Motivation in Consumers to Purchase Luxury Goods - Literature review Example

? The study of motivation in consumers which stimulates them to purchase luxury goods despite the steep and increasing price Table of Contents 2. Literature Review 3 Reference List 19 2. Literature Review 2.1 Introduction The luxury goods market has experienced growth on a huge scale during the period from 1995 to 2007. The period from 1995 and 1999 is considered to be the phase of boom for the luxury market, when the Compound Annual Growth Rate (CAGR) was 11 percent. However, CAGR was 1 percent during the period of consolidation of the luxury goods industry between 2000 and 2003. Again during 2004-2007, when the luxury industry was expanding and emerging into other markets, the CAGR was 8 percent (Amatulli and Guido, 2011). The growth of luxury goods market was caused by two important factors. Firstly the economic growth all throughout the world has lead to the creation of new class of rich people (Vigneron and Johnson, 2004) and secondly, the increase in the demand and range of products of luxury goods (Silverstein and Fiske, 2003). However, the sales of luxury goods were predicted to ease in 2013 due to the lower growth rate in China and subdued spending in Europe (Reuters, 2013; Wendlandt and Binnie, 2013). The sales are expected to hover around 4 to 5 percent as compared to the 5 percent sales in the year 2012 (Bain & Company, 2013). It is also expected that the revenue generated from the luxury market will rise 50 percent faster than the global GDP and the annual average growth rate will be around 5 to 6 percent in the year 2015 (Bain & Company, 2013). The four main categories that come under luxury goods are Jewellery and watches Spirits and wines Cosmetics and perfume Fashion that includes accessories, ready-to-wear and couture (Jackson, 2004). Recently some other categories were also added like airlines, home furnishing, private banking, tourism, hotels and luxury automobiles (Chevalier and Mazzalovo, 2008). Fashion luxury goods include perfume, jewellery, watches, shoes, handbags, accessories and apparels, the display or use of which only brings prestige for the owner and functional utility takes a back seat (Vigneron and Johnson, 2004). Some of the research scholars have previously tried to highlight on the profile of the buyer and understand the reason behind the consumption of luxury goods (Dubois, Czellar and Laurent, 2005; Husic and Cicic, 2009; Summers, Belleau and Xu 2006; Wiedmann, Hennigs and Siebels, 2007). Some others have focused on the role of brand in the consumption of luxury products (Fionda and Moore, 2009; Kapferer and Bastien, 2009; O’Cass and Frost, 2002; Phau and Prendergast, 2000; Tsai, 2005). More specifically Vigneron and Johnson (1999, cited by Amatulli and Guido, 2011) has focused on the presence of interpersonal and personal motives behind the consumption of luxury goods. In this section the focus is on luxury branding, pricing and issues that influences buying behaviour. 2.2 Meaning of luxury The word luxury has been derived from the Latin word “luxus”, which signifies the pleasure of senses irrespective of cost. Vigneron and Johnson (2004) have created a framework that consists of five components, which provides the meaning of luxury. High quality is associated with luxury goods, which is perceived as a fundamental attribute. Quality signifies craftsmanship, utility, sophistication, technology, design and material etc. Origin and tradition of the product along with the perceived superiority and excellence of the products acts as the reassuring factors which is a motivating factor for the customers who are buying any luxury goods. Semiotics of luxury has identified hedonistic value, which signifies the emotional responses linked to the consumption of luxury goods like excitement, sensory gratification and aesthetic beauty. Consumption is about the experience and feeling of pleasure that the consumer gets from the ownership of the goods like self-indulgence, fulfilment and personal reward. Conspicuous is another value attached with the consumption of luxury goods that plays a significant role in shaping the purchasing decision of the consumers going for purchase of luxury goods. Conspicuous consumption is attached to the acquisition of luxury goods that provides status irrespective of the social class or income of an individual. In this regards luxury goods acts as a symbol of social presentation, wealth and power that in turn impresses others. The luxury products are also perceived to be exclusive, rare and unique, which makes them luxurious for the consumers. Though Vigneron and Johnson (2004) used uniqueness to relate with luxurious goods but exclusivity appears to reflect better and more in-line with the nature of luxury products. In this context luxury products are usually considered to be rare, since the prestige associated with the goods are seen to erode when too many people are seen to posses them (Phau and Prendergast, 2000). The social value of extended-self is also associated with the luxury products, which implies a symbol of social class. This symbolic meaning of an identity creates the desire to possess luxury goods. Moreover, a particular product or brand can help in developing or supporting an identity (Monkhouse, Barnes and Stephan, 2012). 