A Monopoly is said to exist when there is a sole supplier in the market or the market is dominated by a single supplier of manufacturer. The supplier has almost full control over the market and can influence the market through its decisions. An imperfect market exists in a monopoly i.e. a market where a sole supplier has enough power to influence the market through his/her decisions. A monopoly is just the opposite of a Perfectly Competitive Market Structure.
The following characteristics in regard to a monopoly market structure are there in a market:
- There is a single supplier in the market, there may be many buyers.
- The firm is the price-maker; the firm can control the price and affect it through its decisions.
There are strong barriers to entry and exit in the industry, it is very difficult for firms to enter the market, even if a firm manages to enter the market through excessive investments etc. the huge cost of entering the market and sustaining in it prevents the firm to exit the industry i.e. there is the presence of barriers to exit as well.
The product is highly differentiated i.e. every product usually can have its own distinct packaging, scent, taste, fragrance, shape etc. Advertising and other forms of marketing also differentiates the products from other products in the market.
The monopolist can control only one factor at a time i.e. it can either decide on the price it wishes to sell its output or the quantity which he will offer to the buyers; the monopolist cannot control demand. Therefore if it wishes to sell at a particular price, the market demand curve will determine the quantity that can be sold in the market. Similarly, if it decides to sell a particular quantity in the market, the market demand curve will determine the price at which the desired output will be sold.
There are also no substitutes available in the market. As in other market structures the profit maximization output is at the point where MR=MC. However, in this case Price or Average Revenue (AR) is not equal to Marginal Revenue (MR); instead Price (or AR) > MR. Firms can earn supernormal profits in the long-run because of the existence of the barriers to entry. When firms earn supernormal profits, other suppliers may be attracted but the existence of the barriers to entry prevents them to enter the industry and provide competition to the monopolist, therefore the inability of new suppliers to enter the market prevents them to drive-away the profits earned by the monopolist.
Firms can also exercise ‘price discrimination’ i.e. charge different prices form different groups of customers for the same level of service or product offered in the market. A ‘Natural monopoly’ may also exist. It is one where the market has only enough capacity to sustain a single producer/manufacturer. These may be industries which require high investment or where only a single firm can produce the output required by the market. Examples may be the national electric or water supply companies or the telephone (landline) company in some cases. Due to the large scale on which the monopolistic firm operates it might achieve economies of scale.
There is a common perception that monopoly inflicts more social costs than social benefits and was deemed to be against the interest of the consumer/general public. The charges against was that it charges prices well above costs, hampers the technological progress of the industry and consequently the economy, exercises price discrimination and other such factors. There are some laws made in regard to the existence and operations of monopoly which might determine the code of conduct of a monopoly and its practices to minimize any damage which a monopoly might inflict on the society or economy.
The Government can also grant monopoly right or certain patents to a company to provide it with monopoly rights and protect it from competition. This may be when the Government wishes to protect a local infant industry which is unable to compete with the global giants or may be a company which may not be willing to invest the huge capital investment required without such protection or the grant of monopoly rights by the Government. Example of such case is Crixivan (produced by Merck) designed to prove as therapy to HIV (AIDS), which required a huge sum of more than a billion dollars worth of investment to develop, is protected from competition by Government regulations.
The existence of a monopoly and whether it is beneficial or harmful to the environment or the society is a much debatable topic and has remained a controversial topic between economists. Some economists believe that the existence of a monopoly hampers the progress of the industry and since it has no incentive to invest in Research & Development or to enhance the efficiency of the manufacturing, the monopolist will not work towards that as it is guaranteed a profit in either case; whether it innovates or not. They also argue that by restricting new entrants they are negatively affecting the growth of the industry and the restricting the influx of new or innovative ideas. They believe that consumer sovereignty is also lower and the consumer may though have a wide range of products to choose from it will have little or no choice in choosing a producer.
On the other hand, the other group of economists believes that innovation and technological progress is most likely to occur in a monopoly than in any other market structure. They feel that the desire to earn higher profits will lead the firm to invest more in Research & Development and discover newer, faster and more efficient ways of production which will lower costs and consequently increase the profits. They also believe that small firms will not be willing or cannot make investments in R & D which might require huge sums of capital, whereas a firm with a monopoly has enough incentive and capital to fund the technological advancement and research.
Some current and past examples of monopolies are mentioned as follows:
- AT & T
- U.S. Postal Service.
A Monopsony or a Monoponistic market approach is similar to a Monopoly except that in a monopsony the buyer has full control over the market. As in a monopoly, this is also an imperfect market as a single buyer can alone affect the output or the price in an industry. The buyer can influence the market from his/her own decisions.
In a monopsony, the buyer can decide on the price at which he/she will buy the output or quantity of the products; it is not a price-taker as in a monopoly. Because of the power of the buyer to restrict the price and affect the market, the monopsony usually experiences a lower quantity of goods traded and a lower price than in other forms of market structures.
