Impact of Income on Purchase of Luxury Fashion Products

Executive Summary

The current paper is a synopsis of the study on influence of Income on purchase of Luxury Fashion Products. The suggested study is a quantitative study of women and uses age based sampling; women aged 16-45 years. The traditional economics concept that higher income would lead to higher consumption of normal and quality goods and lesser of inferior goods are often challenged by marketers for luxury goods. Literature suggests that there are a number of other factors other than income that lead to purchase of luxury fashion products such as brand affiliation, prestige and social status, symbolic, functional, emotional attributes. Thus the research would explain the importance of income when young women in UK make purchase decisions related to luxury fashion products. The study is suggested to be quantitative in nature but in accordance with the logical positivism philosophy. It would follow a survey strategy and close ended questionnaire would be used in the research. The findings from the study are expected to have significant implications for companies in luxury products industry as well as specifically for marketers, marketing luxury fashion products to women in UK.

1 Introduction

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The current paper provides a synopsis for the study of impact of income on consumer decision making regarding luxury fashion products. The suggested study would use a case study of women in UK between ages of 16-45 years. The synopsis explains the research background, aims and objectives, scope and limitations, literature review and methodology for conducting the study. It further highlights the expected problems and limitations of the research.

1.1 Research Background:

The suggested study is aimed at studying the impact of income on purchase decision regarding luxury fashion products. A further case study of women aged between 16 to 40 years from the United Kingdom has been taken. Like other industries, even within luxury goods, the marketers have to consider factors like competition, globalization, increased customer sophistication and maturity of markets etc to formulate its marketing strategy (Djelic and Ainama, 1999).

The Economic crisis 2008 affected the sales in the luxury goods industry. However an upturn was observed in 2010. According to Passariello (2011) the luxury goods market in the Europe is worth ˆ168 billion and showed reasonable growth in the year 2010. The growth is not just specific to Europe, but market for luxury goods has increased greatly world over in the last few years. According to McKinsey & Co‘s research, the highest growth is expected to be within China which is expected to grow by 20% till 2015 (Atsmon, Dixit and Wu, 2011). In luxury industry, globalization also offers huge opportunities like an emergence of new markets in countries like India, Russia and China (Silverstein, Fiske and Butman, 2003). The fastest growing market as suggested by analysts is that of China since the economy is growing very fast and the income of the people has significantly increased in the last few years (Agarwal and Wu, 2004). According to Roberts (2012) the luxury goods market increased by 4% in Europe in 2012, mainly attributable to high tourist spending but low local demand. Each year, more Chinese tourists visit Europe and are counted as biggest spenders on luxury products (Passariello, 2011). The marketers, in order to benefit from the emerging opportunities and promote sales of luxury fashion products, need to know the motivations of the targeted markets. The UK market is now recovering from recession and is an important market for sales of luxury fashion products. The economists suggest that as the income of consumers increases they move to quality goods from inferior goods. This is an objective explanation and the income is given as objective criteria however for luxury goods, marketers stress subjective reasons more.

For example, Phau and Prendergast (2000) were of the view that how consumers perceive luxury is in subjective terms and it is their understanding of “luxury” which determines their related purchase behaviour. Marketers argue that income is not as important as a factor for purchasing luxury products. According to them Luxury goods consumption has always been a significant social practice while Berry (1994) explains that the value one attaches to luxury is a component crucial to the self-realization of a society. The marketers thus need to identify other factors that motivate the consumers to buy luxury fashions products besides income. The suggested research would study impact of income as well as important factors besides income that the marketers need to consider when developing their marketing campaigns for luxury fashion products. Dubois and Duquesne (1993) in their research found that culture is as important as income that determines the consumptions of luxury products.

