Post on 27-Apr-2020
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To Buy or Not to Buy?
-A Study on the Price Discount on Luxury
Goods, Chinese Consumers’ Luxury
Perception, and Purchasing Behavior
Master’s Thesis 15 credits
Department of Business Studies
Uppsala University
Spring Semester of 2018
Date of Submission: 2018-06-01
Authors: Yang Lu & Yue Yuan
Supervisor: Pao Kao
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Abstract:
As the Chinese luxury market has become one of the biggest in the world, this thesis
seeks to investigate the relationship between the luxury perception of Chinese
consumers and their willingness to buy under the price reduction. Drawing from
Wiedmann’s concepts of luxury values, we propose a framework to measure the
luxury value perception of Chinese consumers through the functional, individual, and
social dimensions.
We conduct a quantitative research and collect 315 valid questionnaires from Chinese
luxury consumers. In questionnaires, we ask them to rate the perception of luxury
goods and their willingness to buy when the price is reduced by 20% and 40%
respectively. We perform multiple linear regression with SPSS. The results show the
value perception in the individual dimension has positive impact on the willingness to
buy, and the more price is reduced, the more impact it will have, whereas, the value
perception in the functional dimension is not significantly related to the willingness to
buy under both price reductions. The value perception in the social dimension is
positively related to the willingness to buy when the price is reduced by 20%, but
there is no significant relationship when the price is further reduced by 40%.
Key Word: Luxury, Consumer Perception, Luxury Value, Willingness to buy, China,
Price Reduction
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Table of Contents
1. Introduction: _____________________________________________________ 1
2. Literature Review, Theoretical Model, and Hypotheses ___________________ 5
2.1 The Framework to Measure Luxury ___________________________________ 5
2.2 Luxury Pricing Strategy & Consumers’ Willingness to Buy ________________ 9
2.3 Theoretical Framework and Model ___________________________________ 11
3. Methodology ____________________________________________________ 13
3.1 Research Design___________________________________________________ 13
3.2 Operationalisation of Variables ______________________________________ 13
3.3 Empirical Data Collection __________________________________________ 17
3.4 Sample Background Information ____________________________________ 18
3.5 Reliability ________________________________________________________ 19
3.6 Correlation Matrix & Validity _______________________________________ 21
4. Analysis & Results _______________________________________________ 25
4.1 In the Functional Dimension: ________________________________________ 27
4.2 In the Individual Dimension: ________________________________________ 27
4.3 In the Social Dimension: ____________________________________________ 28
5. Discussion, Conclusion and Managerial Implication ____________________ 30
6. Limitations ______________________________________________________ 33
7. References ______________________________________________________ 34
8. Appendix 1 ______________________________________________________ 38
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1. Introduction:
The Chinese market now has become the biggest market of luxury goods. Currently,
32% of the total world-wide sales of luxury goods is from China. The Compound
Annual Growth Rate of the luxury goods market in China reached 20% in 2017
(Table 1-1). A wide spectrum of jewelries, women & men garment, footwear, bags,
watches, cosmetics and perfumes are warmly welcomed by all around China,
especially by the millennials (born from 1982-2000 ) (BAIN & Company, 2018).
Table 1-1 The Chinese Luxury Market in 2017 (Per RMB100 Million )
Contrast to the opinion that the Chinese consumers intend to invest in luxury fashion
brands (Bruce & Kratz, 2007), the Chinese luxury consumers are changing to be more
favorable of the non-financial values, such as originality and novelty (BAIN &
Company, 2018). The Chinese customers now purchase the luxuries to obtain the
values of adorned aesthetics, being cool and sexy, quality, exclusivity, craftsmanship,
etc. (The Boston Consulting Group, 2017).
This booming Chinese luxury market is surprising, because the overall sales of luxury
goods in China has remained almost static for 5 years before 2015. However, during
2015, nearly all the luxury brands in China have reduced prices drastically. For
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instance, in April 2015, Chanel announced its new prices for its classic bags coded as
“Le Boy Chanel” and “Chanel 11.12” ( Table 1-2.) and the prices merely for the
Chinese market have been cut approximately 20% (IFENG, 2015).