The argument against monopsony is similar to those against monopoly, some economists believe that in a monopsony the power of the consumer hampers the economic or technological progress of the industry as well as the economy. The firms are not rewarded for their effort on their own grounds or at the price at which they wish to sell their product, this leaves them with little or no incentive to increase the quality of the product or involve in other types of Research & Development. On the other hand, some economists believe that a monopsony is more likely to experience innovation because sellers compete to attract the buyers and the seller which has the highest quality or the lowest cost is more likely to win the bid or sell the product to the buyer. The power of the buyer can be restricted or limited through laws which restrict a price floor which mentions the lowest price at which they product can sell.
However, great care should be taken in deciding on the level at which the floor should be placed, if the floor is too high the buyer may not be willing to purchase the product and this will further reduce the already lower amount of goods traded in the market. On the other hand if the ceiling is placed too low, it will not fulfill the purpose of its imposition and will have little impact on buyer’s power. The floor should be imposed at a modest level, and be used as a whip to control buyer’s domination and efficiency of the producers.
The buyer may also restrict the entry of new buyers into the market by simply purchasing the whole output from the producers or simply by coming into contracts with suppliers or manufacturers. This type of market structure may also contain a lower number of producers/manufacturers. Since the structure does not promise high profits, especially in the long-run many sellers/manufacturers will not be attracted to invest into the industry or become part of a industry where the company has to deal on they buyer’s terms.
Some examples of a monopsonistic market model are as follows:
- The market for Registered Nurses.
- Trade unions and labor markets.
- AT&T was the sole buyer of phone equipment before its break up.
- BP and ARCO are the biggest bidders for state oil in the town of Alaska.
- Another example can be in sports; where the reserve clause restricts the salaries of the players to be put up for bidding.
An Oligopoly is a market structure is one in which there are a small number of large, powerful and dominant firms which account for almost all of the industry’s output.
The following characteristics are there in an oligopoly:
- There are a limited number of sellers in the market.
- Usually firms are price makers as they account for a major proportion of the market.
Barriers to entry and exit do exist in this market structure. The firms in the market are very large compared to new firms entering the market; the older firms generally enjoy economies of scale and benefit extensive cost-cuts from bulk buying and other such practices. They provide extensive competition to the new firm through discounts, reduced prices, special offers etc., and the newer firm is generally not capable of competing with the bigger firms and eventually has no other option but to shut down. However, the existence of the barriers to exit such as sunk costs make it difficult for the firm to exit and the producers are often left with little or no options, eventually they shut down or merge with a larger firm (increasing the power of the larger firm).
In a ‘perfect oligopoly’, the products are homogeneous, for example, salt and sugar. However, in an ‘imperfect oligopoly’ the products are differentiated and marketed under different brand names, packaging etc. Producers can decide on which price to sell their product or the quantity they wish to sell in a particular market, they cannot obviously decide both and has to decide whether they will fix the price and let the market (mechanisms of demand and supply) determine the quantity that is sold in the market; or vice versa. Firms can earn supernormal profits in the long-run (due to the existence of the barriers to entry for the new firms).
The firms can also form ‘cartels’ or ‘collusions’ and decide on the output they will sell in the market or price at which they will sell their products, the existence of cartels or collusions can result in the exploitation of the customers. There are certain laws made and rules mentioned which restrict the practices of ‘cartels’ and collusions and prevent the exploitation of the customers.
Oligopoly is a more realistic market structure than a perfectly competitive market. There are various reasons for an oligopoly to be a more common market structure in the real world. The market for many products is dominated by a few large firms which enjoy economies of scale (with very low costs as compared to the costs of the new firm) through their large scale production. A huge amount of capital is required to start off production; firms usually do that by merging with other firms or through acquisition; a small firm alone cannot compete with the giant firms in the industry. Consumers have become brand loyal and are ready to pay even more for a product from a renowned company (a company that has build and maintained goodwill and brand loyalty) rather than purchasing a product from a new or unknown producer even though the product is being offered at a lower price. The producers have also realized that they can earn maximized profits and higher returns on their investment if they collude rather than compete with each other.
Some examples with an oligopoly are:
- BP, Shell and a few other firms (petrol market in UK).
- Soft-drinks market (Coca Cola, Pepsi)
- OPEC (oil industry)
- Airline industry
- Dell, IBM.
This type of market structure has the characteristics of both, a monopoly as well as a perfectly competitive market. However, in a monopolistic market structure no single buyer or seller has full control over the market; the market will not be affected by a single buyer’s or seller’s decision. In this structure, there are a large number of buyers and sellers in the market and the products are not homogeneous.
The monopolistic market structure has the following characteristics:
- There are many buyers and sellers in the market.
- Each buyer and seller comprises only a small portion of the market.
- Usually there are no ‘collusions’ or ‘cartels’ in a monopolistic competition market model.
- The firms are price-makers.
- Firms operate on the profit maximizing point i.e. where Marginal Revenue is equal to Marginal Cost (MR=MC).
- There are little or no barriers to entry and exit.
- The products are similar but they are not homogeneous. The products are differentiated from each other through different techniques; the buyers can distinguish the products from each seller.
- Firms can earn supernormal profit in the short-run.
- Large-scale capital investment or other such investment is not required for a firm which wishes to enter the market.
