SEA - Practical Application of Science

Volume IX, Issue 25 (1 / 2021)

Alexandra Giuliana ANDRONIC

Alexandru Ioan Cuza University of Iasi, Romania

Review
CONSUMER BEHAVIOUR IN Article

PURCHASING LUXURY GOODS

DURING ECONOMIC CRISES

Keywords
Crises;
Luxury goods;
Consumption;
Sales;
Marketing behaviour;

JEL Classification
M30; M31; M39

Abstract

With the luxury goods market constantly growing, understanding the consumer’s behaviour and the factors
influencing the purchasing decision-making process is crucial. By understanding the consumer’s behaviour
among buyers of luxury goods in times of crisis, this paper can propose a series of measures that could
improve the marketing mix and marketing strategies for the companies involved in the luxury goods
market, from large manufacturers to retailers. The negative effects of the economic recession caused by the
Covid19 pandemic led to the necessity to recognize the changes in the consumer behaviour that may have
a lasting impact, and they definitely will. Economic crisis has a significant impact on consumption
practices and the way consumers justify their consumption patterns.

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Volume IX, Issue 25 (1 / 2021)

changing the profile of bidders by dominating the

INTRODUCTION market by large multinational conglomerates
gradually replacing small producers, increasing the
Luxury goods are those goods which require number of bidders and their financial power, their
special purchasing efforts on the part of consumers expansion at an international level.The changes in
and which possess certain special characteristics. the marketing tools and the strategies used by the
Buyers are willing to spend a lot of time and manufacturers, led to „affordable luxury”, which
money to buy them in contrast with intermediate occurs alog with the expansion of production lines;
goods, for example. Rare art collections, antiques, new communication and distribution strategies are
prestigious brands, style items, automobiles, etc. adopted, although, according to some authors, they
are examples of luxury goods. The comparison are not necessarily compatible with the luxury
factor is absent in luxury products. Some common industry, prices are cut, products are diversified and
characteristics are: limited demand and limited their characteristics are transformed. At the same
number of buyers, expensive products, generally time, the economic context, which has changed
sold in a limited number of units and that need along with the economic crisis and which has an
aggressive publicity (Haritonov & Cotelnic, 2018). impact on both demand and supply in the field of
The field of luxury has a number of peculiarities luxury, must be taken into account. Given these
that have allowed it to experience a spectacular changes, companies need to know how to act to
evolution over time, to acquire a remarkable maintain or expand their business, in this respect
stability and recovery power after bad economic understanding the mechanism behind this area.
events, including the events of global scale. It can
be said that luxury has come to be desired by
almost everyone, although, only some can afford it. LITERATURE REVIEW
The progressive expansion of global demand is
now taking place in various parts of the world, in Luxury products and services are based on
various evolutionary stages of the luxury market, universally valid principles, based on the same
which creates new opportunities as well as basic characteristics as any other product (Pop,
challenges. 2002), objective physical and functional
Veblen (1899) claimed, over 100 years ago, that characteristics, services offered by the product and
people buy most of their goods because they services attached to it, symbolic content. However,
strongly want to impress those around them, but luxury differs from nonluxury by a number of
also to demonstrate their superior status. He called attributes, such as: high quality, high price, rarity or
this phenomenon "ostentatious consumption" uniqueness, a certain history/legacy, excellent
which was caused by historical and cultural functional benefits, high visibility, hedonistic
backgrounds. This concept is still perpetuated benefits which confer high status and prestige and
today under the influence of economic changes in may represent good investments. Studies conducted
people in top management positions, in upper-class among luxury consumers confirm that the
families or in superstars who purchase very "product’s excellence" is the main prerequisite of
expensive goods (Frank, 2000). Unlike Veblen, luxury (Kapferer & Bastien, 2009).
who ridiculed ostentatious luxury without However, certain examples show that luxury
proposing solutions to reduce this phenomenon, products do not always have the highest quality on
Frank highlighted a more practical "treatment", the market, yet so-called "imperfections"
namely, the payment of taxes on vices. However, (excluding execution flaws) are part of their charm
luxury products are heavily promoted in while being a guarantee for authenticity (Kapferer
advertisements which give them a very desirable & Bastien, 2009). The characteristics of the
character in the mind of potential consumers. production underlying the quality are given by the
People perceive expensive goods as evidence of manufacturer's expertise and the complexity of the
success and as a sign of high social status. To production process (Heine, 2012). Luxury
succeed in the labor market they are willing to manufacturers, considered by consumers to be the
spend more money to get a designer suit that they best experts in their field of activity, have technical
would wear for a job interview, on a more skills due to their long history and importance of
expensive watch, more expensive shoes, diamond innovation/development, as well as stylistic skills
jewelry or antiques. by association with talented designers and artists.
The field of luxury has undergone a number of Production processes are complex, often involving
unprecedented transformations over the past hand-made procedures and take longer to
decade, including: the increasing demand for manufacture. The authors Kapferer and Bastien
luxury products, the changing consumer (2009) argue that it is even recommended that any
characteristics from a socio-demographic point of luxury product should have even a small handmade
view (the emergence of segments other than the part, as it suggests attention to detail, rarity and
elite) and changing consumer’s behaviour, high value.

