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Mia Yang Kristen Foster CO 150.400 28 October, 2013 Should People Spend Money on Luxury Goods when Generic Goods are Available? When you stand on the crossroad of Rodeo Drive in Los Angeles, when you go around on the 5th avenue in New York, have you been attracted by the huge signboard used for advertising luxury goods? Have you experienced the strong desire to get a voluptuous life through buying those goods? Yes, the increasing in peoples income lead to the higher hankering for the income-elastic good, that is, luxury good. Nowadays, luxury goods have unconsciously occupied a large proportion in the global market since last few decades, the larger transaction numbers is still on the tendency to rise even in the recession period, which makes all the economists astonished. This phenomenon stimulates my curiosity about the reason why people purchasing luxuries, finally shapes the posted question which guided my research project: should people spend money on luxuries when generic goods are available? This question merits the further exploration for its growing controversy and exigency, because different larger stakeholders are involved in this market and the remarkable consumption of the luxuries has already become a social issue rather than an economic problem. Whether to buy luxury good or not, it is dependent on the consumers motivations, I suppose that the motivations for people who buy, or not buy, luxuries, are totally diverse and are determined by different characteristics held by different stake groups. Before the start of the formal research, more information is required for the concept of

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luxury, which could help me to shape a primary definition of the luxury market. Some professional explanations distribute luxury good to the products which increase in demand as income gets higher, that means, the good not necessary but desirable (Rhee 49). For

more definitions, we can turn to origin of the word luxury, which equivalent to French luxe, the Italian lusso, and Portuguese lujo----derives from the Latin term luxus.(Park, Reisinger 763), indicating that the word luxury has existed for a long period of time in different countries. According to experts Phau and Prendergast, luxury is something that could be linked to uniqueness, excellence, magic, sensuality or dream. (qtd. in Park, Reisinger 763), which shows the characteristics of the luxury goods. To go more specific, luxury brands, functioning as offering a sense of indulgence (Bian, Forsythe 1443) and providing extra pleasure and happiness, reflecting the fact that luxury-brands furnish more utility except for the practical value. Furthermore, to the social level, luxury is the consequence of social stratification (Kapfere 454), since people who have higher level of income occupy a higher proportion of the consumption of luxury goods. But for Kapfere, a professor who teaches luxury market management (Jean-Nol Kapferer), the core of luxury, is, just what said by a newly rich Chinese man, expensive (Kapfere 455). To get deeper understanding of the luxury market, I try to find the current status and background information about the development of luxuries. Over the past decades, the demand for luxuries is still on the rise. Economists Nelissen and Meijer demonstrate that, according to Global Luxury Retailing, the global expenditure on luxury products hit $450 billion a year by 2012 (Nelissen, Meijers 343). Even during the recession period, the global economic downturn in 2008, the sales of the luxury products is constantly growing with the

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contrast of the sharp decline of the sale of generic goods (Rhee 49). Especially for China market, which is one of the most rapidly growing market in the world, indicates its incredible ability in luxury goods consumption. From the news in The Economics, through the period 2007 to 2011, many luxury goods firms enjoyed double-digit annual growth in China, which became their most important market (Luxury Goods in China Beyond Bling), further illustrating that Chins is the most attractive and profitable market to the luxury companies. After knowing the context of luxury market, I turned to find the motivations that drive people to buy or not to but luxury goods. I hypothesis that the answers for the posted question should people spend money on luxuries when generic goods are available? are just the positive and the negative , so the different perspectives now just rely on the various opinions of the different motivations. Basically, people buy luxury brands for two reasons, to fulfill the individual goals and the social goals (Bian, Forsythe 1443). The most common, and important reason that impel people to purchase luxury goods is to showing high social status. Status, for its concept, is the characteristic of a product that makes it desirable, beyond its standard utilitarian value, which means, the luxury goods make people think more positively of the user (Rhee 50). Since all the luxury products have a common feature, expensive, so pursuing them is a potential symbol of showing off wealth or the occupancy of scarce resources. It is desirable for most people to flaunting wealth because it implies the possession of abundant resources that required buying luxury products and the abilities to acquire resources (Nelissen, Meijers 344). Enhancing high social status may also caused by peoples vanity, especially for Chinese people. In Chinese history, people emphasize public reputation through exhibiting luxury brands (Bian, Forsythe 1446), which