Since there are little or no barriers to entry, the firms cannot earn supernormal profits in the long-run. When supernormal profits are experienced, new firms will get attracted and enter the market, the entry of new firms will increase the output of the industry and lower the price, the process will carry on until the profits are driven away and the firms return to the break-even point i.e. no profit, no loss point. Firms in a monopolistic competition model are faced with an elastic demand curve. In monopolistic competition, firms do not operate at the bottom of their Average Cost curve, instead they operate where Average Costs are falling and there is capacity left for the firms to further reduce their costs.
Some examples of monopolistic competition are listed below:
- Sporting goods.
- Soft drinks
- Fast food: McDonalds, Burger King etc.
- Dishwashing powder
- Hirschey, Mark (2006). Managerial Economics. Belmont, CA: Thompson South-Western College Pub.
- Lipsey, Richard G, & Chrystal, K. Alec (1999). Introductory Economics. New York: Oxford University Press.
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Marks and Spencer has been able to be a prominent retailer in the UK market due to its marketing and differentiating strategies. This position has been further aided by the firm establishment of the M&S brand as a prominent feature in the UK retail sector. The company also boast an improved profitability in 2006. The company also has been acquiring new businesses like ‘simple foods’ to expand on the products and services being provided by the company.
Due to the immense growth in the retail industry in UK with the entrance of Wal-Mart with ASDA in the past decade the supplier concentration has increased. The same suppliers are providing services and products to all the retailers in the market. The apparel and textile market in the retail sector has also increased resulting in more demand for materials from the suppliers. Retailers in the sector have started forward integration by launching website which is an alternative to the retail stores in the form of e-retail shops.
As mentioned earlier the retail industry has gotten very concentrated with many big players in the market competing for their respective share. As a result the buyer has more choices now and the bargaining power of the buyer has increased. The buyer has an alternative to go to any other retailer if the current one does not fulfil their requirements. The buyer volume has also increased. This is mostly due to the fact that the retailers themselves have started to provide the customers with varied and diverse products and services which go beyond the traditional scope for retailers.
Barriers to Entry:
Due to the presence of large retailers in the UK retail industry and the technological innovations and investments made by them for keeping there competitive advantage the barriers for entry in this market have increase. However if a firm decides to be a pure online retailer, then the barriers to entry into the industry are reduced as the capital investment required is comparatively very low. However the main reason for the growth of the retail industry is due to the retail-branded products offered by the retail giants.
Threat of Substitutes:
No direct substitutes exist in the market for the retailers however as the retailers have started proving the target market with varied and diversified products and services, their scope has been increasing. These areas are threatened by the emergence of specialised stores which target the specific market for apparel as well as the food and organic food in the market.
Degree of Rivalry:
In the UK retail market very intense competition exists. The main competitors in the market include retailers like Marks and Spencer, Tesco, Sainsbury and ASDA. The main reason for the intense rivalry among these companies is due to the price war exiting in the food industry. Aside from this the market and channel innovation by Wal-Mart have also driving the competition high in the retail sector.
Overview of Three Areas of the Model and Their Impact on Marks and Spencer:
The retail industry has gotten very concentrated with large retailers like ASDA, TESCO, Sainsbury and Debenhams. This has made a host of other alternatives available to the customers of Marks and Spencer. Aside from this while the market for retailers has grown in the past few years, the consumer spending overall on shopping has decreased by 2.1 percent in 2006 (Datamonitor, SWOT Analysis – Marks and Spencer Group Plc). The cause of this has been the increase in taxes and other expenses. As a result the buyers have started to go for cheaper substitutes.
Threat of Substitutes:
Marks and Spencer faces no direct substitutes in the market however threat is apparent from due to the emergence of specialised stores which target the specific market for apparel as well as the food and organic food in the market. These stores have competitive edge of specialisation and customisation over Marks and Spencer.
Aside from this the barriers for entry into the market for online retailers has decreased due to technological advancements. As a result Marks and Spencer is facing problems from the e-retailers. While Wal-Mart and other retailers provide for transactions and online shopping through there websites, Marks and Spencer’s own website is inferior compared to them. For example food cannot be ordered online and delivered to home from its website. Also a very limited category of merchandise is available for customers online. Marks and Spencer also does not cater to customers overseas and the delivery to the local customers is through Royal Mail, or White Arrow courier service, instead of independent couriers.
Degree of Rivalry:
In the UK retail market very intense competition exists. The main competitors for Marks and Spencer in the market include retailers like Tesco, Sainsbury, Debenhams and ASDA. The main reason for the intense rivalry among these companies is due to the price war exiting in the food industry. Aside from this the market and channel innovation by Wal-Mart have also driving the competition high in the retail sector. The traditional supermarket channels are also evolving mostly again due to the innovations made by Wal-Mart since the 1980’s.
Due to the diversified products and services provided by Marks and Spencer it is believed that the company has lost its competitive edge by indulging itself in the including food and financial services. The food operations of the company are also very blight because of the price wars in the food industry as well as the fact that M&S has become very diversified and lost its competitive differentiating factor.