2.3 Luxury Consumption In simple terms the concept of luxury is difficult to explain since it represents a social context that follows cultural evolution. Thus, it is extremely biased and unpredictable (Phau and Prendergast, 2000). However, a thorough review of the literature reveals that there are two main categories for the consumption of luxury goods. On one hand there are interpersonal, external motivations and social motivations; on the other hand reserved, subjective and internal motivations. External motivations include those cases in which luxury goods are the symbol of wealth; the main aim is to display the product in the public, so that it asserts the status of the consumer (O’Cass and Frost, 2002). On the other hand, internal motivation signifies self-reward related to the consumption of luxury goods based on state of mind, emotions and a subjective sensation, which is based on the self-perception of an individual (Vigneron and Johnson, 2004). Therefore, it can be seen that the consumption of luxury goods is based on both personal and interpersonal effects of luxury, which is based on two different approaches in terms of behaviour, motivations and perceptions. In case of external motivation the consumption of luxury good is based on the status symbol accumulation, social positioning and ostentation (Fionda and Moore, 2009; Truong, et al., 2008). For internal motivation the consumption involves more of cultural and personal goals related to perfection, originality and pleasure (Vickers and Renand, 2003). Consumers are seen to buy luxury goods on the basis of some shared codes, like they use luxury goods to show others the amount they have paid, imitate the people whom they admire or due to some competitive spirit. Thus, luxury is used by the consumers for externalizing. At the same time they can also internalise it if they are motivated through personal sensibility, culture or aesthetic pleasure. They are seen to choose products based on individual style and taste that goes beyond the criteria imposed externally. The study on internalising luxury conducted by Tsai (2005) connects the concepts like congruity with internal self, self gift giving and self directed pleasure with the consumption of luxury goods. Though the two motivations external and internal are seen to be opposite but they co-exist within a single consumer. 2.3.1 Luxury consumption as symbol of prestige Today consumers are seen to have more than discretionary income at their disposal than ever before. Income has dramatically increased throughout the hierarchy scale but has witnessed greater increase among the highest social classes. The consumers are now willing to offer much higher amount of money for purchasing luxury goods. Apart from functional utility, the main purpose behind buying luxury goods are that the possession of such products enhances the prestige of the owner. Prestige preference is defined as the preference of an individual for shopping of any product in the store that offers an amalgamation of fashion, branding, quality, price of the merchandise, atmosphere and type of the store and status, which combines to create a particular level of prestige. Phau and Prendergast (2001) claims that an exclusivity is evoked by luxury brands via brand identity that allows the brand to enjoy high perceived quality and brand awareness and also creates loyalty among the customers, which in turn helps in retaining the level of sales. Vigneron and Johnson (1999, cited in Husic and Cicic, 2009 ) has given five values of prestige behaviour along with which five relevant motivations are also connected, which gives rise to five different categories of customers. The categories, perfectionists and hedonists of luxury consumers are more interested towards the pleasure derived from the use of these products and less interested in price than performance, characteristics and quality of the product. These types of customers are well aware of what they exactly want from a product and use their own judgement, while the price serves as only a proof of quality. On the other hand, the consumers who display Snob, Veblen and Bandwagon effects are more concerned about the price of the product since they feel that greater price is an indication of greater prestige. They usually go for consumption of rare product that emphasises on their status. These five categories are explained below based on the effect they generate. The Veblen effect: It is perceived as a conspicuous value. These customers attach a greater importance to price which is perceived by them as an indicator of prestige. The main objective for them to consume luxury goods is to impress others. The Snob effect: It is perceived to provide unique value. Price is perceived by these customers as an indicator of exclusivity. They avoid to using renowned