Evolution in Luxury Consumption and Preferences Washington University in St. Louis

Center for Research in Economics & Strategy Andong Cheng October 2010

2

SPECIAL THANKS TO: Cynthia Cryder Faculty Adviser and Assistant Professor, Olin Business School, Washington University in Saint Louis Though words cannot express my gratitude, thanks for being such a patient guide throughout this entire process. You have enlightened me on how to conduct proper scientific research every step along the way; I feel proud and privileged to be your student and mentee. Glenn MacDonald Director, Center for Research in Economics and Strategy Thank you for making this paper possible by giving me this incredible opportunity and sponsorship.

3

Abstract/Summary

This consumer behavior study explores the trading up phenomenon, that is,

the enormous rise in demand for luxury products from the middle class in recent years

(Fiske and Silverstein 2005). In recent research, Fiske and Silverstein coined a new

category in retail called New Luxury, which consists of products and services of

recent, booming businesses that successfully market perceived luxurious products to

the middle class. Previous research also examined why people are in love with new

luxury and who is most sensitive to the trading up phenomenon.

But can new luxury dominate and redefine the entire luxury market in the

future? This project discusses differences between people who favor different types of

materialistic products (new luxury, traditional luxury, and standard non-luxurious

necessities) and how peoples lifestyles and traits today may change appreciation

towards the traditional sense of luxury in the 21st century. Recognizing the power of

branding, even when functional attributes across brands are entirely the same, this

study attempts to understand what factors correlate with peoples brand preferences.

This study also analyzes the length of time that satisfaction with certain purchases is

projected to last, and the discrepancies in the duration of satisfaction between different

categories of luxurious brands or products.

4

One of the biggest trends you will see in the coming decade is the indiscreet love

affair between people with the means pursuing the objects and services with the ways

of old money about them. Its the aura of aristocracy, the beautiful romance between

money and social position that will leave many consumers breathless with desire to

acquire (Miller 1991).

Literature Review and Background

Currently, ideas such as luxury for the masses encourage everyone to buy

items that were once restricted to the elite and to people who had extreme levels of

excess money. The concept of luxury originally came about from Old Money, or

inherited wealth from upperclass families.

Currently, most luxury research focuses on the influence of pricing strategies on

exclusivity of luxury goods. This paper will examine which luxury goods bring the

longest utility. For this paper, luxury goods are defined as goods connected to high

price and high exclusivity (Groth and McDaniel 1993), but also that serve as sources of

utility because they have high product quality, high aesthetic design, or excellence of

service. This definition is chosen because it notes luxury goods benefits and why

people purchase them, but also highlights their high costs, letting us see the tradeoffs of

buying such goods.

5

Americans have long been aware of the differences between Old Money and

New Money. Old Money is defined as inherited wealth, especially wealth that confers

status and social acceptance (Random House Dictionary 2010). Old money was not

only about tangible wealth like hard currency and living a stable life, but it also

encompassed more intangible wealth and richness such as high culture and class. There

was a dream encompassed in Old Money that included ease, lack of struggle, freedom,

sense of arrival, social presence, and luxury of enough time (Miller 1991). The passage

of time is an important factor that makes Old Money possible, since Old Money mostly

comes from inheritance and family; certain inequalities concerning birthrights and

unfair privileges have arisen in history due to concepts surrounding this topic.

Economists, along with philosophers and politicians, claimed that such inequalities do

not go unquestioned in modern societies (Aldrich 1996).

The nouveau riche, those with New Money, are people who have recently

become rich (American Heritage 2005). The concept of New Money is longstanding

there have been tracings of conflicts between those with Old Money and those with

New Money since 6 BC in ancient Greece (Gill 1994). The nouveau riche emerged in

America in the 1800s during the Gold Rush with the dawn of New Money values

encouraging competition, individualism, and energy. The entrepreneurial ethic behind

New Money involved a certain sense of boldness, tenacity, change, motion, and

efficiency (Miller 1991). Anyone who was willing to take risks and struggle had a

6

chance of becoming wealthy. This created some social tension because all of a sudden,

the nouveau riche clashed in the same circles as the old elite and it was hard for people

on both sides to cope. Historically however, New Money always used Old Money as a

guidepost, and ultimately desired the position of Old Money. It appeared that Old

Money would always have a head start and would appear more prestigious and coveted

to own.

Today, the American entrepreneurial ethic in the 21st century continues to

appreciate hard work and idealistic striving for upward social mobility. David Filo and

Jerry Yang, creators of Yahoo!, who became instant millionaires overnight and all the

many booming companies in Silicon Valley, that is, todays nouveau riche, have

contributed so much information, ease, and innovation into our lives that one wonders

if there is still such a discrepancy and debate between moneys true origins as long as it

yields useful results today (Gill 1994). Similarly, if the line between Old Money and

New Money is now blurring faster than ever, are peoples views of luxury changing?

Societies anywhere in the world, whether old or modern, are all familiar with

the concept of luxury. However, the definition of what constitutes luxury changes over

time in each society and it is important for marketers to track the minute changes in

consumer behavior, which eventually deviate drastically from the old norms. For

example, during the 17th century, rare commodities such as pearls and crystals were

considered luxury. In the 19th century, luxury was the product of great craftsmen---

7

Christian Dior the frock-maker, Louis Vuitton the trunk-maker, James Purdey the gun-

maker (Berthon, Pitt et al 2009).