With the entrance of the global retail giant Wal-Mart which focuses on proving products at the lowest costs anywhere in the world, Marks and Spencer is facing problem concerning channel integration and supply chain management. Wal-Mart uses a just-in-time (JIT) technique for its channel and inventory management with strategic alliances and partnerships with its key suppliers like Proctor and Gamble. Marks and Spencer needs to integrate its vast expanding channels and suppliers into its supply chain as it will help the company drive its costs low and earn a better margin on each product sale.
Marks and Spencer has recently cancelled most of its operation in the international market in an attempt to focus on its main market in the UK. Despite this the buyer market for Marks and Spenser products and services did not reduce in the international market. Moreover the current website that provides the function of a transactional website for M&S has not been able to provide the same level of services to its customers. Very limited numbers of categories are available for purchase online and the delivery is made through traditional channels. Aside from this the food products are not provided through the website. “Online consumer spending worldwide is forecast to rise from $137 billion in 2004 to $228 billion in 2007. Significant growth in online sales is forecast for all categories of consumer goods.” (Datamonitor, SWOT Analysis – Marks and Spencer)
Effect of the Technologies on the Market Overview
As mentioned earlier retailers in the sector have started forward integration by launching website which is an alternative to the retail stores in the form of e-retail shops. This has been taken up by Marks and Spencer as well but their online option is not half as comprehensive as that of its competitors (Wal-Mart). As a result by operating a more active and comprehensive online retail website the company will be able to integrate with its suppliers and forge strategic alliances with them.
By offering an online option, Marks and Spencer would be able to provide customized services and delivery to its customers (e.g. incentives for bulk), while still reducing costs. This will give the buyers power as well, and help the company differentiate from the competition with the help of the technology.
Barriers to Entry:
If the company established channel integration then it will be able to implement barriers to entry for new entrants. This will help secure a position for Marks and Spencer in the future with limited competition. However as the barriers to entry for online retailers are very low, Marks and Spencer, with the use of an active online retail website, will be able to compete with new retailers as well as those like Amazon and Wal-Mart.
Threat of Substitutes:
The company currently does not provide food and grocery items through its online store. By implementing a more comprehensive and active online retail store, Marks and Spencer would be able to take advantage of diversification in the virtual market as well.
Degree of Rivalry:
The degree of rivalry will remain the same although the company will get a competitive advantage over other similar retailer s in the UK market. This is because implementing these technologies will become more a necessity in order to survive in the future.
The company could invest in technologies which can promote and enable better decision-making for the company. This can be done by employing real time retailing through online retail option, which will decrease the cycle time of processing for the operations and will be targeting more customers. The company could also make use of tools specific for the purpose of price optimisation, markdown optimisation, marketing & promotion optimisation, and category analytics & optimisation.
At the Store Level:
By employing the best suited technologies at the store-level, Marks and Spencer can improve its productivity. Specific technologies that can be invested in for this purpose can include making use of store-level decision systems, using virtual payment options and automatic customer identification and employing in-store staff management and scheduling systems. Other in store technologies that can be invested in include using electronic labels for labelling and categorising shelves, setting up a separate self-checkout counter to enable those with few items or regular shoppers to avoid standing in long queues and setting up helpdesks or kiosks which can provide information, and process orders and purchases without assistance from an employee
Forward integration into the market and multi-channel integration will help expand the market share for the company. Aside from this using the RFID technology could enable the tracking and management of materials easier and more accurate.
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Datamonitor, (2006), Company profile – Marks and Spencer, available at: http://web.ebscohost.com/bsi/pdf?vid=2&hid=6&sid=b2f8ee98-0c0e-4f10-bda7-96b7336a9f64SRCSM2
Datamonitor, (2006), SWOT Analysis – Marks and Spencer, available at: http://web.ebscohost.com/bsi/pdf?vid=2&hid=6&sid=9e54c618-7641-4b6b-82d1-0aac5e6446b3sessionmgr3
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In this literature review secondary data is used in order to analyse the marketing strategy of the luxury brands. The most common forms of secondary sources are books, academic journal articles, official government statistics or financial records, and other publications. Secondary sources can not be described as original to the researcher and do not have a direct physical relationship to the event being studied, either because of the presence of intermediaries or because of the period of time between the recording and the event (Veal, 1997; Walliman and Baiche, 2001). I.e. secondary sources involve seeking and analysing data that already exist, data that have not been created particularly for the purpose at hand but were initially collected for another purpose. It is valuable source of information, especially in the early steps of a project, helping with problem explanation and research design and planning, and at later stages, providing a context for the understanding of primary data (McGivern, 2003).
Journals are helpful in providing up to date information on current monthly issues. They are usually the most useful sources for research projects however the relevance and usefulness of such journals vary considerably, and occasionally they can lead to possible bias (Saunders et. al, 2003).
The Internet is a huge research facility, which is used to a great extent in order to find out the most relevant information regarding the company.
What is a brand?
Branding has been around for centuries as a means to distinguish the goods of one producer from those of another. In fact, the word brand is derived from the Old Norse word brandr, which means to “to burn,” as brands were and still are the means by which owners of livestock mark their animals to identify them (Interbrand Group, 1992)
Branding has been defined as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition.” Technically speaking, then, whenever a marketer creates a new name, logo, or symbol for a new product, he or she has created a brand (Keller, 2003)
Brands can also play a significant role in signalling certain product characteristics to consumers. Researchers have classified products and their associated attributes or benefits into three major categories: search goods, experience goods, and credence goods (Nelson, 1970).