brands in order to experiment with inner-directed consumption. The Bandwagon effect: It is perceived to produce social value. Unlike the snob customers, these consumers attach greater importance to the effect that the consumption of the product creates rather than the price. They believe that price is not an efficient indicator of prestige. The Hedonic effect: The consumer perceives that the consumption of the product creates emotional values. These type of consumers place their own feeling and thought at a more significant position than the price, which is considered as a symbol of prestige. The Perfectionism effect: The consumer perceives that the consumption of the product creates quality values. The consumers who are perfectionists are seen to depend more on their own perception to decide on the quality of the product and use price to provide an indication of quality. 2.3.2 Luxury consumption as symbol of Status It is generally seen that the individuals are more concerned about the impression that they create on others. They are interested about their fashion and physical appearance, which forces them to adopt various strategies in order to gain approval from others. By using goods to indicate their status symbol, individuals are seen to communicate meaning regarding themselves to their reference group. Most of the consumers go for purchasing luxury good for filling up the appetite of symbolic meanings. Prestige is one of the basic components that create social standing or status of an individual. Prestige sensitive individuals suffer from the fear that others may look down on them as cheap since they are redeeming coupons. The products which are highly sensitive to social influence and are seen as a display of wealth are highly visible. In this regards one of the most prominent move by the luxury industry is the ‘logofictation’ of the goods, which implies presence of a recognizable pattern in a continuous manner all over the product like bags. In the same manner the labels in clothing, for the purpose of luxurification has shifted from waistband or inside the collar to outside, somewhere where it is clearly visible like side or down on the chest. Today it is unimportant what an individual is wearing but who the individual is wearing is of greater importance. Consumers are highly motivated towards paying higher value for the prestigious product out of the desire to impress others by showcasing their ability to pay high. Buying luxury product for the children indicates higher financial status of the parents. The managers of many luxury brands believe that their customer base largely comes from the upper income classes. In fact, all the practices framed by the management of good luxury companies are based on this presupposition. For instance, the media planning done by the organizations gives higher priority to the up market publications and their outlets are located in prime locations (Husic and Cicic, 2009). 2.4 Branding in Luxury fashion Industry In the context of luxury fashion industry, strategy of corporate branding is seen as a long-standing business practise that is used to strengthen corporate reputation, charge premium price and create customer loyalty (Chevalier and Mazzalovo, 2008). In creating luxury value proposition a popular brand identity is the most fundamental element (Fionda and Moore, 2009). Every component of corporate branding is aimed towards the improvement of luxury brand identity that involve aspects of aspiring corporate association, premium brand image and favourable brand personality (Chevalier and Mazzalovo, 2008; Okonkwo, 2007). This can be accomplished through appropriate strategy of investment and consistent control from the top management level (Moore and Birtwistle, 2004). The first requirement is that the product under luxury brand must be of innovative design and exceptional quality, so that it exceeds the expectation of the customer. Apart from the tangible product that the luxury brand provides, they also offer some intangible benefits in terms of an identifiable symbol or logo that also attracts the customers (Okonkwo, 2007). The brand signage helps the luxury brands in creating the values and personality of the creators that induce aspirational image and brand association among the consumers (Keller, 2009). Due to these strong extrinsic and intrinsic values, a premium price for the products is charged by the prestige and luxury brands (Okonkwo, 2007). The premium price charged for the luxury products help in acting a signal for superior product value and reinforces the belief of brand exclusivity by making the product accessible to few shoppers and not to everyone (Kapferer and Bastien, 2009). A luxury brand model was created based on the following dimensions such as culture, history, product integrity, value-driven emergence, endorsement and marketing. A critical analysis conducted by Moore and Birtwistle (2005) asserted that some other details were also required to be incorporated, so that a stronger modern luxury brand can be created. Due to unprecedented growth in