In the 1990s, Infiniti Division Nissan Motor Corporations USA conducted A

Study Assessing the Meaning of Luxury Among Opinion Leaders, which showed the

different perceptions that Americans had about luxury. Results included that 69% of

people believed that living luxuriously meant being willing to spend more for the best.

67% believed that luxury included being highly regarded for ones accomplishments.

65% believed that luxury meant having a high net worth and 60% believed that living

in luxury meant owning tangible and conspicuous luxury possessions. From this data,

one can conclude that people often agree on wide spectrum of properties that

constitutes as luxury but may not agree on a specific and concrete definition because

luxury may give people a lot of different benefits.

Laws in the middle ages restricted each social class in attire and possessions to

signify who belonged to the elite, while today the elite and rich simply distinguish

themselves from the masses by purchasing specific brands that the masses cannot

comfortably afford. Most people in the U.S. today own items that would once have

been viewed as great luxuries, but now are seen as necessities, such as plenty of

shoes, clothes, and purses. However, someone with a Gucci hobo bag at the value of

$695 still signals something different than someone who wears a Coach hobo bag at the

value of $268 or another person who bought a $20 handbag at Walmart (Han, Nunes,

and Dreze 2010).

8

Veblen argued that showing strength, elitism, and power meant having leisure

and a conspicuous consumption of goods (Veblen 51). There is the desire among the

elite to signal ones wealth to others, to let everyone know that they are of a

distinguished, superior class since they hold certain selective items. Other research

shows that consumer products, especially luxury, are now intricately tied in with our

values, particularly materialism, which is defined a set of centrally held beliefs about

the importance of possessions in ones life (Richins and Dawson 1992). Materialistic

consumers have identity rooted in their possessions, which communicates their worth

to others (Richins and Dawson 1992). People also like products more closely connected

to their personalities or self values than products that are not, and they want products

that reflect their personal identities (Beggan 1992; Reed 2004). The desire to have

specific brands is not a trait limited to the elite. The masses, with increased disposable

income, are showing that they too want to distinguish their individuality and self-

worth through brands and products.

Old Luxury vs New Luxury Literature

In 2003, Michael J. Silverstein and Neil Fiske introduced a categorization

concept of old luxury versus new luxury along with the idea of trading up, since

the middle class is increasingly seeking higher esteemed luxurious goods. They coined

the categories of Old Luxury and New Luxury to separate todays products more

distinctly.

9

Though all luxury today still represents a type of good that not everyone can

possess, Old Luxury refers to exclusive brands with longer company histories that

target only those at a certain level of socioeconomic status (making $200,000 in annual

income), while New Luxury refers to products and services that possess higher levels

of quality, taste and aspiration than other goods in the category but are not so

expensive as to be out of reach. New luxury brands have finer technology and higher

benefits compared to mid-priced items in their fields and are newer brands with the

goal to show higher-interaction with consumers and gain customer loyalty through

high brand-customer involvement (Silverstein and Fiske 2005).

New Luxury is appealing because those goods have found a sweet spot between

mass appeal and luxury and give the middle class the option of buying more upscale

products. Roughly 125 million Americans today have the wants and means to trade up.

Consumers today everywhere who earn between $50,000 to $200,000 are buying more

expensive goods for better quality or image than standard products. These consumers

generally have not been targeted by Old Luxury companies, who tend to seek only

those living in households earning at least $200,000 (Silverstein and Fiske 2005). The

New Luxury products and services are charged at a premium rate when compared to

standard products, but they are still priced significantly below the Old luxury goods.

For example, Belvedere vodka sells for about $28 a bottle, which is an 88 percent

premium over the mid-priced vodka of $16 a bottle. If someone really cared about the

10

category of vodka, it wouldnt be very costly for them to trade up, but they probably

wouldnt pay an outrageous premium of $70 to get the triple-distilled luxury vodka.

The number of consumers of New Luxury are increasing, and this population

includes many demographics, people of all ages, races, and backgrounds that

conglomerate to shatter the demand curve (Silverstein and Fiske 2005). New Luxury

is not just referred to as less expensive luxury because it really markets from a

different perspective from Old Luxury. New Luxury promotes itself as connecting with

the consumer in attempting to solve the consumers problems and needs instead of

making the product appear purely exclusive and for conspicuous consumption

purposes. New Luxury lures consumers away from the Middle Market, a categorization

scheme that encompass very generic products that are very easily attainable and do not

have the strategy to distribute exclusively (Silverstein and Fiske 2005).

Silverstein and Fiske have explored numerous reasons and incentives for

consumers to purchase New Luxury. Reasons include, but are not limited to, the

increase in the length of time people stay single, income increases for women, and the

increasingly popular notion of pampering oneself after stressful work-hours. The

average American and the average American family has changed dramatically in the

past decade, and throughout this change, the New Luxury brands and the consumers

shape one another and grow together to create products of true value and innovation.

A newer current trend of Luxe-Bargain Shopping also describes the

phenomenon of massclusivity, the increased accessibility of the so called luxury

11

goods (Lim 2009). Luxe Bargain Shopping could possibly be an answer to why New

Luxury became so popular. Luxe Bargain Shopping is defined as purchasing a luxury

brand at a bargain, which generates values in association with both the product (luxury

brand) and process (bargain shopping) (Lim 2009). Perhaps consumers do not feel that

Old Luxurys outrageous price matches with its value, and but these consumers are

willing to spend on luxury if the price is right and the value appears to be high.