The definition of Luxury
The American Heritage College Dictionary defines the meaning of luxury as “something inessential but conductive to pleasure and comfort”. American Demographic recently asked consumers to define luxury, and the result illustrates the differences in definition of luxury by race, gender and age. From this research, the conclusion is that definition of luxury is depended on individual’s perspectives and characteristic; gender, race, and age. However, there is still a new sharing attitude toward luxury. According to this result, the luxury is not only about conspicuous consumption anymore, but also rather about pleasure and ability to realise one own passion. Bernard Dubious (2001) mentions that “Luxury concerns self-indulgence, be it private or public. Luxury is linked to subjective perceptions of comfort, beauty and a sumptuous lifestyle in objective reality.”
The luxury has long been categorised as “conspicuous consumption”. The conspicuous consumption is the term introduced by the American economist Thorstein Veblen in The Theory of Leisure Class (1899). It was used to describe the obvious consumption of goods, commodities, and services for the sake of displaying social status or wealth. Veblen’s argument was that as wealth spread, what dive consumers’ behaviour in purchasing luxury are not subsistence or comfort but the attainment of the esteem and envy of fellow men. Conspicuous consumption still is the main source of deciding the preference of customers regarding different products (Braun and Wicklund 1989; Hong and Zinkhan 1995; Bagwell and Bernheim 1996; Corneo and Jeanne 1997). In the early research by Thorstein Veblen (1899) it was suggested that conspicuous consumption was used as a sign of posing the economical and social status. Most of the people used the prestige goods in order to show their belongings to the elite class. Hence the prestige brands constituted consumption of the conspicuous segment of the consumers. Prices of the products were also taken as the source of determining the perception of quality of product. Several researchers such as (Erickson and Johansson 1995; Lichtenstein, Bloch, and Black 1988; Tellis and Gaeth 1990) have supported the hypothesis. Most of the brands use high prices as the quality perception driver for the consumers. Hence a higher price is an indicator of a high quality of product. By combining all the notions we get the result that a higher price leads to a high quality perception of consumer regarding the product making it a positive indicator of
prestige (Lichtenstein, Ridgway, and Netemeyer 1993). The marketing practitioners recommend the use of “prestige-pricing strategy” in order to capture the market consisting of status-conscious consumers (Berkowitz, Kerin, Hartley, and Rudelius 1992, Groth and McDaniel 1993).
Another direction towards which the researchers have pointed out is the limited supply of products, which also effect the quality perception of a customer regarding the product (Verhallen 1982; Lynn 1991; Pantzalis 1995). While pointing out towards the same fact (Solomon 1994) wrote “Items that are in limited supply have high value, while those readily available are less desirable. Scarce provision of goods in market for sale increases the brand attractiveness. According to Verhallen and Robben (1994) the least provision or fake scarcity of products positively effect the demand of a product. The product is also taken as unique, popular and expensive. The individuals regard this as an urge of uniqueness by most of the psychologists (Snyder and Fromkin, 1977). According to (Festinger, 1954) this is the result of the social comparison process. In order to pose the superiority among the individuals most of the people use luxury brands. Most of the previous research has supported the idea that intrinsic shortage, and the fake uniqueness of different brands can fulfil the need of superiority of an individual. In their study Groth and McDaniel (1993) stated that the cost of a brand also plays an important role in developing the perceptions of customer regarding a product. They indicated the fact as “brand exclusivity is the positioning of a brand such that it can command a high price relative to similar products”. The author’s suggested that in order to improve the brand image it is favourable for a company to apply prestige-pricing strategy. This will positively eke the process of marketing of luxury or high-quality products.
In the research conducted by (Quelch, 1987) luxury consumption was defined as the function of quality. Accruing to him “Excellent quality is a sine qua non, and it is important that the premium marketer maintains and develops leadership in quality”. In order to regard the brand as a luxury brand it needs to be of higher quality (Garfein 1989; Roux 1995). In practice, “high prices may even make certain products or services more desirable” (Groth and McDaniel, 1993) most often people also believe that the higher prices are related to higher quality products (Rao and Monroe 1989). Based on these studies and on the available literature on luxury products, it was proposed that consumers to evaluate the level of prestige of brands might also use the quality cue.
The idea of luxury at that point is judged as a wasteful consumption that was generated by two motive, pecuniary emulation and invidious comparison. The main idea of this motive is that when people fall into these motives, they will perceive rising utility of luxury products as their prices go up. There is evidence that supported Veblen’s idea between price and perceived values. Over the last decades, cost of many luxury items was declined. However, the price of some luxury items is still remaining the same or even higher, luxury furniture for an example. The reason is that people willing to pay more for that items in order to posses it and show off their social and financial status.