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just fit the subjective function of luxury goods. So, in order to maintaining face (Bian, Forsythe 1446), choosing luxuries becomes their best choices. As previously discussed, peoples motivations can be classified into two different categories, social and individual, status consumption (Rhee 50) could be allocated to the social goal section. Although this result is kind of controversial, the social status relies on other peoples desires to grant it, the ownership of luxuries for status consumption reason is more social than private. (Truong, McColl 556) Another motivation that spurs consumers to turn to luxury products is the experience to seeking for uniqueness, a completely individual motivation. For particular customer groups, like superstars and riches, when price is no longer to be a problem for them, what they need is just for experiencing uniqueness, heading a life of pleasure, just the same like hedonists. Nowadays, the whole economic is undergoing a shift from firm-centered market to the experience-centric market, which encouraging both customers and partners to join in creating co-construct unique experience (Tynan, McKechnie and Chhuon 1158). This kind of experience will finally lead to the win-win situation, since the firm will obtain the profits and the consumers will gain the pleasant sensation. Just like the meaning conveys in the terminology in economics, brand participation, is to experience the brand by actively participating and interacting with it (Schmitt 11). On the other side, due to the high price and restricted allocations (qtd. in Bian, Forsythe 1445), luxury products have already become the non-fungible and scarce thing, which further arouse peoples competition to have a attempt to possess luxuries. Except the social status and experience, people also take products quality into

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considerations, which is the key reason why luxury goods can be attractive to some rational consumers. It is not hard to imagine that luxury products would have a superior quality than generic goods since the high price let producers have more opportunities to use better materials. The first-rate quality may also shape peoples, whose purchasing purpose is gift for others(Park, Reisinger 762) and souvenirs for travel, choices because luxuries can best match their demands. In addition, the most subjective motivation for shopping luxuries is to impress others. Some experts believe that the increasing demand for luxury goods is rooted in the desire for making a favorable impression on others (Shukla 244). There always are some people who regard that the acquisition of luxury brands will make a better image, which drives people who want to conform to the social standards set by the group they wish to belong to dress themselves with luxury products. After researching for the motivations that exhort people to buy luxuries, I continued to think about the intentions that guide people not to purchase luxury goods. The composition of this category of motivations is simpler than those of buying luxuries, for the most common and conspicuous reason that limits consumers to buy is money, the simplest reason. People with lower purchasing power cannot afford the higher price, which finally forms a restrictive condition. To find other motivations, I rethought the posted question, and discovered that people who do not buy luxury goods, which means, they will turn to generic goods (according to my posted question). So, I decided to look for the concept for the generic goods first. According to the business dictionary, generic product is the good that is sold by a name on the basis of

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its function instead of using a brand name; to go to the market level, generic good compete with other goods largely on a price basis (Generic product). The first reason I thought that people who consume generic goods is the usefulness and practicality. Compared with luxury goods, generic products have the absolute advantage on price and practical value. In the past, people always held the view that low price leads to the low quality. Nowadays, this kind of assumption is fading. Since the Great Recession in 2008 left more chances for the presence of generic goods, it may gradually changes peoples taste by renewing its image with good quality and low price for they scoring well in blind taste tests (Tuttle). According to the survey done by PPB (Promotional Products Business), more buyers would like to turn to the brands that give the best quality at a reasonable cost (Horn). On the other side, we can consider whether or not the luxury brand deserves the money labeled. From a personal experience which shown by DeLeeuw, who bought a BMW car; she said I obviously paid premium that had nothing to do with performance or quality, and everything to do with the name (DeLeeuw). Whats more, the marketing strategy which the luxury companies used may let you magnify the true value of luxuries, which referred to Brand associations, aspiring to create or maintain in the consumers mind constitutes a brands identity (Schmitt 9). For the next motivation that shape peoples preference about generic goods, is the rise of counterfeit goods as the constant increasing demand of luxury goods. Since almost all of the consumers want to pursue luxury product to show high social status and personal characteristic, some firms capture customers thoughts that they want to possess luxury goods in cheaper price, so the counterfeit goods rise in respond to the proper time and conditions.