Aspirational demand, or demand in luxury products from the growing upper-

middle class, now accounts for 60% of all luxury sales (Solca 1). Aspirational demand is

also currently growing faster than elitist demand. Currently, not all consumers with

aspirational demand can afford goods in Old Luxury categories, so the consumers can

only comfortably purchase habitually the products with a smaller premium price

charged. Sometimes, Old Luxury brands provide line-extensions that are less expensive

in order to target inspirational demand (such as Armani launching Armani Exchange),

but there is still a lot of room for new companies to enter categories and become

successful. This is why marketers should spend substantial efforts to understand the

origins of New Luxurys market shares, since there is large demand for those products

from a pricing standpoint. The explanation of hedonistic adaptation suggests that

people will continually upgrade their purchases of these new, affordable, luxurious

products. Purchases of new luxury may become a standard or neutral reference point,

thus requiring additional levels of luxury for a hedonic gain to be experienced by the

consumer (Kahneman, Knetsch, and Thaler 1991; Samuelson and Zeckhauser 1988).

12

Thus, people who have tasted even just a little bit of what is considered luxurious will

continue to crave for more. Based on the idea of the hedonic treadmill, desire or

demand grows faster than satisfaction or supply, so it is likely that materialistic

purchases will not make consumers happy in the long run as each purchase increases

the luxuriousness of the status quo (Kornberger 2010). Again, there is an income limit

that controls how much aspirational consumers spend on luxury, but people often are

willing to pay for New Luxury even when those goods are priced at a super premium

above the mass market products, such as generic brands or common brand-less

products that can be purchased at Target or JCPenneys. Silverstein and Fiske noted that

an eight-ounce bottle of lotion in Bath & Body works that sells for $1.13 per ounce has

a 276% premium over a similar bottle of Vaseline that sells for $.30 per ounce.

This paper focuses on aspirational demand and discusses how middle class

consumers may view luxury products. Specifically, the investigation looks at peoples

expectations when they consume in luxury and how much satisfaction they receive

from luxurious purchases. Research currently argues that luxury is a process, an

experience rather than a thing. Thus the role of the viewer becomes central, as does

their experience, expertise, and aesthetic refinement (Berthon et al 2009); this gives us

insight (consumers want more individualized attention and care) to why New Luxury

is increasingly popular and why products are commonly attached to experiences and

meanings today.

13

We know that purchases in experiences create longer, deeper satisfaction for

the consumer than purchases in materialistic objects (Nicolao, Irwin, and Goodman

2009). New Luxury promotes itself often as experiential brands that is there to create

value for consumers with higher quality materials, more user-friendly technology, and

outstanding services that makes the shopping experience pleasant and memorable.

Consumers attach onto New Luxury because they see the brands more as just a means

to satisfy a mere functional value. This paper also tries to explore the value that New

Luxury can bring to the consumer as an experience, inquiring if luxury products can

create powerful and long-lasting satisfaction compared to goods purchased from the

middle market.

Brands relate largely to the area of this paper as well, because brands are a

function of functionality and meaning, they have been truly embedded in our identity.

Brands are powerful in controlling consumer loyalty and desire, and luxury today often

distinguishes themselves more by brand association than by true monetary value of the

product. Today, consumers may see brands used as status symbols, self extensions, and

ready-made identities. Kornberger claims Brands have a weird status in this world,

known is ontological ambiguity. A TV image is neither real nor imaginary, defying

definition of either event or representation of an event. Brands are present and absent

at the same time, real as well as fictitious, they are phantoms (Kornberger 2010). In

our competitive marketing world today, any brand that wants to survive needs to

14

engage the consumer and actively construct meaning. Using this information, my

research questions tap into peoples love of luxury when framed by luxury brands.

Finally, although this paper was largely inspired by the mere idea that attraction

to New Money products uses Old Money as a guidepost, it is also largely inspired by

the counterfeit phenomenon. Previous research has shown that consumers exposed to

counterfeit items of luxury brands will later be more likely to purchase the genuine

product (Wilcox et al. 2009). Possible explanations of this phenomenon are that people

who buy counterfeits originally have a desire for status, so they migrate towards

merchandise that improves their social status. Also, luxury even in counterfeits can

provoke desire which grows in time. Counterfeits can even be argued as good

advertisement for the real thing and when products are counterfeited, it means there is

already substantial demand for the real products. Is it possible that New Luxury and

counterfeits are all popular because consumers have materialistic and conspicuous

consumption needs that stem from the more basic want of Old Luxury (which

symbolizes longstanding wealth and social status)?

It is unclear which category of luxury brands truly has the consumer

mesmerized and hooked at the end of the day. This paper wants to know which form of

luxury ultimately brings the utmost satisfaction to consumers. Do people still crave the

concept of true Old Luxury, even today?

Or does New Luxury adequately quench most peoples desire to own luxury?

The former seems like a more plausible concept because owning Old Luxury can allow

15

anyone to copy the elite more accurately. The discrepancy in levels of satisfaction

across different products is what I have based my two hypotheses for my study on.

H1: Old Luxury products will give consumers satisfaction over a longer period

of time than New Luxury products, but they both bring longer time of

satisfaction than any Middle Market products.