Despite what negative meaning it has, conspicuous consumption was very convincing to most of academics at its point of time. However, when the luxury became the commonplace in 1980, more researchers opposed the idea of luxury as a conspicuous consumption. Since then, many researches were created the new idea toward luxury and tempt to look at it as related to emotional and human values.
Recently, Michael and Neil (2003) have introduced the concept of old luxury and new luxury. The old luxury is the luxury that emphasises more on its product perspective, such as quality or craftsmanship. Most of the time, old luxury will remain its image as prestige items for affluent people. On the other hand, new luxury is more affordable luxury items. It doesn’t emphasise on high quality or craftsmanship but rather emphasise on emotional values to its consumers. The new luxury can be categorised into three major types, accessible super-premium which make high quality for low-ticket luxury and make it more affordable, old-luxury brand extension which is the lower-priced version of normal luxury goods, and mass-prestige which occupy in the middle between mass and class.
Luxury brands have often been associated with the core competencies of creativity, exclusivity, craftsmanship, precision, high quality, innovation and premium pricing. These product attributes give the consumers the satisfaction of not only owning expensive items but the extra-added psychological benefits like esteem, prestige and a sense of a high status that reminds them and others that they belong to an exclusive group of only a select few, who can afford these pricey items.
Luxury strategy is very different from the classical practice of marketing (Alsop, 2006). Several luxury and prestige brands such as Louis Vuitton, Burberry and Channel were launched in the nineteenth and early twentieth centuries when a strict social class system defined society and royalty and aristocracy reigned supreme. During this period, designers like Christian Dior, Louis Vuitton and Guccio Gucci designed clothes, luggage and leather goods exclusively for the noble men and women of society. Their work was an art form that took several weeks and sometimes months to produce and this was all a part of the “luxury and prestige” experience. During this period, it was the norm to literally dress in one brand from head-to-toe. (Okonkwo)
“Society shapes our beliefs, values and norms. People absorb, almost unconsciously, a worldview that defines their relationship to themselves, to others, to organisation, to society, to nature and to the universe” (Kotler, 2000). According to Hofstede (1980) culture is a complex, multifaceted construct. There are two perspectives of culture. Individualism-collectivism dimension is one of them. In Zhang and Neelankavil’s (1997) the researchers have mentioned the importance of cultural differences on the choice of advertising appeals and strategies by the different companies.
According to Triandis (1990), individualistic cultures emphasise independence, achievement, freedom, high levels of competition, and pleasure; whereas collectivist cultures tend to embrace interdependence, family security, social hierarchies, co-operation; and low levels of competition. UK has an individualistic culture, which constitute the main factors of independence, achievement, freedom, high levels of competition, and pleasure.
Advertising, as a form of social communication, is particularly reflective, and indicative of culture and its norms. To the extent that advertising does reflect cultural differences, and there exist clear differences between distinct cultural patterns, advertising appeals, which are specific approaches advertisers use to communicate how their products will satisfy customer needs (Arens & Bovee, 1994), should manifest such differences across these countries.
Research for Human’s Values related to Luxury Purchasing Behaviour
The purpose of branding is to achieve a market position that will represent a sustainable competitive advantage. Companies are increasingly extending the line of variants available under a given brand, resulting in a family of related offerings.
Ran and Itamar (2001) wrote about relationship between human’s values and luxury purchasing behaviour in self-control for the Righteous: Toward a Theory of Luxury Pre-commitment. The self-control is an emotional attempt to avoid hedonic temptation, such as over buying. This article is about the examining of consumer’s use of opposite form of self-control, which results in favour of luxury consumption. The article perceives luxury consumption as hedonic purchase. The definition of luxury in this article is non-essential items of services that contribute to luxurious living; an indulgence or convenience beyond the indispensable minimum. This article mentions that most of people have facing the daily choice between necessities and luxuries will select the necessities due to the lower cost of guilty. However, these same people will have a feeling that they over-spend on necessities and under-spend on luxuries. These people will have behaviour to collect the money in order to spend it on special luxuries.
The article can be analysed to the two main values that related to luxury purchasing behaviour; pleasure and self-indulgence. The idea of luxuries in this article is built around the idea of hedonic, the feeling of pleasure to self. According to the article, people purchase luxuries because the luxuries can help them gain pleasure feeling. The second main value is self-indulgence. The self-indulgence or self-gift is related to the feeling of guilty of over-spending in necessities and under-spending in luxuries. From this interpretation, this article helps support the idea that Hedonism, which contained both pleasure and self-indulgence, has a positive relationship with luxury purchasing behaviour.
John O’Shaughnessy and Nicholas Jackson O’Shaughnessy (2002) studied the connection between marketing, the consumer society, the globalisation and the hedonistic lifestyle. They claim that consumer society nowadays is hedonistic. The term means pleasure, enjoyment or delight. This also implies that the meaning of life is discovered through acquisition. The reason for buying action involves both belief and desire (Hedonism), however; the affect-driven choice has been dominant. Hedonism-consumerism has rapidly acquired the status of modern life and is seen as intimately associated with the parallel phenomenon of globalisation.