some of the emerging markets like Asia, the luxury market is moving towards a new direction and now the concept of luxury requires a comparison of the cross-cultural attitude. The exclusivity and prestige attached to the luxury fashion market makes distribution and manufacturing of the product highly selective and controlled so that the accessibility to the customers can be restricted. In order to ensure maximum control over the distribution of the products many of the luxury brands are seen to launch their own flagship stores that would help them in showcasing the most recent product range. Apart from this, the flagship store also helps in creating a strong bond between the brand and the customer and enhances the status of the firm as a credible luxury brand (Moore, Doherty and Doyle, 2010). During the point-of-sale the luxury environment prevalent in the flagship store and the services rendered by the frontline employees helps in enriching the shopping experience of the wealthy customers (Brun, et al., 2008). The location of the stores also acts as an indication for the status of the brand. For instance, in London the flagship stores of Ralph Lauren, Cartier and Louis Vuitton is located on high fashion New Bond Street, while Prada is located down the road at Old Bond street. Giorgio Armani and Gucci are taking benefits of the Knightsbridge connection with their locations in Sloane Street and Burberry occupies the premium location at Regent Street of London. Another most popular way of creating brand image for the luxury products is through powerful marketing communication (Fionda and Moore, 2009). Advertisements through public relation activities, events and celebrity endorsement are some of the well known techniques that are used by the firms in order to establish premium brand image and generate awareness (Fionda and Moore, 2009). Though in the luxury fashion industry there is extensive application of corporate branding but only a limited amount of study is dedicated towards the examination of effectiveness of those strategies (Reyneke, Sorokacova and Pitt, 2011). Some of the recent research shows that a paradigm shift has been experienced by the luxury market and practitioners must shift their focus towards creating emotional involvement among the customers in order to drive brand loyalty (Cailleux, Mignot and Kapferer, 2009). As the competition in the luxury market increases, the wealthy customers are seen to display less brand loyalty. This situation has insisted the mangers to rely less on the brand image and prestige for attracting and retaining customers. The luxury brands are now seen to shift their attention towards building strong customer brand relationship through emotional attachment and involvement so that sustainable loyalty can be created. The concept of emotional attachment argues that the evangelical enthusiasm of the customers can be attained if the marketer demonstrates genuine and clear understanding regarding the ambition, dreams and lifestyles of the customers and convince them that their brand is going to provide life enriching opportunities. Brands are seen to form stronger relationship with the customers when the marketers are successful in establishing aspiring, captivating and relevant stories (Thompson, Rindfleisch and Arsel, 2006). 2.4.1 Influence of Branding on consumption Starting from rigid social orders defined by profession, family position, caste and birth to how much money a person has, are some of the key criteria that helps an individual to place him or her in the society. Neither mere use Gucci bags is just the symbol of feminine indulgences nor the use of Rolex watch are to display male vanity; these are regarded to be a part of the new social protocol, where self-worth or identity is determined from the brands that are visible on the body of an individual. A research has revealed that about 92 percent of the women residing in Tokyo in their twenties own products of Gucci, 94 percent owned Louis Vuitton, 51 percent owned Chanel, 57 percent owned Prada and the list continues (Prasso and Brady, 2003). The new trend among the luxury fashion designers is forming conglomerates and merging with other renowned brands. French designers are seen to hold a major portion of the luxury market. The approach adopted by the French designers are absolutely different from that of the US and Italian designers. The US designers like Ralph Lauren and Calvin Klein grew in 1970s, by defining a more casual and leisure-oriented elegance like that displayed by the American style (Chadha and Husband, 2006). A completely new dimension was added to the fashion industry. It was not only that the product or design is important but lifestyle and the image projected by the brand were equally important. A whole new empire was created by Ralph Lauren via marketing a lifestyle. The era of mass marketing has been initiated in luxury market, which was adopted by the French who were targeting a large customer base. Luxury brand managers traditionally believed in creating prestige and conspicuous value in order