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The expansion of the luxury sector has led to an expanding to emerging new markets such as China,
increase in interest in academic and business field, Russia and India. Rising incomes and consumer’s
but it can be said that, compared to other areas, the mobility of luxury goods fuel the expansion of the
effects of crises on the trade in luxury goods is luxury goods sector (Bellaiche, Mei-Pochtler &
little studied. A limited number of themes are Hanisch, 2010). Although potential consumers may
addressed, which partially and fragmentably come from different corners of the world, their
capture the marketing of luxury products, tastes and preferences are increasingly similar
especially in times of crisis, which leads to (Catry, 2003). All these changes and the current
increased confusion in the field. In addition, an context of the crisis caused by the Covid-19
extremely limited number of studies are targeted at pandemic provide a good opportunity to research
"real" luxury consumers, who have a high level of the effects that economic crises could have on the
income and/or wealth. trade with luxury goods and how companies from
this industry choose to adapt their strategies so that
the effects of crises are not that dramatic.
CONSUMER’S MOTIVATION FOR LUXURY There is no universal valid definition of luxury
GOODS PURCHASE (Königs & Schiereck, 2006), and because of the
subjectivity implied by this term, the size of global
Sales of luxury goods are determined by the market of luxury goods and services may vary. The
substantial strength of a brand and its ability to major challenge for defining luxury goods or
activate the consumer satisfaction factor. These brands is that luxury, as a word taken out from any
products are bought out of desire rather than need, context and associated terms, are particularly vague
and they can be characterized as goods with low and subjective, since consumers perceive goods as
price functionality and a high level of intangible luxurious for various reasons and characteristics.
and situational utility (Königs & Schiereck, 2006). Their significance depends very much on the user's
Basically, luxury goods are items that no one perspective (Kapferer, 2008; Heine, 2012). The
needs, but millions of people want them. Luxury concept of luxury differs, because it depends on the
goods have a low utility in daily life, but owning social position of each person and the experiences
such a product is a dream fulfilled for the of personal consumption. It is a relative term that
consumer, and these dreams are not cheap at all. could refer to almost everything or nothing,
For example, a bag manufactured by the French depending on the person being asked (Csaba,
luxury goods company Hermes International is sold 2008). This makes it difficult for a universal
at prices starting at 10 000 Euros, and yet the definition of luxury goods and services.
waiting lists for these bags can stretch for years The different evolutionary stages of the luxury
(Wetlaufer, 2001). One of the main concerns of goods market in several parts of the world also
luxury goods companies is the establishment and create a challenge for the management of luxury
protection of an impeccable reputation (Königs & brands. For example, the European luxury market
Schiereck, 2006). While various business elements is in its mature state, and consumers in this market
may seem to guide the brand to other sectors, it is are approaching luxury as a concept that can be
the engine of the entire business model of a top adapted to their lifestyle. This contrasts with US
luxury goods company. The brand is the main consumers, who see luxury as means to achieving a
reason why consumers choose these goods and particular lifestyle, as the US luxury goods and
services (Danet & Feldmeth, 2008). services market is still growing. In the Middle East,
Generally treated as a relatively new and ever- where luxury is in the phase of full growth,
evolving industry, the luxury goods industry and consumers purchase these goods to make a
the brands operating within it, have generally been statement about their Western wealth and know-
studied in the context of healthier economies, with how. Japanese consumers also have a similar
very few studies in the times of recession. In attitude towards the consumption of luxury goods,
addition, existing academic literature on luxury although they have a great affinity for certain
goods during the recessions also focuses on less French brands. In the rest of Asia, the luxury goods
dramatic declines, as opposed to the global market is in its infancy, while in Africa the concept
recession of 2008-2009, making it more difficult to of luxury is in the early introductory phase.
compare different research results. This creates a Therefor, luxury brands face the challenge of
gap in research about how these brands perform finding a balance in the requirements from each of
and what strategies they use during economic these markets through their products and offers of
crises. Generally, studies on the effects of services and business strategies (Okonkwo, 2007).
economic crises cover topics of general interest, Nueno and Quelch (1998) identified three types of
such as unemployment, falling demand and budget brands in the luxury goods category. First, lesser-
deficits recorded by states during times of crisis. known brands, often managed by family businesses
The growth of the luxury goods industry globally, and focused on delivering a narrow product line to
from its European origins, led to companies an exclusive niche market. They are also known as