I came up with this hypothesis based on how conspicuous consumption is about

showing off ones wealth through possessions. While it is true that New Luxury is at a

higher quality than generic, mid-priced items, it does not communicate conspicuous

consumption as strongly as Old Luxury, which has a richer history and brand value

that is labeled as luxurious and exclusively for the richest. For example, one can

show off their wealth, but only to a certain extent if they go eat at Panera Bread instead

of at Burger King, however that still communicates a different signal than eating at

Mortons Steakhouse habitually. People with aspirational values, should therefore,

should feel satisfied with their product of consumption for the longest time if they

bought the most-high end product.

To reiterate, the hypothesis only compares the satisfaction of different

categories of products in the long run. In the short run there may be no difference

because there is an initial thrill right after purchasing a product. Therefore, consumers

may not believe themselves to be happier with any specific purchase than another

immediately upon buying. This leads me to H2:

16

H2: Buying Old Luxury, New Luxury, or Middle Market products will result in

no significant difference in satisfaction with the product in the immediate

present (right after your purchase).

I even predict that in fact, no matter what category of product one buys today,

one will be very happy with ones purchase in the immediate present, but differences

in satisfaction only occur as one gets bored or falls out of love with one product type

before another.

The Study

I conducted an observational study that explores what consumers like and value

in luxury products today. My study was a survey written on Qualtrics. The study

sample came from Mechanical Turk, an online employee-employer system run by

Amazon.com where employees can self-select to take the survey as a short job.

The respondents completed two parts of a short 15 minute survey, taking

approximately ten minutes in Time 1 and five minutes in Time 2. Participants received

$0.50 for completing Part 1 and $0.50 for completing Part 2; these are standard

payment rates for the Mechanical Turk market. For Time 1, there were 232

participants who chose to be in the study. Out of those participants, 96 people

completed Part 2 two weeks later. Participants were restricted to only United States IP

addresses. They had a mean age of 32.64 (SD=11.5), and median age of 29. 67% of

participants were women while 33% are men. See Tables 1-2 for demographic statistics

on education level and ethnic origin.

17

In Time 1, I asked each participant to recall the most luxurious product they

purchased in the last week. The item had to be a tangible, lasting good instead of a

consumable or experiential good. I chose to look at only tangible goods and not at food

or trips because experiences often produce more happiness and satisfaction than

material purchases and hedonic adaption happens quicker for material purchases than

experiential purchases (Nicolao, Irwin, and Goodman 2009).

I asked people to recall what they thought was a luxurious purchase to simulate

the idea of a purchase they had to buy for pleasure, which led to certain brandnames or

product descriptions that I used to put their purchase in either the category of Old

Luxury, New Luxury, or Middle Market. Although the consumers all saw their

products as luxurious, I categorized each purchase by Old Luxury, New Luxury, or mass

market status. The categorization is not perfect because it is based mainly on brand. I

also counted precious metals as Old Luxury and many technological devices such as

Blu-ray players, as New Luxury. The Old Luxury category did not contain any high-

tech products. This may skew the data a bit in the sense that New Luxury encompassed

more technology products than any other category (although if someone described an

average cell phone or a Dell computer, I listed them under Middle Market purchase). If

the participant did not name the brand or store anywhere during the survey, I gauged

the price range of their purchase to determine which category the purchase can most

likely fall under. I also used the guide of brands and categorization based on a list of

descriptions from A New Division of Markets that the trading up phenomenon

18

describes (Silverstein and Fiske 2003). Silverstein and Fiske had a list of brands that

they determined as Old Luxury, New Luxury and Middle Market for reference that I

relied on for this project (see Table 4 for categorization of brands).

The goal was to see if satisfaction levels were significantly different throughout

the three different classes of products. Consumers wrote up to a paragraph to describe

their product. Word count was tracked to see how long subjects persisted to write

about the different types of products. I also coded whether the subject mentioned key

words such as the brand of the product and the price of the product and all these

factors were collected to measure how much the consumer cares for the product and its

attributes (brand, price, etc) and how much involvement they expressed through the

shopping experience.

The participants were asked How happy are you right now with the product

you just described? and How happy were you right after you bought the product?

They rated their level of satisfaction on a 1 to 7 scale on both questions, 1 being

extremely unsatisfied, 7 being extremely satisfied and 4 being neutral. These two

questions, along with the enthusiasm shown in their description of the product itself

were used to measure which products received most attention and satisfaction from the

participant.

Participants were then given lists of brand names and asked to check off the

brands that they recognized; they were not told that the names (all taken from Fiske

and Silverstein 2005) are compiled from the three categories of Old Luxury, New

19

Luxury, and Middle Market. The brand recognition task was intended to see how

aware each subject was of different types of brands. Participants were then asked

which brand out of the 36 listed brands was their favorite, which brands they liked,

and which brands they owned (see exhibit 1).

I also used several scales to measure participants sensitivity to luxury products

and their attitudes towards shopping. I was interested in basic psychological scales such

as affect-intensity and self-esteem because these constructs may be relevant to brand

preferences and luxury purchase satisfaction.

Part 2 of the study was completed approximately two weeks after participants

completed Part 1. I emailed and invited each of the original 238 participants

individually to complete the second half of the study. The ultimate goal was to see

which consumers changed the intensity of their satisfaction over time and to see if it

was correlated with which type of product (Old Luxury, New Luxury, Middle Market)

they possessed.

For Part 2, I first asked returning participants to recall the most luxurious item

they claimed they bought in Time 1 two weeks ago. Then, I asked on a 7-point

satisfaction scale how much a consumer liked now, how much they feel they will like

it in a year, and would they purchase similar products from the same brand as the

purchase they made. This is to find out whether the subjects satisfaction with their

purchases can withstand time, and which products could bring out longer-term

satisfaction.