Bag Code Before April, 2015 After April, 2015
Le Boy Chanel RMB 32700 RMB 26000
Chanel 11.12 RMB 38200 RMB 30000
Table 1-2 Prices of Chanel Bags in 2015
Another example is Gucci, it made 50% discount for nearly all its product categories
in China in the summer of 2015, and many other luxury brands, such as Cartier,
followed the price reduction strategy in China (IFENG, 2015). As the result of the
overwhelming price reductions in luxury brands, the sales of luxury goods in China
showed the blow-ups. The overall sales of the luxury brands in China rocketed to
USD 22.07 billion in 2017 (BAIN & Company).
Usually the price for the luxury goods is set higher than its counterparts in non-luxury
brands to convey the sense of superiority and other values to its consumers. The
recent studies also show the price reductions of luxury might lead to a downfall of
willingness to buy, which means the price is positively related to the luxury goods.
Hawkins (1954) has stated the phenomena that consumers buy less as price is
reduced. Groth and McDaniel (1993) have mentioned that setting a rather high price
to suggest high quality and/or high status may even make certain products or services
more desirable. For luxury products, an increase in price may actually result in an
increase in the quantity demanded (Solomon & Stuart, 1997).
Nevertheless, the Chinese luxury market is singing a different tune. The price seems
to be somewhat negatively related to the willingness to buy, since the result of the
price reduction strategy is surprisingly fruitful and has made the Chinese luxury
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market grow into the biggest luxury market around the world (BAIN, 2018). What is
the reason hidden behind?
Dubois and Laurent (1994) believe luxury actually is an abstract concept with the
meanings eventually determined by consumer perception. Further, Dubois et al.
(2001) state the consumers’ attitude (willingness to buy) toward luxury varies not
only by the luxury’s functional needs, but also by psychological needs. Vigneron and
Johnson (1999) also suggest luxury encompassing both physical and psychological
values. Wiedmann (2007) describes luxury is a subjective and multi-dimensional
construct. He has integrated a model of luxury values multi-dimensionally. We thus
employ three non-financial dimensions of luxury values proposed by Wiedmann
(2007) in our study, namely, the functional dimension, the individual dimension, and
the social dimension. Empirical studies have attempted to understand the financial
value of luxury goods and their markets in China (BAIN, 2018), while this study
focuses on consumer perception of luxury and luxury goods in non-financial
dimensions.
This thesis aims to investigate the influence of price reduction on luxury goods in
China on Chinese consumers’ willingness to buy. Specifically, we ask the following
research question:
What is the relationship between the Chinese luxury consumers' perception (in
functional, individual and social dimension) and their willingness to buy at
different luxury price reductions?
This thesis is presented in the following structure. Chapter 2 discusses how previous
researches have described luxury and luxury values and we propose our theoretical
model on luxury value perception and consumers’ willingness to buy under price
reductions. Chapter 3 introduces the methodology to investigate our proposed model
including how we conduct a quantitative study, how we design the research, how we
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collect the data through our online questionnaires, how we test the reliability and
validity of these data. Chapter 4 presents the results of our analysis and the following
chapter 5 is the discussion for the results, the conclusion together with a managerial
implication. Lastly, we mention some limitations in our study in Chapter 6. We also
attached our online survey questionnaires as the appendix in addition to the reference
list.
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2. Literature Review, Theoretical Model, and Hypotheses
Etymologically, the word luxury derives from the Latin word "lux" and can be
translated as light, luminosity or luminance, thereby referring to the outer radiance of
luxury objects (Michael and Paurav, 2015). However, the attention to luxury in the
academic literature was not much until recently. The American Marketing
Association's Dictionary of Terms even does not contain a definition of "luxury",
"luxury brand", or "luxury marketing". It has been argued there is not a widely
accepted definition of what constitutes luxury goods (Ko, Costello, and Taylor, 2017).
There are also confusions over luxury goods and luxury brands. Berthon et al. (2009,
p.45) declare "Luxury increasingly became the brand — carefully crafted symbols,
which go beyond the material, beyond the craftsmen to invoke a world of dreams,
images, signs, and motifs.". In this study, we put focus on the value perception of
luxury goods and do not make a distinction between luxury goods and luxury brand.