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old luxury goods or prestigious brands. These (Veblen, 2008). In economic theory, luxury goods
products are often handmade and available only in are generally defined as goods for which the
specialty stores. The second type is well-known demand increases more than proportionately as
brands, which are inaccessible to a wide market as incomes increase, contrary to goods of necessity.
a result of high prices. They can also be referred to This is also known as the Veblen effect or prestige
as prestigious brands, such as those in the first effect (Klimczak & Gawron, 2010). Veblen coined
category. Finally, the third type is represented by the term ostentatious consumption to refer to
brands known to the general public. This type is the people's desire to provide prominent, visible
premium brands, very present in the media, through evidence of their ability to afford luxury goods
aggressive promotion campaigns. (Solomon, 1999). Ostentatious consumption plays a
Silverstein and Fiske (2005) differentiated the significant role in shaping the preferences for many
concepts of new luxury and old luxury. According products that are purchased or consumed in public
to the authors, the new luxury describes a class of contexts.
goods that have very distinct characteristics, and Microeconomic consumer theory suggests that
the old luxury is about exclusivity. New luxury ostentatious consumption patterns can be identified
goods are much more affordable than old luxury at the level of the individual consumer in terms of
goods, but their accessibility is more limited than conformism and snobbery. Compliance behaviour
conventional products in the middle market. The occurs when the consumer’s demand for a
new concept of luxury can be divided into three particular product increases only because other
types. Superpremium, affordable products which people are also interested in that product. Snob
are valued at or near the top end of the category behavior is the exact opposite, an individual is less
and at a considerable distance from conventional interested in a particular product, when the interest
offers. However, they are still affordable for the of other individuals in that product is also high,
consumers in the middle market because they are thus minimizing the effect of rarity and exclusivity.
relatively low at prices. Old luxury products are These two types of visible consumer behaviour
cheaper versions of products created by companies correspond to the desire not to be identified with
whose brands have traditionally been accessible the poor and to be identified with the rich (Dubois,
only to wealthy families earning over $200,000 Laurent & Czellar, 2001).
annually. The third type, luxury mass goods are not As a new and ever-evolving industry, the luxury
at the top of their price category, they are those goods industry and brands operating on the market
middle goods, relatively affordable to the masses have generally been studied in the context of
(Silverstein & Fiske, 2005). healthier economies, which creates a gap in
Luxury brands have traditionally adopted the knowledge about how these brands work and what
premium pricing strategy to emphasize the brand's strategies luxury brand managers use during
strength, high quality and exclusivity associated economic recessions. Academic studies on the
with luxury goods, as well as to differentiate them impact of the recent global financial crisis on
from other brands on the market. The targeted luxury goods companies appear to be either still in
audience of luxury brands is less sensitive to prices the works or academic interest relate sped primarily
and they actually expect luxury goods to be at to financial institutions or broader economic
premium rather than low prices. Pricing is part of consequences.
the branding process, as consumers often judge the
position of a brand and the value of a product based
on its price. (Okonkwo, 2007). The theory of LUXURY MARKET DURING ECONOMIC
utilities in microeconomics argues that a customer RECESSIONS
will judge the usefulness of the good compared to
the usefulness of the money paid for it, and, when Some of the previous research begin by suggesting
he considers the usefulness of the good higher than that sales of luxury goods should be more
the money paid, he will make the purchase decision susceptible to economic fluctuations, especially in
(Du, 2009). An interesting phenomenon is that times of recession. The logic behind this thinking
when a luxury good is available in several different implies that wealthy individuals, who have
brands, people tend to prefer the most expensive traditionally been regarded as the main consumers
one, even if they understand that the differences in of luxury goods, hold significant capital that loses
quality between them are too small to justify the value during the recessions and thus decrease the
substantial price difference. Because of this kind of revenue available for the purchase of luxury goods
eccentric consumer behaviour, many fake (Aït-Sahalia & Parker, 2004). Bils and Klenow
producers have become millionaires by selling fake (1998) found that luxury and durable goods are
products at extremely high prices (Yao & Li, more sensitive to economic cycles than goods of
2005). strict necessity. Consequently, expenditure on non-
The literature on luxury goods has its origins in the essential items decreases during the economic
research of Thorstein Veblen in the 19th century downfalls and one would expect luxury brands to

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be significantly affected in such economic Another important development of the luxury

conditions (Reyneke, 2011). Although continued market is the consolidation phase it has passed
research has shown that the mass purchase by since the 1980s. As luxury goods companies have
consumers of luxury is not much affected by very high profit margins, their goods are still
economic conditions and that the performance of attractive and desired by an increasing number of
the companies supplying these goods remains consumers. However, it is interesting to look at
strong even during periods of recession (Silverstein how this industry evolved during the run-up to the
& Fiske, 2005). financial crisis and how it will evolve in the years
Some researchers have argued that large luxury to come, given the current context and the fact that
goods companies have always had the ability to the recession that will be caused by the Covid19
maintain their position for their assets for decades pandemic is expected to have much deeper and
and seemed to defy the effects of wars and longer lasting effects.
economic crises (Brook, 2001). Some brands have
demonstrated a high capacity to recover market Acknowledgement
share, lost as a result of mismanagement or poor This work was co-funded by the European Social
sales and promotion strategies (Reyneke, 2011). Fund, through Operational Programme Human
This may be an indication that luxury brands Capital 2014-2020, project number
operate in a single market niche, which allows POCU/380/6/13/123623, project title “PhD
them to continue their journey, regardless of socio- Students and Postdoctoral Researchers Prepared
economic context (Twitchell, 2002). for the Labour Market!”.
The luxury goods industry is exceptional because it
relies strictly on marketing and promotion to sell
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