20

Results

Out of the 232 subjects, 6 people claimed that they had not bought any products

in the past week that they considered luxurious and 111 people chose an item in the

Middle Market category. However, out of the 111 who described a Middle Market

product, 7 participants appeared apologetic and uncertain if their purchase should be

considered luxurious. Middle Market products ranged from bath towels to Walmart T-

shirts to chairs from a local shop. Middle Market products were mainstream products

from your average supercenter or department store, mostly bought for necessity. Of

course, these people considered certain items luxurious for a wide range of different

reasons, which led me to believe that perhaps not having an impressive product or

brand on a product can still lead many to cherish a certain purchase and see it as

luxurious. Perhaps a Middle Market product had a particular design that attracted some

consumers, so they now perceive the products positively and view it as luxury. Another

explanation was that the Middle Market product was not a necessity, so even though

the product itself was not luxurious, the purchase still felt like a splurge.

Only 30 people bought what was categorized to be an Old Luxury item. The

products are the traditional gold jewelry and watches, designer wedding dresses, and

Burberry wallets. The rest of the 85 participates bought a New Luxury item such as

Apple iPods, a pair of chinos from J. Crew, a global knife set from Sur La Table, etc. To

reiterate, the method of categorization by brand is based on a list of descriptions from

21

A New Division of Markets that the trading up phenomenon describes (Silverstein

and Fiske 2003) and displayed in Table 4.

According to the products each participant had to describe, participants

described buying New Luxury more often than Old Luxury in the past week. This may

be largely because Middle Market products and New Luxury are more affordable and

more accessible to the regular consumer so the chances of buying are larger and more

frequent. However, this also aligns with the idea that the luxury market is transforming

from its traditional definitions and now encompasses many more brands that people

value. An overwhelming number of subjects in the study not only claimed that they

felt that New Luxury purchases were very luxurious, many even claimed that Middle

Market products are luxurious in their eyes. Participants across the study, regardless of

categorization, repeatedly described their purchases as beautiful, stylish, quality,

comfortable, and very nice, which shows that they can satisfy these innate values

with a wide range of products. Since so many subjects proudly describe their New

Luxury products as extremely luxurious, there may be a cost of losing the mystique of

the Old Luxurys meaning (Dubois and Paternault 1993) that people are now even

confusing regular products from the Middle Market as luxury too. I must note that

people who describe Old Luxury also perceive their purchase as extremely luxurious

and similarly as New Luxury descriptions, and there are not huge discrepancies on how

frequently someone quoted price or brands across different product categories (see

Table 8).

22

However, people who bought Middle Market products were conflicted. Some

loved their purchase because they liked how the product looks or the product matched

their preferences, and treated the mid-priced or low-priced generic items as something

very pampering, special, and indulging. As an example, someone described buying flip

flops from eBay at a cheap price as very luxurious, and she said I know this sounds

silly, but I purchased a pair of really pretty flip flops. They are white with huge red

hibiscus flowers on the soles. This is a luxury because I am usually so very practical

and on a very tight budget. Only in this category will there be another sort of

consumer---someone who really does not consider their purchases luxurious. A few

people who only bought Middle Market products explicitly stated that they did not buy

anything luxurious in the past week or sounded apologetic and listed a random item

they bought last week that was clearly not luxurious to them. Those people tend to

write shorter passages.

It is interesting that the small amount of people who forgot their described

original purchase (regardless of what category it was from) from Time 1 to Time 2

either guessed or truly thought that they described buying a Middle Market product or

a generic necessity product at Time 1 when asked to recall the product. For example,

this is a participants response at Time 1: Their most luxurious purchase in the past

week was An accessory for my smartphone. It is a MyTouch Rock Dock. It is a

docking station/speaker phone unit for my cell phone. At Time 2 the same participant

claimed that he bought curtains from Pier One.

23

Forty-three participants described purchasing an electronic device. Twenty-

nine participants bought consumable care products. Ninety-four participants bought

clothing, jewelry or other forms of attire. Forty-five participants bought furniture

pieces. Fifteen participants bought miscellaneous items around the house, and most of

these items were inexpensive necessities that participants described as the only product

that they bought last week. Old Luxury purchases mostly fell under the attire or

furniture category, so there is the idea that these purchases cannot compare directly

perfectly with New Luxury and Middle Market products in a large array of other

consumer product categories such as high-definition TVs and toy playgrounds for cats.

As stated before, the gap between completion of Part 1 and Part 2 of the study

was two weeks. Out of the ninety-four participants who returned to take Part 2,

eighty-eight people remembered the original product they described in Part 1.

Purchases of Old Luxury, New Luxury or Middle Market all were associated

with similar levels of satisfaction at Time 1. Reported satisfaction was statistically

identical among the different purchase category options (Mean(Middle Market) = 6.32,

Mean(New Luxury) = 6.12, Mean(Old Luxury)=6.18, ps > 0.30). This shows that

happiness with a materialistic purchase does not necessarily depend on the type of

purchase one makes at Time 1. This fits well with Hypothesis 2, but Hypothesis 1

claims that Old Luxury purchases will give people longer satisfaction. See Tables 9-11

for independent t-tests on satisfaction means in Time 1.