Stephen L. Warren (2002) in the Consumer Materialism and Human Values Orientation also mentioned about the link between human values and materialism. The materialism has a close relationship to luxury products, therefore studying relationship between materialism and human values can give an idea about luxury purchasing behaviour related to human’s values. The research was formulated utilising Schwartz’s Values Survey (SVS) as measurement for human’s values and Richins and Dawson Materialism Survey (RDMS) as measurement for materialism. In the result of this research, Stephen claimed that “It appears when individuals cherish a large cluster of values within the Power, Hedonism, Stimulation, and Achievement value type that set of priorities may contribute significantly to materialistic attitudes and behaviours”. To be more specific, the values that are proved to have positive relationship with materialism are all of the individual values found in Hedonism and Power value type, Influence, Success, and Ambition in Achievement value type, Daring and Excitement in Stimulation, and one adjacent value, cleanliness, found within Security value type.
Unity Marketing is a research company, which recently emphasised on luxury products and is broadly accepted by many companies in luxury market. Pam Danziger (2004), the CEO of Unity Marketing has created thorough survey about luxury products and put together a luxury reports every year. The luxury report was contained human’s value as a part of its measurement in order to understand the idea about what motivators that drives people to buy luxury. The result from Luxury Report (2004) is that Enjoyment and Pleasure is the most important value that drives people to buy luxury. The second importance is Enhance Quality of Life and the third are Way to release stress and reward from hard work. The interesting point is that the concept of conspicuous consumption has been proved to be not relevant to luxury purchasing in today market, as from the result that social status related motivators are all at the least percentages in the result. If we look closely to the motivators in the report, we can argue that these motivators can be related back to basic values in SVS model, most of the top motivators are related to self-enhancement and openness to change bi-polar dimensions. As a result, this luxury report also helps support our belief that Hedonism, Power, Stimulation, Self-direction, and Achievement may have positive relationship to luxury purchasing behaviour.
Michael J. Silverstein and Neil Fiske defined four types of customer—Taking Care of Me, Connecting, Questing, and Individual Style.
“Taking Care of Me” emotional space is about physical rejuvenation, emotional uplift, stress reduction, pampering, comfort, rest and moments to myself. The personal attribute is selfish, self-indulgent and guilty pleasures. Generally, the emotional space is connected with personal-care product, ice cream, chocolates, coffee, and home theatre equipment, appliances, furniture and bedding
“Connecting” emotional space is about attractiveness, affiliation and membership. New luxury goods are instrumental in helping to make connections and keep them strong. The use of goods to facilitate connecting can be varied from liquor, lingerie; clothing, displayed accessories for the dating couple to the connection among all members of the family. The primary reason for connection is time, when the members spend time together. They want to be sure the experience is as rich and rewarding as it can be. Typically, the emotional space is connected with liquor, lingerie, home theatre, travelling package.
“Questing” emotional space is about taste, adventure, learning and play. Customers would spend to enrich their existence, deliver new experience, satisfy curiosity, deliver physical and intellectual stimulation, provided adventure and excitement, and add novelty and exoticism to life. Travel is the most popular item in this category that combined with knowledge gathering, acquiring new skills and collecting memorable experiences.
“Individual Style” emotional space is about achievement, sophistication and success. Even though new luxury consumers are not driven primarily by a desire for status or empty infatuation with a brand name, they do care about the messages that goods and brand deliver about their individual style and luxury product is allows them to express themselves or who they would like to be. Rather name of the brand, new luxury consumers often purchase specific attributes that cause them to appreciate and stick with a brand. The product categories that expressed the individual style are automobiles, and home appliances.
The emotional spaces are closely related and do not have clear-cut boundaries between them but rather conflict. There are other elements such as morality and values that should be considered.
Frank Vigneron and Lester W. Johnson in a Review and a Conceptual Framework of Prestige-Seeking Consumer Behaviour presents a conceptual framework for the analysis of prestige-seeking consumer behaviour (PSCB) which is a combination of concepts from existing research on prestige consumers and the authors’ studies that examined entirely different aspects of consumer behaviour. Based on the authors’ framework, consumer develops prestige meanings for brands based on interactions with people and personal effect. A brand’s prestige is created from five interactions between the consumer and elements within the environment, explained based on consumers perceived values.
1. Conspicuous value: The consumption of prestige brands is viewed as a signal of status and wealth, and whose price, expensive by normal standards, enhances the value of such a signal. The authors suggested that this value is associated with Veblenian consumers who attach a greater importance to price as an indicator of prestige because their primary object is to impress other.
2. Unique value: If virtually everyone owns a particular brand it is by definition not prestigious. The authors suggested that this value is associated with snob consumers who perceive price as an indicator of exclusivity. Snob consumers are also influenced by other individuals’ behaviours as they avoid popular brands to experiment with inner-directed consumption.
3. Social value: The role-playing aspects and the social value of prestige brands can be instrumental in the decision to buy. The authors suggested that this value is induced from the bandwagon effect which influences an individual to conform to the prestige groups and to be distinguished from non-prestige reference group. Consumers of this group attach less importance to price as indicator of prestige but emphasise on the effect they make on others while consuming prestige brands. Some consumers of this group consume prestige brands as an antecedent to enter the prestige group that consumes such brands.