2.1 The Framework to Measure Luxury
Dubois, et al.(2001) has led us to look at measurements which can be objectively
defined by consumer perception with the six facets to frame the concept of luxury,
such as the facet of excellent quality and the facet of scarcity. Keller (2009) has
displayed the importance of the angle of consumer perception to define luxury in
order to make the measurements of luxury easier to be operationalized. In his study,
ten defining measurements have been discussed like maintaining a premium image,
secondary association from linked personalities, events, countries, and other entities
and premium pricing strategy.
Furthermore, Berthon, et al. believe luxury is "more than a characteristic or set of
attributes" (2009, p.47). They view luxury from three perspectives, namely, (1) the
objective (material) perspective, which consists of exquisite material and
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craftsmanship, high functionality, and impressive performance, (2) the subjective
(individual) perspective, which relates to the consumers’ personal hedonic value of a
brand, (3) the collective (social) perspective, which reveals the value of a brand’s
signals to others and the value of that signal to the signaler (2009).
Other scholars, such as Vickens and Renand (2003), Wiedmann (2007), Hagtvedt and
Patrick (2009), and Helne (2012) also associate luxury with consumer perception and
have suggested the importance of high level of price, functionality and symbolic value
(individual and social value) to luxury goods.
Wiedmann (2007) explain consumers’ perception on luxury values from multiple
dimensions. Three dimensions of them are functional dimension, individual
dimension, and social dimension. Accordingly, Table (2-1-1) is the three dimensions
containing eight non-financial luxury values integrated by Wiedmann.
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Dimension Value Description
Functional
Dimension
1 Usability The Particular Function to Achieve the Goal to
Satisfy Consumer Needs (Hanzaee, et al., 2012).
2 Quality Excellent Product Quality and Performance That
Not Mass-Produced, But Often Hand-made (e.g.,
Dubois and Laurent, 1994; 1996; Garfein, 1989;
Roux, 1995; Quelch 1987; Garfein 1989; Nia and
Zaichkowsky, 2000; O’Cass and Frost, 2002;
Vigneron and Johnson, 2004).
3 Uniqueness The Perceived Exclusivity and Rareness of a
Limited Product (Verhallen, 1982; Lynn, 1991;
Pantzalis, 1995).
Individual
Dimension
4 Self-Identity The Internal (private) Facet of One’s Self in Terms
of the Way the Individual Perceives Him or Herself
(Mehta,1999; Sirgy and Johar, 1999; Jamal and
Goode, 2003)
5 Hedonic Value The Emotional value and Intrinsic Enjoyment
Brought by Luxury Goods (Hirschman and
Holbrook, 1982; Sheth, et al., 1991; Westbrook and
Oliver, 1991).
6 Materialistic Value The Degree to Which Individuals Principally Find
Possessions to Play a Central Role in One’s
Life(Hanzaee, et al., 2012).
Social
Dimension
7 Conspicuousness
Value
The conspicuous consumption plays a significant
part in shaping preferences for many products which
are purchased or consumed in public contexts
(Braun and Wicklund, 1989; Hong and Zinkhan,
1995; Bagwell and Bernheim, 1996; Corneo and
Jeanne, 1997).
8 Prestige Value in
Social Networks
The Conforming Power to the Majority Opinion of
Their Membership Groups (Hanzaee, et al., 2012).
Table 2-1-1 Luxury Three Dimensions of Non-financial Values
The usability value, the quality value and the uniqueness value of luxury goods
belong to the functional dimension which means the core benefit and fundamental
usage of a luxury brand that can motivate consumers to build a positive relationship
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(Hanzaee, et al., 2012). Usability value stands for the capability of a product or
service to meet the consumers’ demands (Wiedmann, et al., 2007). As it contains both
the feature of the product (service) and the consumers’ needs, when the product
(service) is perceived as well working, good looking, long time lasting and so forth,
consumers feel its usability value. Quality value refers to the preferable quality
consumers perceived when using a luxury product (Wiedmann, et al., 2007). For
example, consumers tend to link the hand-made product to luxury product rather than
machine-made ones. Uniqueness value means the exclusivity of a product which
makes it rare and precious (Wiedmann, et al., 2007). When the uniqueness value is
perceived by consumers, they can feel the product they use is more valuable and
distinguished which enhances their satisfaction.
