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a r t i c l e
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Article history:
Received 1 July 2008
Received in revised form 1 January 2009
Accepted 1 August 2009
Keywords:
Value
Co-creation
Types of value
Customer value framework
Luxury brands
a b s t r a c t
The global market for luxury brands has witnessed dramatic growth over the last two decades but the
current challenging economic environment contributes to the difculty brand owners experience in ensuring
that customers perceive sufcient value in their luxury brands to compensate for the high prices. According
to recent service-oriented research, customers and suppliers co-create value as a result of a shift from a rmand product-centric view of value creation to one that focuses on personalized brand experiences. In this
paper, the authors develop a theoretical framework of types of value for luxury brands, and use case study
research to identify processes of value creation in this particular setting. The ndings highlight the variety of
interactions taking place between luxury brand owners, their customers and members of their respective
networks, which help to differentiate luxury brands and co-create a superior value proposition.
2009 Elsevier Inc. All rights reserved.
1. Introduction
The global market for luxury brands has grown rapidly over the
past two decades. Estimated to be worth $263 billion in 2007 which
represents a 31% increase over the past ve years, predictions indicate
a 71% growth over the next ve years, largely fueled by high demand
from emerging economies (Verdict, 2007). In Britain, consumer
expenditure on luxury goods increased by 50% between 1994 and
2004 compared to a 7% increase for non-luxuries (Keane and
McMillan, 2004) whereas in France the luxury fashion sector alone
is the fourth largest revenue generator (Okonkwo, 2007, p.1). This
phenomenal rate of growth and challenges inherent in marketing
luxury brands ensure that practitioners and recently academics regularly examine and analyse the marketplace. Although luxury consumer demand in the West appears to be waning due to the credit
crunch, property crash and a slowing world economy (Teather, 2008),
the appetite for luxury brands is growing elsewhere in the emerging
economies of China, India, Asia, the Middle East and Latin America
(Verdict, 2007; Chadha and Husband, 2006).
The marketing of luxury goods requires a ne balancing act to satisfy
the increasing demand in the global marketplace, while safeguarding
the brands' cachet and exclusivity in the face of challenges from the rise
of counterfeiting (Bian and Veloutsou, 2007), parallel imports, brand
overextensions, and adoption by members of inappropriate subcultures
(Bothwell, 2005). Luxury goods marketing is complex and frequently
counter-intuitive to the extent that Bastien and Kapferer (2009, p.2)
state that classical marketing is the surest way to fail in the luxury
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about the good itself and dened by the company and new luxury
being experiential and dened by the consumer (Florin et al., 2007).
Marketing academics are using luxury in different ways: for
example, Vigneron and Johnson (1999) use luxury to describe the
very top category of prestige brands, whereas Dubois and Czellar
(2002) view prestige to stem from a unique accomplishment in
the brand and luxury to merely concern self-indulgence. Economists
dene luxury goods as goods for which demand rises either in
proportion with income or in greater proportion than income (i.e.
where the income elasticity of demand is equal to or greater than 1),
but clearly the purchase of luxury goods is not governed simply by
economic factors (Dubois and Duquesne, 1993), as income is a necessary but not sufcient condition to explain purchase. By examining
the motivation for consumers to purchase luxury goods within a
socio-economic context, Veblen's seminal work (1899, 1994) proposes that individuals from the wealthy leisure class engage in
conspicuous consumption when purchasing high priced items in
order to ostentatiously communicate wealth and achieve social status
(Bagwell and Bernheim, 1996). This view is consistent with Leibenstein
(1950), whose examination of this phenomenon identies the Veblen
effect whereby demand for a good rises because its price is higher rather
than lower, plus two forms of interpersonal effects of conspicuous
consumption: the snob effect, where the demand for a good falls as the
number of buyers increases, since snobs desire to be different and
exclusive and therefore disassociate themselves from the masses; and
the bandwagon effect, where demand for a good increases because
consumers follow others in their reference groups who have already
bought the good. O'Cass and McEwen (2004) however voice concerns
over the interchangeable use in the literature of the terms conspicuous
consumption and status consumption. According to them, the former
relates to the desires of consumers to gain prestige by purchasing statusladen products and brands of public or private display, whereas the
latter refers to the visual public display or overt usage of products.