1.2 Research Aims and Objective:

The research aim is to study the impact of income level on consumer decision making in the case of luxury fashion products. The aim would be achieved by the following objectives:

To review literature and understand the factors impacting consumer decision making for luxury products.
To study income as a factor and how it impacts purchase decisions regarding luxury fashion products.
To understand the role of income for purchase decisions by young women.
To develop a framework to explain the income effect on purchase of luxury fashion products by women.
To study the significance of variables other than income that has an impact on luxury purchase behaviour.
To make recommendations to the companies and marketers dealing in luxury fashion products for women.

1.3 Research Question

The main research question that the research would answer is: Does income influence purchasing of Luxury Fashion ProductsThe study would test related hypothesis such as:

H1: Income is an important factor for purchase of luxury fashion products.
H2: The women in different age groups have different buyer orientations towards luxury products.
H3: Income if an important factor for young women in UK for consumption of luxury fashion products.
H4: Income is not the main factor but value creation for older women when buying luxury fashion products.
H5: Women only buy luxury fashion products when they have a high income.
H6: Social motivations are more important variable for fashion conscious women in UK.
H7: Luxury loving women do not consider income an important factor when purchasing luxury fashion products.
2 Preliminary Literature Review

Whenever a consumer, practitioner or a researcher focuses on luxury goods, some specific characteristics of a number of luxury brands may come in mind such as Chanel suits, Cartier watches or Hermes handbags. These are all expensive, excellent quality, aesthetic heritage, design, reputation, desirability, exclusivity, inaccessibility, and personality reflection (Quelch, 2006). Quelch (2006, p.100) states that:

Luxury brands are those whose ratio of functional utility to price is low while the ratio of intangible and situational utility to price is high.

Besides satisfying the material needs of the consumers, the luxury goods also addresses social and symbolic needs (Wiedmann et al., 2007). Some researchers have further delineated luxury goods by comparing and contrasting their characteristics to the characteristics of mass consumption products. Riley, Lomax, and Blunden (2004) specified various features of luxury goods (e.g., Christian Dior fragrance) differing from everyday consumer goods (e.g., Dove soap). According to scholars, luxury goods are intended for niche market segments (Riley, Lomax, and Blunden, 2004). The marketers of luxury fashion products use exclusive placing, promotion, distribution and marketing segmentation techniques. On the other hand, for non-luxury products, they focus more on functionality and price. When buying luxury goods the consumers are influenced by quality, status and prestigious brands. Marketers emphasize association with heritage and craftsmanship when positioning luxury brands. Riley, Lomax, and Blunden (2004) also explained that after-sales services and several other methods of value creation are very important in luxury goods.

Hauck and Stanforth (2007) said that income effects, to some extent, the perception of luxury. For example, something might be a perceived necessity for one person while a perceived luxury for another. A popular way to identify luxury is based on five factors framework given by Phau and Prendergast (2000). These factors include brand identity, exclusiveness, high level of brand awareness; focus on customer loyalty and quality.

In consumer behaviour literature the model given by Vickers and Renand (2003) explains that the purchase behaviour is determined by experiential, interactional symbolic and functional aspects for luxury goods since they are high in both social and personal identity. The non luxury products are only high in functional aspects. The model given by Seringhaus (2005) includes emotion related factors like personality and image, effective symbolic communication for brand identity and congruence with self-concept which positions luxury brands.

According to Tse (1996), most of the research done on consumption strongly indicates the reflection of Western society and its impact on individualistic goals. In an individualist society, the behaviour and motivational factors of consumers when purchasing products may be fundamentally different from those in a collectivist society. Numerous scholars (e.g., Phau & Prendergast, 2000) have testified that collectivist consumers have different attitudes and perceptions regarding luxury brands as compared to the consumers belonging to the individualist societies. Wiedmann, Hennigs, and Siebels (2007) however, argued that consumer behaviour for product categories like cars, fashion and luxuries is independent of their cultures and regions. According to this school of thought, the information search and exchange are universal in nature for such kind of products. Behaviour is an aspect of attitude derived from values and hence is associated to culture. Since attitudes are a projection of beliefs; consumers holding different beliefs about making purchases will therefore differ in their methods of searching information and making purchase decisions