24

There was significant inter-time correlation or correlation between Time 1s

satisfaction with product results and Time 2s satisfaction with product results (see

Table 7). Generally, there is positive correlation of satisfaction with any product

between Time 1 and Time 2. In other words, people who rated highly on satisfaction

levels with their product in Time 1 also reported high satisfaction in Time 2. The

correlation table of inter-time satisfaction is presented in Table 6. Most importantly,

reported satisfaction was statistically identical among the different purchase category

options at Time 2 (Mean(Middle Market) = 6.16, Mean(New Luxury) = 6.18, Mean(Old

Luxury)=6.42, ps > 0.20). See Tables 12-14 for independent t-test results for Time 2.

The results do not confirm Hypothesis 1 because purchasing an Old Luxury

product doesnt yield longer satisfaction than other categories. One limitation of this

study was that I asked participants to inform me of a recent luxurious purchase instead

of manipulating purchase category (either Old luxury, New luxury, or a Mass market

product). Because participants self-selected into the categories, they may have been

purchasing from a category that would make them most satisfied, yielding no

differences between categories in satisfaction.

An experimental design could have yielded different results if I could have

randomly assigned people to conditions instead of allowing them to naturally select

whether they had purchased old luxury, new luxury, or middle market. In an

experiment, people would have been equivalent across conditions and the luxury type

25

would have been the only thing that varied. Also, the categories would be more precise

because the items could have been controlled by the researcher.

However, my second hypothesis (H2) led to more promising results when I

compared peoples immediate satisfaction levels across different categories of

purchases. It appeared that Old Luxury and New Luxury satisfaction levels does not

have any significant satisfaction difference at Time 1 when I used independent samples

t-test to compare mean satisfactions (Mean(Middle Market) = 6.32, Mean(New Luxury)

= 6.12, Mean(Old Luxury)=6.18, ps > 0.30).

The factor of the thrill of shopping and immediate gratification upon purchase

leads to the conclusion that no matter what one buys, one will be very happy with any

sort of purchase right after purchasing that they deemed as luxurious.

Additional Insights

People were given a list of brands and were asked to check off all the brands

that they own currently and all the brands that they like. I also asked What is your

favorite brand out of these 36 brands which also attempts to understand which

category the participant leans toward most.

People who reported higher liking of Old Luxury products compared to other

categories of products were more likely to mention brand name when describing the

product, r = 0.224, p < 0.05. Later statistics showed that Old luxury loving is correlated

with self esteem (r = 0.14, p < 0.05). Middle Market and New Luxury loving did not

have a significant correlation with self esteem. Furthermore, although previous

26

research has already shown that higher income has also been previously proven to be

correlated with higher tendency to purchase luxury goods (Dubois and Duquesne

1993), my study showed that although higher education correlates with owning and

favoring Old Luxury (r = 0.283, p < 0.05), higher education is not significantly

associated with liking New Luxury (r = 0.159, p=.31).

People who favored Old Luxury also were more likely to be more spendthrift

than tightwad r = -.159, p < 0.02. The spendthrift-tightwad scale measures consumer

miserliness; the authors define a tightwad as someone who feels too much

psychological pain when they spend money and a spendthrift as someone who doesnt

feel enough psychological pain when they spend money (Rick, Cryder and

Loewenstein 2008). It is also noted that liking Old Luxury is correlated to owning Old

Luxury (r = 0.521, p < 0.0001), see Table 5 for more owning and liking correlations

across categories.

Liking Old Luxury also correlated with higher prestige sensitivity with r = 0.34,

and p < .0005 (Lictenstein et al. 1993). Lichtenstein et al. (1993) defined prestige

sensitivity as favorable perceptions of the price cue based on feelings of prominence

and status that higher prices signal to other people about the purchaser. They also

suggested that people sensitive to prestige are sensitive to expensive products because

prestige is measured by a signaled price (Lichtenstein et al. 1993). These insights go

well with the whole schema of Old Luxury signaling status and price. Other research

27

notes that prestige sensitivity is related to fashion luxury goods and other visible luxury

(Jin and Sternquist, 2004).

Liking New Luxury products does not correlate with ones prestige sensitivity,

education, self-esteem or spendthrift tendencies even though there is correlation

between liking Old Luxury and liking New Luxury (r = .539, p < 0.0005). People who

liked New Luxury predicted that they would be dissatisfied with the product they

described one year from now (r = -0.138, p < 0.05). Old Luxury did not show negative

correlation with projected satisfaction one year from now. I hypothesize that this is

because of people like New Luxury, they must like the idea of change and innovation

in the market, something New Luxury is high in since they have captured the attention

of many in such a brief time. Future investigation could attempt to measure whether

preference for New Luxury is associated with a desire for change.

Table 5 shows that people who like one category often will like another as well,

so liking Old Luxury, New Luxury, and Mass Market products are not mutually

exclusive in the eyes of the consumer. Although people view New Luxury now as the

most luxurious products very often, differences still do emerge between the types of

people who genuinely like Old Luxury and those who favor New Luxury. People who

like Old Luxury are more likely to focus on the brand of the product they purchased,

they are more likely to have high self-esteem, and they are more presige sensitive.

Further exploration

28

My results did not support my first hypothesis, but it gave me a new hypothesis

that could go into an experiment in the future. The hypothesis is:

Segments of the luxury market (Old Luxury, New Luxury) are different in the

sense that people who like different categories do not always exhibit the same values

and attitudes although the two categories give consumers the same (undistinguishable)

levels of satisfaction.