to create symbolic meaning. The consumer base of recent times is seen to make buying decisions based on their self-expressive attributes, which represents their personal values. The decision of selecting a brand depends upon the degree of emotional closeness that the customers attach with the product rather than the assessment of the features. The growth in the luxury market and the subsequent increase in the competition among the various brands have increased the significance of retaining customers more critical for the mangers. This has made them realise the importance of relationship between the brand and customers and considered the brand as a relationship builder (Cailleux, Mignot and Kapferer, 2009). The study conducted by Tynan, Mckechnie and Chhuon (2009) has created a framework for luxury brand value that incorporates a different type of brand relationship and customer brand value. This reflects the current trends in the region of customer value that stresses the significance of value co-creation (Payne, et al., 2009; Tynan, Mckechnie and Chhuon, 2009). The co-creation of the customer value is experienced throughout the life of the brand and not just at the point of exchange (Prahalad and Ramaswamy, 2004). It has been argued by Tynan, Mckechnie and Chhuon (2009) that the creation and deliverance of customer value is via interaction between the active customers and brand. They suggested that the brands are not seen to create value for the passive customers. Furthermore, the luxury brands are defined by the clear understanding regarding how the interaction between the brand and the customers takes place. This reflects that the brand marketing is now shifting its focus to empowering and connecting with the customers, who are actively involved in establishment and creation of value (Vargo and Lusch, 2008; Prahalad and Ramaswamy, 2004). The whole relationship marketing stands on the central pillars of concept of interacting and connecting with the customers. The concept of brand relationship emphasises that a brand is considered to be the most active contributing partner in the relationship that exists between the two, the brand and the customer. On the other hand D.E. Schultz and H.F. Schultz (2004), has defined brand relationship as a type of emotional, physical and financial bond that ties the customers and the brands together. The focus of the customer–brand relationship has been more on the features like maintenance, interactivity and development. Relationship marketing is a long-term process and primarily highlights on the long-term transactions establishing a strong social and emotional bond with the customers. Brand relationship based on the emotional dimension is most important in strengthening the relationship and is considered to be the most appropriate measure. While investigating the role of brand communities and impact of brand reputation on brand relationship, Veloutsou and Moutinho (2009) found that emotional exchange as one of the important dimensions of brand relationship. The crux of brand relationship is the emotional dimension that involves the specific brand and the customers emotionally and creates a target-specific bond between them (Thomson, Maclinnis and Park, 2005). Though there is lack of literature but some of the studies have involved deep insight into the relationship between the brand relationship and value. The customers are seen to create long and strong relationship with the brands when they feel that the firm has all the desired characteristics in a consistent system, which exactly matches with the value system of the customers (Kates, 2000). In this context it has been argued by Pawle and Cooper (2006), that emotional benefits and values are expected by the customers from the brand with whom they interact. An empirical testing was conducted by Gounaris, Tzempelikos and Chatzipanagiotou (2007) to examine whether deliverance of superior customer value facilitates a brand in creating better relational outcomes like the behavioural intention of the customers that indicates the willingness for maintaining a sustainable relationship with the brands. A recent study done on brand relationship suggested that in the formation of relationship, brand tribalism is more significant than the brand reputation (Veloutsou and Moutinho, 2009). Evidences revealed that brand value is seen as a medium of social symbolism and self-expression, which has gained wider recognition and importance as compared to the perceived value based on the reputation of the brand. Moreover, it has been suggested by Aaker, Fournier and Brasel (2004) that the strength of the relationship that the customers form with the brand over time can be influenced by the perceived personality of the brand. For luxury fashion brands, creating emotional and firm bond in brand relationship can be influenced more by the perception of social and symbolic brand value rather than the functional brand value. Psychological factor is one of the distinguishing features between the luxury brands and non-luxury products and counterfeits (Arghvan and Zaichkowsky, 2000; Choo, et al., 2012). 