Personal attitude and values of a consumer has a bigger impact on their purchase behavior than their income. This means that people of same income group but different social and cultural backgrounds may have different approach towards buying luxury goods, depending upon their preferences and values. For instance the low income segment of consumers may possibly have a desire to buy only the best, as a result of which they may not buy bulk of luxury goods but quality goods. By and large, consumers can be divided into three categories on the basis of their income level: average, elite and lower class. It must be noted that though there would be a substantial difference between the purchasing power of the elite and lower class however both the classes have certain purchasing habits similar to their respective classified segment. But despite all this, it would be illogical to deny the impact of income on a consumer’s buying behavior, on both, prices and types of products.

Early researchers argued that social class can be a better predictor of consumer purchase behavior than income (Keiser and Kuehl, 1972; Shimp and Yokum, 1981). Likewise, Coleman (1960 in Keiser, and Kuehl, 1972) found that while purchasing furniture, the prices of purchased goods and social class have a higher correlation than between the prices of purchased goods and income.

To find the answer to the debate of income versus social class, numerous researches were conducted. The answers established the superiority of income over social class (e.g. Myers et al., 1971). According to Myers and his colleagues (1971) income had more predictive power over social class, when examining the purchase behavior of low priced goods, semi-durable and durable products, cosmetics, plus services such as travel, furniture, clothing and appliances. Sivadas (1997) also testified that income is a better predictor than social class when it comes to consumer behavior for leisure and recreational activities.

Earlier consumers used to shop according to the value of dollar, which stayed limited to purchasing necessary products and services only. Modern shoppers, however, make purchases when rewarding themselves and utilize shopping as a method of “feeling good” and self-satisfaction. In contemporary society, consumers make purchases to make a statement, exhibit their personality and boost their self-image. Since the purchased goods are in accordance with the psyche of the consumers, the researcher decided to assess the pattern of consumer purchase behavior with regards to luxury products. Some researches take income as the prerequisite, for example they study elite consumers only when studying consumption of luxury fashion products. They then use psychosocial variables to differentiate between the consumers of luxury products (Xiao and Pras, 2011).

Researchers further show that even though men buy more luxury products in few cultures but the decision is influenced greatly by women. Study by Kaefer, Heilman and Ramenofsky (2012) showed that attitude of wife towards luxury products is very important and women have an impact on spending their spouses. Truong (2010) considers the role of personal aspirations and suggested that both intrinsic and extrinsic motivations are important for consumption of luxury goods.

3 Methodology

3.1 Research Philosophy:

The methodology design is a very important part of any research based study. For the purpose of this research, it is suggested that a logical positivism research philosophy should be adopted. The philosophy suggests that empirical analysis should be backed by a logical analysis (Potter, 1996). Such a research would not only suggest findings but would also justify the findings using logic and literature. Using this philosophy would add a qualitative aspect to the research and would help the reader better understand the findings and implications.

3.2 Research Approach:

Research approach can be defined as the studying of a phenomenon in order to collect, transmit and produce knowledge under the examination of a researcher. Thomas (2003) noted that either of the two research approaches, i.e. qualitative or quantitative or both, can be used in a dissertation depending upon the nature and purpose of the study. Qualitative research is also referred to as inductive approach, through which one can understand the research context and the occurrence of different events. However, the drawback of this research approach is its extensive nature and that it is hard to be defined and measured. Different scholars have observed that this approach relies upon a phenomenological and post-empirical assessment of the world, which perceives that reality is constructed socially as depicted by the situational context (Bryman and Bell, 2007). The quantitative research method, otherwise termed as deductive research approach, can be largely regarded as the scientific data collection method. The quantitative data can be effectively classified, measured and assessed due to its numerical outlook. It is framed on firm rules or formulas and follows very strict procedures for making determinations (Bryman and Bell, 2007). A quantitative approach is being used because the results can be easily generalised and presented in the form of an empirical analysis. The quantitative study would provide an objective measure for importance of income for purchase of luxury fashion products. Furthermore, significant variables other than income and the extent of dependence of consumption of luxury on them can be identified using the quantitative approach.