4. Emotional value: For a brand which satisfies an emotional desire such as a prestige brand, a product’s subjective intangible benefits such as aesthetic appeal is clearly determining the brand selection. The authors suggested that this value is induced from the hedonic effect which influences the perceived utility acquired from a prestige brand to arouse feeling and affective states of consumers. Hedonist consumers are more interested in their own thoughts and feelings and will place less emphasis on price as an indicator of prestige.
5. Quality value: Prestige is derived partly from the technical superiority and the extreme cares that takes place during the production process. The authors suggested that the quality effect occur in perfectionist consumers who value the perceived utility acquired from prestige brand to suggest superior product characteristics and performances.
According to the paper, the consumer decision-making process can be explained by the five main factors presented above, and consumers would trade off less salient values for more salient ones in practical decision-makings.
The definition of Self-esteem
Self-esteem is a combination of psychological factors. It is the opinion you have of yourself. It is based on your attitude to the following:
Your value as a person
The job you do
How you think others see you
Your purpose in life
Your place in the world
Your potential for success
Your strengths and weaknesses
Your social status and how you relate to others
Your independence or ability to stand on your own feet
Self-esteem can include confidence, assertiveness, self-respect, strong bonds to and/or the respect of other people. Sometimes it includes conceit, arrogance and an attitude of superiority. An interesting point about Self-esteem is that it requires a sense of self, that the individual is an individual, separate and distinct from any others. Self-esteem is a relation attitude, the perceived different between one individual and another. (Richard F. Taflinger, 1996)
Research for Self-esteem related to Luxury Purchasing Behaviour
Richard F. Taflinger (1996) mentioned that “Nonetheless, people need self-esteem. It gives them the sense of self-worth that allows them to like themselves. Like others, and find life worth living. Marketers and advertisers have to know about this and use it as a tool for selling. In addition, he referred that self-esteem is generally created and maintained differently for each gender: men find it in a hierarchy, women in connecting with others. Alan Thein Durning (1992) also mentioned that “Buying things becomes both a proof of self-esteem and a means to social acceptance” The consumers seek the luxury to show they are members of the classes above and to distinguish themselves from those below.
Dr. Sharon Livingston (2004) created “The Livingston Paradigm of Self Esteem ™” to recognise where each emotional benefit fits into The Livingston Paradigm will help marketers take the emotional understanding of the market. The paradigm is divided to be four categories:
Category I: Self Actualisation and Healthy Narcissism: This reflects esteem derived from specific personal accomplishments, mostly associated with self confidence, pride, creativity, a strong sense of gender identity, and empowerment and control over one’s destiny.
Category II: Interpersonal Love and Romance: This is about esteem derived from adult, one-to-one, romantic love relationships.
Category III: Nurturing and Parental Esteem: This focuses on esteem derived from taking responsibility for the well being of offspring.
Category IV: Altruism and Societal Esteem: This reflects esteem derived from the belief that one has contributed to the broader well being and welfare of society.
In most product arena Category I & II lead to trial. They are attached to exciting, highly charged actions, images and emotions. There is often a quick rush associated with immediate gratification of wants and needs. In contrast, Category III & IV lead to repeat purchase. They seem to be longer term and more serious. They are more sedate and profound, but initially less motivating.
Summary of Literature Reviews
Branding is the process of making the name, logo or symbol, by which the consumers can relate, a product or service. From last three decades some of the brands are used as the status symbol and recognised world-wide for the style and elegance attached with them. Branding is successful in the societies in which individualistic cultural values are practised. Since UK has an individualistic culture people like uniqueness and elegance as being their personality trait. Companies and marketing researchers are digging deep in order to explore and achieve the benefits attached with the notion of Branding.
From the review of literatures related to Luxury, the luxury market is growing up. However, it is growing up unlike ever before. The new trend of distinction between new luxury and old luxury is becoming more obvious and marketers need to take an important step to identify the new way of luxury marketing.
According to the Luxury brand experts in order to be competitive in market it is important for the premium marketer to maintain and develop leadership in quality.
It was also found that the customers relate high prices to high quality and prestige of a brand. Companies are advised by most of the researchers to use unique price strategy in order to improve the image of the brand.
Another dimension is the factors, which constitute the brand’s prestige. These included Conspicuous value, Unique value, Social value, Emotional value, Quality value. In the opinion of the researcher the mentioned factors play an important part in the consumer decision-making which will result in shape of the trade off between the less salient values for more salient ones in practical decision-makings.
The review of literatures shows that Self-esteem has an influence to purchasing behaviour. Consumers either men or women make their decision in products along with their self-esteem. To increase the self-esteem, there is potential for consumers, who have low level of self-esteem, to purchase more luxury products. Also to express their achievement, which is one thing to create self-esteem, people with high level of self-esteem tend to consume more of luxury products. All is for helping them to be accepted in their societies. Then there are positive relationships between low & high level of self-esteem and luxury purchasing behaviour. Some of the researchers have presented the paradigm of self-esteem for the marketers in order to better understand the market.
Although much has been written about the luxury branding still there is a lot more to explore. A possible direction can be the effects of the dirty cheap products from countries like China on different brands.
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