conspicuous consumption

3 psychological reasons why low-income consumers buy status goods

Image by shannonkringen on Flickr

Here’s a fascinating study that many nerdy (and funky) marketers will find useful.

The study was written by professors Niro Sivanathan from London Business School and Nathan C. Pettit from Johnson Graduate School of Management at Cornell and it’s called Protecting the self through consumption: status goods as affirmational commodities. Professor Sivanathan from LBS has kindly shared the study with me, and today I’m happy to give you a short overview of its main findings.

Let me start by asking you this simple question: WHO are luxury goods produced for? If you think that it’s only wealthy folks who wear expensive clothes and go vacationing in the world’s best hotels, you will be seriously mistaken.

The truth is, low-income individuals often pay for luxuries that they can theoretically not afford.

How can this be explained? The main reasons are, according to the study, psychological.  Sometimes, buying a luxury good, or indulging in a luxury service is the simplest way to repair our egos.

This can take several forms:

1) People seek status goods when they experience self-threat and need to heal psychological wounds. This is true for both high and low-income individuals.

For example, if you are a woman who has just gone through a divorce, you’d be likely to find yourself tempted to spend significant amounts of money on new clothes, beauty treatments, gym subscriptions and exotic vacations. Because this can make you feel good about yourself -- and this is worth paying a high price for.

Interestingly, the study showed that when individuals have another route to repair their self-integrity -- an alternative to acquiring status goods -- they tend to be less interested in seeking these goods.

2) Status goods serve the purpose of protecting an individual’s ego from future self-threats. They often serve as a buffer, or armor, against things that can go wrong in the future. In the study, those individuals who were asked to imagine that they had an expensive car, felt less threatened to face future self-threats than those without a car.

3) Some individuals’ lowered self-esteem drives their willingness to pay a premium on status goods. This explains economists’ observation that it is “often those earning the least that spend the greatest fraction of their income on conspicuous consumption”.  They acquire goods not for their functional properties, but to signal social status.

I remember witnessing my friends spending all their annual savings in one go (!) on a pair of shoes or jeans right after the Soviet Union collapsed. Status was everything and people were prepared to give all the cash they had to signal their associations with expensive and, importantly, famous, brands.

What might be the implications of this study for those who want to build Funky Brands™ ?

  • First of all, a status good is technically speaking not only simply a very expensive and good quality item. It is first and foremost a strong b r a n d. From the consumer’s perspective, there’s for sure no reason to spend any money, especially if her income is not that great, on something that is not known by others.
  • It’s often not just luxury, but affordable luxury goods producers, who are able to deliver on two important aspects. First, they can sell their products at prices which are not as high as pure luxury. And second, they are able to infuse these goods with an aura of style, luxury and status.

So, if you urgently need to repair your ego, you can do it perfectly well by getting yourself a Victoria’s Secret lingerie set, and skipping La Perla altogether.

Join the Affordable Luxury group on LinkedIn, and share the news and opinions about this exciting segment.

Diffusion brands vs parent brands

A significant advantage that successful luxury brands have, is that they have a good chance to launch diffision brands. Diffusion brands are a form of a line extension, discussed before.  They are “step-down line extensions of existing  luxury brands, normally less expensive than the  main-line merchandise.” ((How Young Adult Consumers Evaluate Diffusion Brands: Effects of Brand Loyalty and Status Consumption, Ian Phau Edith Cheong , Journal of International Consumer Marketing, 21:109–123, 2009))  They are often called second lines, subbrands and endorsed brands. Think of them as “children” of their more established “parent brands”.

Armani dot com screenshot

Examples of diffusion brands abound in the fashion world, for instance. Armani launched  Armani Exchange, Calvin Klein introduced CK, and Prada started a diffusion brand with a whole new name: Miu Miu. In all of these cases, the important condition for introducing diffusion brands was very high brand loyalty and brand recognition of parent brands. In other words, unless the brand equity of your parent brand is high, it might not be even a good idea to start considering diffusion brand launches.

There are several observations that I want to make in relations to diffusion brands:

  1. By launching a diffusion brand, a parent luxury brand de facto enters a whole new world of new luxury (also referred to as mass luxury and affordable luxury). I wrote on this subject before. New luxury is where many funky or funky-to-be brands develop.  If done properly, the new luxury positioning can bring enormous benefits to both: a child brand and the parent.
  2. Diffusion brands are a good way to target consumers who are usually much younger than the main target market of parent brands. They can tap well into the trend of status consumption, “The motivational process by which individuals strive to improve their status through the conspicuous consumption of consumer products that confer and symbolize status both for the individual and surrounding significant others.” ((Status consumption in consumer behavior: scale development and validation, Eastman, J. K., Goldsmith, R. E., and Flynn, L. R.  Journal of Marketing Theory and Practice. Summer 1999, 41–52.))
  3. Empirical research demonstrates ((Phau, Cheung, Journal of International Consumer Marketing, 21:109–123, 2009)) that diffusion brands have the same quality and status perception among younger target market as parent brands. This is a great way to appeal to a younger audience, and chances are that it will later on develop preferences for the parent brand as well.
  4. Importantly, the success of diffusion brands is often determined by a brand naming strategy. To put it simply, if a child brand bears the name of the parent (like Armani Exchange has a name of the parent brand, Armani), the benefits reaped from the existing status of a parent brand are almost immediate. If, however, a child brand is given a totally new name (Miu Miu vs Prada), such benefits are much less apparent. ((ibid.))

Armani Exchange screenshot

Diffusion brands are not a phenomenon characteristic exclusively for luxury products and services. On the contrary, they frequently occur in a very vast and complex area of brand architecture.