The individual dimension consists of the self-identity value, hedonic value, and
materialistic value which means a consumers’ individual preference and perception
such as attitude and taste about luxury product, and it is mainly based on his/her
personal characteristics (Hanzaee, et al., 2012). Self-identity value refers to
consumers’ private ways of understanding and perceiving themselves, which is
usually different from the perspective by other people and environment (Wiedmann,
et al., 2007). When the luxury product matches a consumers’ own perception on
himself/herself, he/she would feel his/her traits are recognized and respected, which
usually leads to the higher preference on a luxury brand. Hedonic value refers to the
psychological and emotional experience a consumer perceived when using a luxury
product (Wiedmann, et al., 2007), which is associated with instinct enjoyment.
Materialistic value is the level of how possessing a certain product can improve
consumers’ status in their own mind (Wiedmann, et al., 2007). Consumers are
supposed to be more desiring when achieving this kind of value.
The last two values, namely, the conspicuousness value and the prestige value in
social networks, constitute the social dimension (Hanzaee, et al., 2012). Social
dimension is the perceived utility consumers require for being recognized by their
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social groups in consuming luxury product (Wiedmann, et al., 2007). When
consumers’ social groups recognize and appreciate their choice in luxury product
consumption, they achieve the consensus and gain satisfaction. Conspicuousness
value refers to the influence from reference group when consuming luxury product
(Wiedmann et al., 2007). With a luxury product in public, consumers are likely to be
more enjoyable than just private using. Prestige value means the utility of luxury
product in possessing a social status and retaining a social group membership. It
strongly stimulates consumers when they intend to belong to some social group they
want.
2.2 Luxury Pricing Strategy & Consumers’ Willingness to Buy
Price represents to all consumers the amount of economic outlay that must be
sacrificed in order to engage in a given purchase transaction (Lichtenstein, Ridgway
and Netemeyer, 1993). One of the most fundamental concepts in economics related to
price is the law of demand, which shows the curve of higher the price, the lower the
quantity demanded, as the opportunity cost of the consumers will increase as the price
rises. (Nicholson, 2012).
Figure 2-2-1 Law of Demand
Nevertheless, numerous studies have provided evidence that many consumers use the
price cue as a signal to indicate product quality, for instance, Hawkins (1954)
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mentioned about the phenomena that consumers buy less as price is reduced and the
Figure 2-2-2 below shows that the positively sloped segment slopes upward because
consumers are suspicious of low prices.
Figure 2-2-2 Demand Curve Showing a Prestige Pricing Situation
For luxury products, an increase in price may actually result in an increase in the
quantity demanded (Solomon and Stuart, 1997). Thus the demand curve actually
slopes upward for prestige products. If the price is lowered, the product is perceived
to be less desirable and demand may decrease (Solomon and Stuart, 1997). Bagwell &
Bernheim (1996) also talked about the "Veblen Effect" to describe the consumers’
willingness to pay a premium price for a functional equivalent product that is
perceived to be more prestigious.
Prestige pricing – setting a rather high price to suggest high quality and/or high status
(McCarthy and Perreault, 1987) – may even make certain products or services more
desirable (Groth and McDaniel, 1993). The luxury value perception are supposed to
have a positive impact on purchase intention, recommendation behavior, and the
willingness to pay a price premium (Hennings et al., 2015).
Therefore, to those researches, the price for the normal goods usually has a negative
relationship with people’s willingness to buy, whereas, in regard with the luxury
goods, the price has a positive relationship with people’s purchase intention. However,
what happened in the Chinese luxury market in the year of 2015 seems violating this
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rule. What is the reason hidden behind? This thesis hereby tries to answer this paradox
in terms of the impact of luxury value perception on the consumers’ willingness to
buy by categorizing the luxury values into three dimensions, namely the functional
dimension, the individual dimension and the social dimension.
2.3 Theoretical Framework and Model
In this thesis, we ask the following research question: What is the relationship
between the Chinese consumers' luxury value perception (in functional,
individual and social dimensions), and their willingness to buy during price
reductions? Hereby, we propose these following hypotheses:
We take price reduction (reduced 20% and 40% off the normal price respectively) as
the stimulus to change people’s perception of the same piece of luxury goods and
make the hypotheses to see whether the degree of reduction in prices can change
people’s perception and thus change their willingness to buy or not.
