work assignments. This build-up will support its efforts to become a procurement center for Whirlpool factories worldwide. There are also plans to make the necessary investments so that washers built in China can be exported to other areas of the world. Whatever it does, because of the size of the market, and the remaining opportunity for growth, it's important that the company gets things right. As Mark Hu states, "Whatever we do in the region, we need to be successful in China."