An Old Luxury lover and a New Luxury lover merely perceive many aspects in

the shopping experience differently and further exploration can attempt to pinpoint

the exact demographics that Old Luxury lovers and New Luxury tend to fall under. It

may be that lovers of both categories have similarities and overlaps in their

backgrounds, such as having high materialism and high need for conspicuous

consumption.

I hope that future research can also find more detailed explanations on what

traits and circumstances allow certain people to enjoy a wider range of materialistic

purchases. What drives the relationship between liking Old Luxury brands and valuing

materialistic goods that one currently owns? I would like to know what are some

potential explanations for the variety of factors correlating with Old Luxury Lovers and

not with New Luxury Lovers. It could be that prestige sensitive people seek out Old

Luxury because Old Luxury is more established and can best fulfill their conspicuous

consumption needs. It also could be that people with higher education are richer and

thus are more likely to be exposed to Old Luxury, thus forming affinity towards the

29

Old Luxury products. I am sure that the correlations between liking Old Luxury and

different scaled traits do not end here. Many scales were not given to the participants

to answer, such as materialism, hedonism, and need to belong.

Further research can also investigate more consequences that arise from

consuming Old Luxury versus New Luxury. Are they essentially the same beast that

gives hedonistic people the same purpose of conspicuous consumption on different

levels of intensity? From my study, Old Luxury and New Luxury certainly have similar

properties. In that sense, perhaps the rare gold, the diamonds at Tiffanys, and the Louis

Vuittons will always be their own distinct category that starting companies today

cannot replace or even permeate into their circle in the consumers mind. Another

thought is that maybe by definition new brands can only be New Luxury now, but if

they can withstand time and offer genuine benefits to loyal consumers, they can be

perceived as Old Luxury in 50 or 100 years since they themselves will have richer

history and traditions. Maybe a startup brand today will one day be the prototype of all

luxurious products in their own product domains.

It may also be relevant to look at how long consumers actually end up enjoying

each New Luxury product they purchase and what are more detailed orientations of

consumers who enjoy New Luxury brands. It may be strategically beneficial for New

Luxury companies to know how long their products can satisfy their core consumers

(the ones who claim they love the New Luxury brands) and how quickly should they

30

innovate with new lines and trends so these restless consumers will always go back and

by more.

Conclusion

This paper was inspired by my want to give insight into the debate of whether

or not Old Luxury will eventually become an obsolete idea just as Old Money has

blurred together with New Money. I wanted to know if New Luxury should use Old

Luxury as a guidepost because that is what consumers ultimately crave when they buy

any form of luxurious products and whether consumers who were given a taste of

luxury soon become addicted and eventually give in to buy Old Luxury.

I also wanted to see if there was a difference in the level of satisfaction that Old

Luxury provides to consumers, and if that were longer lasting in effect than the

satisfaction obtained from other products. It appears from my results that my design

was not sufficient to show large differences between peoples perceptions of Old

Luxury and New Luxury and the amount of satisfaction the two different categories of

products achieved. I failed to reject my null hypothesis 1, that there is no difference in

change of satisfaction across different categories of products between Time 1 and Time

2. I was correct in my second hypothesis that initially, with any purchase perceived as

luxurious at Time 1, people are very pleased and satisfied.

This paper did not differentiate Old Luxury products and New Luxury products

in terms of how much satisfaction each category can bring the consumer. However, I

discovered some positive and negative correlations between Old Luxury and many

31

demographic and personality-related scales. This could be the start to discover how

different categories of luxury attracts a different population of loyal fans and hopefully

consumers.

While this paper began with the question of whether the booming New Luxury

market will one allow the traditional luxury market to lose its luster and appeal to the

aspiring elite because new companies are finding engaging ways to allow brand-

marriages to occur, very different and unexpected findings emerged about the different

types of people who like different categories of products. Brand marriages are relevant

because it is a way to provide a brand with a loyal base of customers.

New Luxury companies have gained so much market share that we really

should understand why people are willing to pay the extra margin for their products

and services habitually. From my findings, it appears that there is higher correlation

between New Luxury qualities with Old Luxury qualities than with the Middle Market

product qualities (see Table 5 and Table 7), so one must not be too wary when someone

says that they consider their marginally expensive purchase luxurious. That purchase

may be providing them with the same benefits and satisfying the same needs as a

similar functional product at 300% of its price. However, this paper reassures us that

the traditional sense of luxury has not been completely replaced with semi-

synonymous brands that use the idea of luxury to market itself to the general

population. Those who like Old Luxury still show a different set of traits than those

who like New Luxury.

32

I hope to see this topic researched more by others since the true, traditional

meaning of luxury seems to be evolving and we are facing globalization with new

companies forming at a rapid rate. New Luxury is already starting to dominate a lot of

shelf space in shopping centers and renting out new spaces for their fast-growing stores

everywhere. It would be immensely beneficial to track the nuances and changes in our

perceptions of luxury and constantly ask the question what is luxury today. Luxury

holds rich historical importance and definitely still has great economical value

presently.