As a result of Belk's (1988) work on the extended self, which
highlights the importance of possessions in contemporary consumption and consumers' feelings about them as a key contributor and
reection of their identities, luxury goods researchers (such as
Vigneron and Johnson (1999)) recognise that consumers can derive
subjective intangible benets from these goods beyond their
functional utility, while additional motivations to purchase them
include their higher levels of quality (Garfein, 1989) and authenticity
(Beverland, 2006).
In Vigneron and Johnson's (1999) review of prestige-seeking consumer behavior they separate interpersonal effects on prestige consumption from personal effects, and conceptualize ve types of
perceived value for prestige goods: namely three types of interpersonal effects (i.e. the Veblen effect for perceived conspicuous value;
the snob effect for perceived unique value; and the bandwagon effect
for perceived social value) and two types of personal effects (i.e. the
hedonic effect for perceived emotional value and the perfectionism
effect for perceived quality value). Following further work, they revise
this classication by switching around the bandwagon effect to a
personal effect and the perfectionism effect to an interpersonal effect
(Vigneron and Johnson, 2004). The authors can see arguments for
both of these positions, especially in considering the behavior of
global consumers.
Catry (2003) argues for the possible replacement of actual scarcity,
once considered essential to the existence of a luxury good, by the
notion of perceived rarity maintained through rare ingredients or
components in the short term, or sustainably through strategies of
techno-rarity enabled by innovation, limited editions or information
based rarity.
An alternative approach to conceptualising consumer perceptions
of luxury goods from Vickers and Renand (2003) considers luxury
goods as symbols of personal and social identity and seems to fulll
calls from Jevons (2007) and Buchanan-Oliver et al. (2008) to take an
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integrative perspective on brand denition. They propose differentiating between luxury and non-luxury goods in terms of the mix of
their components on three dimensions: functionalism, experientialism and symbolic interactionism. Therefore, the key identiers of
luxury brands adopted in this study are high quality, expensive and
non-essential products and services that appear to be rare, exclusive,
prestigious, and authentic and offer high levels of symbolic and
emotional/hedonic values through customer experiences. In short,
evidence of luxury brand denitions from each of the four brand
perspectives (i.e. symbolic, functional, psychological, and experiential), which Buchanan-Oliver et al. (2008) identify, exists.
4. Co-creation of value
Authors such as Payne et al. (2009), Prahalad and Ramaswamy
(2004) and Vargo and Lusch (2004) argue that the rm does not
create and deliver value to the passive customer, but rather through
interaction and dialogue embeds value in the co-creation process
between the rm and its active customer. This moves the focus of
marketing to a process of co-creating value through the exchange of
knowledge and skills with customers and partners (Vargo and Lusch,
2004) to co-construct unique experiences (Prahalad and Ramaswamy,
2004), that is developing a service orientation predicated on
processes of joint value creation (Vargo and Lusch 2004, 2008).
Nevertheless, the academy does not yet understand the processes of
value creation and recent studies overlook the creation of the service
experience (Schembri, 2006). Pealoza and Venkatesh (2006)
recommend that researchers should study markets as social constructions to examine those multiple perspectives of meaning which
create value for the customer.
These new understandings emphasizing the importance of value
co-creation are particularly important for this study of value cocreation in the luxury goods market. While value is a central concept
in marketing (Payne and Holt, 2001), Woodruff and Flint (2006) call
for the development of a better understanding of customer value. The
focus of traditional marketing is the rm-centered notion of value in
exchange, that is making a value proposition for the passive customer
to accept or decline (Prahalad and Ramaswamy, 2004). Recent studies
however, emphasize the co-creation of value by the supplier and the
connected, empowered and active customer (Prahalad and Ramaswamy, 2004, p.8), who determines value uniquely and phenomenologically (Vargo and Lusch, 2008, p. 7) during consumption. Thus, the
concept of value-in-use supersedes that of value in exchange (Lusch
and Vargo, 2006) and suggests the use of marketing approaches,
which are experiential, interactive, progressive, evolving and exible
(Tynan and McKechnie, 2009).