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This phenomenon may bring troubles to someone who wants the authentic luxury good: it is really hard to distinguish them. Also, the problems like missed sales, lost tax revenues and intellectual property rights (Rhee 52) come out with the counterfeit good market, which makes some customers doubt the credibility of luxury brands. After understanding all the motivations I have gathered, I concluded that the intentions that lead people to buy luxuries mainly rely on showing high social status, seeking experience and impressing others. Meanwhile, the motivations that drive people not to buy luxuries depend on money, usefulness, and counterfeit goods. Since there are so many different motivations, which exceeding my previous expectation; I think that the determined factors for the answer of the posted question could be more complicated than I thought before. There might be a struggling process in consumers brain before the final decision that applied to my research question, indicating the simple Yes or No. The whole research process helps me to shape a new view, that sometimes the positive and negative factors may occur at the same time interacted with one consumer, now the consumer must balance it and make the final decision, so the decision is not simply influenced by just one particular motivation, which is the consequence of the interaction of different intentions. So there might no specific answer for my question, since different people have different views. For future research plans, I will research more disadvantages for shopping luxuries, especially the disadvantages which influences the whole society, because I have not covered this part in the previous research. Also, since I am not sure about the development of generic goods, I will find more information about past sale records of generic goods.

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Work Cited Bian, Qin and Sandra Forsythe. Purchase Intention for Luxury Brands: A Cross Cultural Comparion. Journal of Business Research 65.10(2012):1443-1451.Web.24 October 2013. DeLeeuw, Vered How Important Are Brands To You Money Ning. 2007-2013 Money Ning,n.d. Web. 14 October 2013. Generic product. 2013 WebFinance Inc., n.d. Web.9 October 2013. Horn, Lisa. Are Brands Names Really That Important? PPAI publications. 2013 Promotional Products Association International.,20 July 2005, Web. 14 October 2013. Jean-Nol Kapferer. HEC Paris, n.d. Web. 27 October 2013. Kapferer, Jean-Nol. Abundant Rarity: The Key to Luxury Growth. Business Horizons 55.5(2012):453-462.Web.24 October 2013. Luxury Goods in China Beyond Bling. Economists. The Economist Newspaper Limited 2013, 8 June 2013. Web. 14 October 2013. Nelissen, Rob M.A. and Marijn H.C. Meijers. Social Benefits of Luxury Brands as Costly Signals of Wealth and Status. Evolution and Human Behavior

32.5(2011):343-355.Web.14 October 2013. Park, Kwang-Soo, and Yvette Rcisinger. Cultural Difference in Shopping for Luxury Goods: Western, Asian, and Hispanic Tourists. Journal of Travel & Tourism Marketing 26.8(2009):762-777.Web.14 October 2013. Rhee, Seung Yoon. A Study on Why Luxury Goods Sell and their Effects on the Economy. International Proceedings of Economics Development & Research 46.10

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(2012):48-56.Web.7 October 2013. Schmitt, Bernd. The Consumer Psychology of Brands. Journal of Consumer Psychology 22.1(2012):7-17.Web.14 October 2013. Shukla, Paurav. Impact of Interpersonal Influences, Brand Origin and Brand Images on Luxury Purchase Intentions: Measuring Interfunctional Interactions and A

Cross-national Comparison Journal of World Business 46.2(2011):242-252.Web.14 October 2013. Truong, Yann and Rod McColl. Intrinsic Motivations, Self-esteem, and Luxury Goods Consumption. Journal of Retailing and Consumer Services 18.6(2011):555-561. Web.13 October 2013. Tuttle, Brad. Brand Names Just Dont Mean as Much Anymore. Time.com. Time Inc., 1 November 2012. Web. 9 October 2013. Tynan, Caroline, Mckechnie, Sally, and Celine Chhuon. Co-creating Value for Luxury Brands. Journal of Business Research 63.11(2010):1156-1163.Web.18 October 2013.