33

Table 1: Demographics Part 1:

Demographics Part 2:

34

Table 2: Education level

Table 3:

Correlations Likes Old Luxury

Correlation

P-Value

Mention brandname (N=101) .224* 0.036 Own Old luxury 0.521*** 0 Time 1 Satisfaction -0.275* 0.028 Time 2 Satisfaction 0.302* 0.041 Education 0.283* 0.026

Prestige Sensitivity 0.392** 0.001

* p

35

Table 4:

A New Division of Markets by Silverstein and Fiske 2003

Goods Category New Luxury Middle Market Old Luxury

Apparel Diesel Gap, Levi Strauss

Brooks Brothers, Chanel

Autos BMW, Mercedes Benz Pontiac, Ford Cadillac, Rolls-Royce Beer Sam Adams Coors, Miller Heineken Coffee Starbucks Maxwell House Blue Mountain Kitchen appliances

Viking Range Hotpoint Aga

Leather goods Coach Wilsons Louis Vuitton Lingerie Victorias Secret Maidenform La Perla Personal care Aveda Suave, Revlon Kiehls Pet food Nutro Alpo Sirloin Restaurants Panera Bread Burger King Mortons

Retailing Pottery Barn, Williams Sonoma

Sears Neiman Marcus

Spirits Belvedere, Grey Goose Absolut, Smirnoff

Bombay Sapphire

Footnote

1. Fiske and Silversteins research includes work with clients over a period of 10 years, a quantitative survey of 2,200 American consumers conducted in late 2002, analysis of 30 categories, demographic data research, interviews with hundreds of consumers, interviews with many new-luxury leaders, and a literature review of 800 books, articles, and related materials (Harvard Business Review 2003).

36

Table 5:

Table 6:

37

Table 7:

Table 8: New Luxury and Old Luxury text description highlights

38

Table 9: New Luxury Satisfaction and Old Luxury Satisfaction Means at Time 1

Table 10: New Luxury Satisfaction and Middle Market Satisfaction Means at Time 1

Table 11: Old Luxury Satisfaction and Middle Market Satisfaction Means at Time 1

39

Table 12: Old Luxury Satisfaction and New Luxury Satisfaction Means at Time 2

Table 13:

Table 14:

40

Sources Berry, Christopher (1994). Idea of Luxury: a conceptual and historical investigation. Cambridge University Press, New York. Brinberg, D and Plimpton, L. (1986), Self-Monitoring and Product Conspicuousness on Reference Group Influence, Advances in Consumer Research, Volume 13. Carlton, C.M. (1965), Studies in Romance Lexicology, Oxford University Press. Chadha, Radna, and Husband Paul. The Cult of the Luxury Brand: Inside Asias love affair with luxury. Finland: WS Bookwell, 2006.

Dubois, Bernard and Patrick Duquesne (1993), The Market for Luxury Goods: Income versus Culture, European Journal of Marketing 27 (1), 35-44. Fiske, Neil, and Michael J. Silverstein (2003). Luxury for the Masses, Harvard Business Review 81 (April), 48-57. Fiske, Neil, and Michael J. Silverstein. Trading up-Why Consumers Want New Luxury Goods and How Companies Create Them., Inc, 1-15, 47-53. Boston Consulting Group, New York 2005. Frank, Robert H. (1999). Luxury Fever: Why Money Fails to Satisfy in an Era of Excess, 18 Groth, J.C. and McDaniel W. (1993), The Exclusive Value Principle, Journal of Consumer Marketing, Volume 10, number 1. Jin, B., & Sternquist, B. (2004). Shopping is truly a joy. The Service Industries Journal, 24(6), 1-18. Kahneman, Daniel, Jack L. Knetch, and Richard H. Thaler (1991), The Endowment Effect, Loss Aversion, and Status Quo Bias, Journal of Economic Perspectives, 5, (1), 193-206. Kornberger Martin (2010) Brand society: How brands transform management and lifestyle. 248-258, 13-25, 213 Gill, David H. 1994 "Anti-popular rhetoric in ancient Greece." In Wealth in Western Thought, ed. Paul G. Schervish, 13-42. Westport, CT: Praeger.

41

Larsen, R. and E. Diener (1987). Affect intensity as an individual difference characteristic: A review, Journal of Research in Personality 21, 1-39. Lichtenstein, D. R., Ridgway, N. M., & Netemeyer, R. G. (1993). Price perceptions and consumer shopping behavior: A field study. Journal of Marketing Research, 30(2), 234-245. Lim, Chae Mi, Luxe-Bargain Shopping: Consumer Orientations, Perceived Values,

Satisfaction, and Future Intentions. " PhD diss., University of Tennessee, 2009. http://trace.tennessee.edu/utk graddiss/68

Mooij, Marielle. Global Marketing and Advertising: Understanding Cultural Paradoxes. California: Sage Publications Inc., 2010. Nicolao, Leonardo, Julie R. Irwin, and Joseph K. Goodman (2009), Happiness for Sale: Do Experiential Purchases Make Consumers Happier than Material Purchases? Journal of Consumer Research, 36 (August), 188-198. Nocera, Joseph "The arriviste has arrived" New York Times Magazine; Nov 15, 1998; New York Times, 68 Richins, Marsha L. and Scott Dawson (1992), A Consumer Values Orientation for Materialism and Its Measurement: Scale Development and Validation, Journal of Consumer Research, 19 (December), 303-316. Rick, S. I., Cryder, C. E., & Loewenstein, G. (2008). Tightwads and spendthrifts. Journal of Consumer Research, 34, 767-782. Veblen, Thorstein. (1899/1994) The Theory of the Leisure Class Wilcox, Keith, Hyeong Min Kim, and Sankar Sen, (2009), Why Do Consumers Buy Counterfeit Luxury Brands, Journal of Marketing Research, 46 (May), 247-259.

A New Division of Markets by Silverstein and Fiske 2003