The customer and the supplier co-create value at multiple points
of interaction (Prahalad and Ramaswamy, 2004, p. 13) through cocreation experiences which take place throughout the life of the
service and not just at the point of exchange. These value-creating
interactions can include other members of the customer's and the
supplier's network (e.g. members of brand communities, shareholders, or partners of the supplier). Prahalad and Ramaswamy
(2004) see the experience being the brand and identify co-creation as
taking place and evolving through personalized experiences in which
the customer is an active partner. By taking an experience-centric
view further, Schmitt (2003) asserts that Experience Marketing can
deliver sensory, emotional, cognitive, behavioural and relational value
to customers to which Tynan and McKechnie (2009) add social and
informational based value. To be successful, Poulsson and Kale (2004)
argue that a marketing experience should have personal relevance
for the customer, be novel, offer an element of surprise, engender
learning and engage the customer. This recognition that the brand
does indeed have an experiential component and that the experience
of the brand involves an interactive process between the customer,
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Table 1
Customer value framework for luxury goods.
Source: Developed from Smith and Colgate (2007).
Types of value
Theoretical sources
Utilitarian
Symbolic/expressive
Outer-directed
Self-directed
Experiential/hedonic
Relational
Cost/sacrice
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..Brand Y has the ability to anticipate, and even spark off trends not
only fashion but in the wider context of popular culture. (Fashionista
Website)
reason why they enjoy getting together because they get to know
other customers. (Brand Manager, Brand X)
... I think that when they buy into luxury they try to buy something
that makes them feel special or is specialit's almost like buying into
a club, you feel part of something that is exclusive, that is beautiful
quality, taking time to design, that is thought about. (Marketing
Director, Brand Y)
All the marketers spoke of listening to their luxury goods customers. They also keep up a constant stream of communication, both
on- and ofine, including blogs to provide information and new ideas
for their customers in real time. Celebrity endorsement through bespoke clothing for an Oscar winning actor and members of a premier
football team kept Brand Y in the news.
Many customers will come to (plant) to determine the nal specications of their car, and many will also come and see it during the
manufacturing process. So it is very much part of our strategy to deliver
an experience on a long term basis and also it would be fair to say that
it is something that our customers will demand from usthey want that
degree of involvement. (Marketing Director, Brand X)
Only Brand X demonstrates a sophisticated understanding of the
processes and benets of engaging in a dialogue with customers. They
focus on offering specically what the customer wants, and listens
and responds to customers effectively in order to co-create the
desired experience. By comparison, the other brands communicate
with their customers more indirectly through opinion leaders, the
media and staged events, which indicates that the two-way processes
that lead to co-created brand experiences and the co-creation of value
are not yet in place.
We try to create a one-to-one basis in stores so it will be up to each
store manager to develop their own customer base and work closely
with regular customers to build up regular relationships. So each shop
has its own data base and has to look after it. Mainly, customers will
receive invitations for previews or maybe Christmas shopping evenings
just for those customers, so we try to make them feel special. We don't do
a loyalty card, but who knows, possibly in the future, as technology
becomes more and more relevant. (Marketing Director, Brand Y)
We have a quite strong press team who are looking for editorial,
coverage and product placements in the right target publications. We
also conduct web or online communications, so e-communication,
and we have a big email database, and we also contact loyalty cards
regularly to inform them about new things happening in-store.
(Marketing Manager, Brand Z)
The overall luxury brand experience offers an important way of
enhancing perceptions of each of the ve types of value proposed
earlier in Table 1. The participants reported a broad range of personalized experiences including private and select dinner parties to meet
senior managers and inuential individuals in the eld, a bespoke
grooming service, a private book launch, and the opportunity to join
an exclusive members' club. Facilitating and participating in such
experiences with the customer is the process by which so much value
creation takes place (Schmitt, 2003).
For the case study companies these experiences offer an opportunity for some unscripted interactions between the brand staff and
customers in order to gather information, tailor the experience to the
individual or refresh its format. For the marketers they offer benets
for the luxury good consumer that literally money cannot buy, which
enhances brand exclusivity (Catry, 2003) and prestige (Dubois and
Czellar, 2002). For these reasons, the automotive plant and agship
store and outlets for the case study brands represent unique venues
and destinations in themselves: designed to facilitate a special experience for the luxury customer and staffed with well-trained and
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