In this research, a quantitative approach is suggested using a survey strategy. The quantitative approach would help study the significance of income as a variable in quantitative terms. A survey strategy is easy and economical, and can help collect quality data in short spaces of time (Saunders et al., 2007). The sample size for the survey is suggested to be 300 however the size can be reduced due to certain problems and limitations of research. Furthermore, as aforementioned, demographic sampling would be used. Women in UK from aged between 16-45 years would be randomly selected and contacted for the study and would be asked to fill questionnaires. This age group has been chosen because they have exposure to different levels of income as well as social motivations are different at different ages. Furthermore, women are generally thought to be the intra-house income decision makers and consumption allocators (Bourguignon et al., 1993; Ashraf, 2009).

4 Data Collection and Analysis

For data collection purposes, a researcher is provided with two techniques: primary data collection and secondary data collection. The suggested research would be primary research and would make use of primary data primarily. As previously mentioned, a survey strategy would be employed and in accordance, questionnaires would be used as data collection tools. The development of a questionnaire is a lengthy process however it is alongside meeting the data collection needs of the research. Prior to development of the questionnaire a framework would be designed using literature review.

Using the literature review, main variables would be indentified that have an impact on purchase and consumption of luxury fashion products. For the initial literature review it is suggested to include several variables such as perceived quality, brand loyalty and social status and as such they should be studied as independent variables. Income can be used as an independent variable or a moderating variable in the study. The choice would be clearer for the researcher after reviewing more literature on the subject. Lastly, the purchase behavior would be the dependent variable. For the purpose of analysis, SPSS would be used which would make the data collection, management and analysis easier.

4.1 Reliability, Validity, And Generalisability:

For any research, issues regarding qualitative or quantitative data, reliability, validity and generalisability are important factors for determining the quality. For quantitative research, the reliability and validity can be tested in quantitative terms (Creswell, 2009). For example, in the suggested study a pilot test would be conducted and using croncbach’s alpha the validity and reliability would be determined. Furthermore, using triangulation and support from literature the findings would be supported according to the logical positivism approach.

This research focuses on an in-depth analysis of the purchase behaviour of women in mainland or suburban areas of the UK, whilst keeping in focus the significance of different income groups of consumers within a market. Since this study is limited to the urban markets of luxury, it might therefore be inappropriate to generalize the results of the study to beyond the urban and suburban areas of UK. Similarly the gender and age based sampling decreases the generalisability of the study.

4.2 Research Limitations

The most important limitations that the researcher would need to consider at every step of research are time and capital. Besides time and finance, the scope of the research would be limited to luxury goods and the UK market. The realm of luxury goods constitutes capital goods like personal jets, real estate, luxury automobiles, and yachts; consumer services in expensive retail stores, resorts and hotels; and wines and champagne, as well as exotic vacations, travelling; and financial services such as credit cards etc., targeted at elite class consumers. However this study will keep itself limited to the superior personal fashion goods such as apparel, perfume and accessories, such as watches, handbags, shoes and jewellery. The research conducted in the future could examine the other product categories for further exploration of the luxury goods market in UK.

5 Conclusion

This study is aimed at understanding and assessing luxury goods consumer behaviour. Product development, communications management, branding strategies and numerous other business activities require understanding consumer behavior, especially towards luxury products. In order for the designers, retailers and producers of the luxury products brands to benefit from the market expansion trends, they need to have a thorough understanding of the consumer behaviour of their target market. Therefore a proactive investigation of the target consumers and their purchase behaviour is necessary to derive the implications for marketers of the industry. Therefore to this end this research provides an insight for practitioners of the UK luxury goods market by documenting the potential and the landscape of the UK goods industry with valuable information regarding the consumer behaviour.

6 TIME CHART

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