2.5 Price Prices in traditional economics are treated as cost that simply makes the customers informed about the product. Price is a non-product aspect for brand association that creates a perception concerning the brand with regards to the desirability and value. It is also regarded as criteria on the basis of which the customers often segment their knowledge on the basis of category and market (Tatt, 2010). Brand names, advertising campaigns, costly promotions, high retail margin, exceptional store location, fancy packaging and high quality of products, all contribute towards the higher price of the luxury products. Organizations dealing in luxury products invests huge amount towards these components in order to make their brands recognizable. If high price is not charged for the luxury products then it would lead to loss of exclusivity and rarity of the characteristics. Higher prices make the consumer feel superior and one among the rare and elite class who has the capacity and ability to afford such goods. Some customers are seen to be motivated towards purchasing costly luxury goods just to impress others while some others are seen to possess these goods as a pure display of wealth and status. Thus, luxury goods are seen as expensive in both absolute and relative terms. Under Veblen effect the consumer goes for purchasing luxury products since they are expensive. Price is also seen to establish a perception regarding the quality of the product in the minds of the consumers. Concrete evidences are there that suggests that the quality of the product between ranges of luxury brands can be decided on the basis of price. Often high quality is associated with high price (Sriviroj, 2007). The consumers who correlated better quality with higher price are also seen to attach prestige with higher price. Luxurious products are highly desirable to the consumers due to the higher price. Apart from this price also stands as a symbol of distinctiveness and exclusivity, since luxurious goods with higher price will be accessible to only certain higher class of people. By paying higher price for the goods the consumers are able to create a significant difference between them and the other social classes or groups. It is seen that price has been considered as one of the parameter by the consumers in evaluating prestige associated with the product (Brucks, Zeithaml and Naylor, 2000). In this context Beverland (2005) has argued that quality and price goes hand in hand as luxury brands have inherited characteristics of excellent quality and high price. 2.6 Functional Value perception Functional value is defined as the perceived utility of a product that results from the inherent characteristics and attributes based on the ability to perform its physical, utilitarian and functional purposes (Smith and Colgate, 2007). Apart from the personal and social value perception the customers of the luxury products also expect their goods to be unique, of high quality and usable enough so that they may satisfy the urge for differentiation (Wiedmann, Hennigs and Siebels, 2009). The consumers associate reassurance and high brand quality with the luxury products, which in turn compels them to perceive more value from them. The consumption of the consumers are based on two needs; firstly the need for uniqueness and conformity. The consumers possess and display the luxury goods for the purpose of differentiation. Luxury goods right from their origin has been seen to target the customers through their property of uniqueness. For instance House of Hermes is associated with unique scarves of silk and Christian Louboutin is associated with unique design of shoes. This uniqueness is highly dominant in the luxury industry and especially in the fashion section. This dominancy compels the brands operating in the industry to introduce new designs on a bi-annual basis so that they do not get obsolete. The requirement of uniqueness has a strong association with the interdependent and independent self construal. In the emerging markets of the eastern region the view of customer’s self is defined by the centre of their relationship that not only includes the achievement of an individual, but also the position of an individual in the kinship clan, relatives, family and group to which the individual belongs. This emphasizes that in the eastern region the consumers are willing to purchase the luxury goods that are highly recognizable in their group of peers (Commuri, 2009). This implies that the consumers are less interested in purchasing the products that are less recognizable but higher in cost. But in the western countries this scenario is just the opposite. The view of the customers regarding any luxury good is wholly dependent on the taste, perception and opinion of one’s own self and is not swayed by any external pressure, which is quite prominent in the east (Shukla, 2012). Reference List Aaker, J.L., Fournier, S. and Brasel, B., 2004. When good brands do bad. 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