In the Functional Dimension:
Hypothesis 1a: The Chinese consumers’ perception of luxury values in its functional
dimension (uniqueness, quality and usability) will influence the willingness to buy
when the price is reduced 20%.
Hypothesis 1b: The Chinese consumers’ perception of luxury values in its functional
dimension (uniqueness, quality and usability) will influence the willingness to buy
when the price is reduced 40%.
In the Individual Dimension:
Hypothesis 2a: The Chinese consumers’ perception of luxury values in its individual
dimension (self-identity, hedonic value and materialistic value) will influence the
willingness to buy when the price is reduced 20%.
Hypothesis 2b: The Chinese consumers’ perception in its individual (self-identity,
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hedonic value and materialistic value) will influence the willingness to buy when the
price is reduced 40%.
In the Social Dimension:
Hypothesis 3a: The Chinese consumers’ perception of luxury values in its social
dimension (conspicuousness value and prestige value in social networks) will
influence the willingness to buy when the price is reduced 20%.
Hypothesis 3b: The Chinese consumers’ perception of luxury values in its social
dimension (conspicuousness value and prestige value in social networks) will
influence the willingness to buy when the price is reduced 40%.
The theoretical model we aim to investigate can be seen below (chart 2-3):
Chart 2-3 The Relationships Between the Luxury Value Perception and Willingness to Buy
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3. Methodology
This chapter describes the methods and procedures used in our research, including
research design, research questions, and sample population. How empirical data are
collected and their characteristics are presented. The test results for the data’s
reliability and validity are also revealed here.
3.1 Research Design
This thesis employs a quantitative study with the empirical data collected from people
aged from 18 to 65 via online survey. Our primary purpose is to investigate whether
people’s perception of luxury goods values will have a different effect on consumers’
willingness to buy when the price of a piece of luxury goods dropping 20% and
dropping 40%.
The reason we choose to conduct an online survey is because of low cost and easy
accessible information (Shuttleworth, 2008). Moreover, since it is a study of how
people think about the luxury values and their intentions to pay, the survey research
design becomes an adequate choice as "a valuable tool for assessing opinions and
trends." (Shuttleworth, 2008, p.1.).
3.2 Operationalisation of Variables
We test our hypotheses with two conditions – when price reduction of luxury goods is
20%, and 40% respectively.
The Independent Variables:
In our research, the independent variable of X1 - Functional Dimension, is
operationalized as the average score of the respondents' perception on the usability
value, quality value and the uniqueness value on a luxury bag. Independent variable
X2 – Individual Dimension, is operationalized as the average score of the respondents'
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perception on self-identity value, hedonic value and materialistic value on a luxury
bag. Independent variable X3 - Social Dimension, is operationalized as the average
score of the respondents' perception on conspicuousness and prestige value in social
network on a luxury bag.
We ask respondents to rate their score on these three dimensions when the price of the
luxury bag is reduced 20% and 40%. All these dimensions and their values are
measured by a 7-points Likert Scale; the highest score is 7 points and the lowest score
is 1 point.
The Dependent Variables:
The Dependent variable Y – Purchase intention is operationalized as the respondents’
willingness to buy. We asked respondents to rate their willingness to buy on a 7-points
Likert Scale with the highest score is 7 points and the lowest score is 1 point. The
respondents are to rate this score on when the price of the luxury bag is reduced 20%
and 40% respectively.
The Control Variables:
Previous literatures suggest that consumers’ age, gender, education background,
annual family income and their residency may influence their willingness to purchase
luxury goods. As such, we include them as control variables in this study. There will
be more discussions on their influence among the independent variables in the
correlation matrix in Chapter 3.6.
The questionnaire can be found in Appendix 1, and our constructs and variables are
shown in the Table 3-2-1
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Dimension Variable Measurement Description Example questions (please see appendix 1)
Functional
(X1)
Independent 7-point Likert
scale (Ordinal
variable)
The average
score of
usability,
quality, and
uniqueness value
Usability value: how much do you rate the luxury good’s
particular function to achieve the goal to satisfy consumer needs
Quality value: how much do you rate the luxury good’s excellent
product quality and performance that not mass-produced, but
often hand-made
Uniqueness value: how much do you rate the luxury good’s
perceived exclusivity and rareness as a limited product
Individual
(X2)
Independent 7-point Likert
scale (Ordinal
variable)
The average
score of
self-identity,
hedonic value
and
materialistic
value
Self-identity value: how much do you rate the luxury good’s
internal/private facet of one’s self in terms of the way the
individual perceives him or herself.
Hedonic value: how much do you rate the emotional value and
intrinsic enjoyment brought by luxury goods
Materialistic value: how much do you rate possessing the luxury
goods can play a central role in one’s life
Social (X3) Independent 7-point Likert
scale (Ordinal
variable)
The average
score of
conspicuousness,
and
prestige value in
social networks
Conspicuousness value: how much do you rate the influence from
reference group when consuming luxury product
Prestige value: how much do you rate the utility of luxury good
in possessing a social status and retaining a social group
membership
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Dimension Variable Measurement Description Example questions (please see appendix 1)
Purchase
Intension
(Y)
Dependent 7-point Likert
scale (Ordinal
variable)
Willingness to
buy
Suppose there is a luxury bag originally priced at 10,000 Yuan,
how much do you rate your willingness to buy?
Age Control Nominal
variable
The range of age
of respondent
(1) 18-25; (2) 26-29; (3) 30-34; (4) 35-44; (5) 45-64
Gender Control Nominal
variable
The gender of
respondent
Male/Female
Education
background
Control Nominal
variable –
The education
background of
respondent
(1) High school and below; (2) With bachelor degree; (3) With
Master degree; (4) With Doctoral degree and above
Annual
family
income
Control Nominal
variable –
The range of
annual family
income of
respondent
(1) Less than RMB 50K, (2) Between 50-100K RMB; (3)
Between 100-200K RMB; (4) Between 200-500K RMB; (5)
500K RMB and above
Residency Control Nominal
variable –
The location
where
respondent
resides
The 34 provinces and autonomous regions in China
Table 3-2-1
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3.3 Empirical Data Collection
According to the sixth national census report, the age proportion of the Chinese
population is listed as Chart 3-3-1 (National Bureau of Statistics of China, 2011). We
sent our online questionnaires to the respondents in accordance with this age
proportion. There are 632 questionnaires totally. We sent 88 questionnaires to the
people aged 18-25, 82 questionnaires to the people aged 26-29 , 76 questionnaires to
the people aged 30-34, 127 questionnaires to the people aged 35-44, and 259
questionnaires to the people aged 45-64. At the same time, 50% of the respondents are
male and 50% are female. The educational backgrounds of all the respondents are
picked up at random. We distributed the questionnaires mainly in Shanghai and the
locations nearby. 315 of the respondents have given us effective and complete
feedbacks and they have all purchased at least one piece of luxury before. The
response rate is 49.84%.
Chart 3-3-1 Chinese Age Proportion
In the online questionnaire (Appendix 1), we have asked all the respondents to rate
from 1-7 in Likert-type for the value perceptions of a luxury bag at the normal price
of RMB 10,000 (around USD 1,500) when they are at normal price, at the price
reduction of 20%, and at the price reduction of 40% lower respectively.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
18-25 26-29 30-34 35-44 45-64
Age Proportion
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The reason we set RMB 10,000 as the normal price of a luxury bag is the luxury bags
with price ranged from RMB 5,000 to RMB 9,999 sell the best in the Chinese luxury
stores, 40.4% out of all price ranges (The Chinese Luxury Consuming Study: The
Diversity of the Luxuries, 2013).
We have made a pre-test when designing this online questionnaire. 4 male
interviewees and 4 female interviewees, aged from 25-40, were asked to fill our draft
questionnaire. We examined their completed questionnaires and made interviews with
them, asking how much they understood our questions and what we could improve.
From the pre-test, we have learned some values, such as the conspicuous value and
the prestige value in networks, need more explanations to help understanding,
otherwise they are easily to be mixed up with other values. We then have added some
explanations beside each value in the questionnaire. The respondents of this pre-test
also gave us some useful suggestions, such as to highlight the price reduction of 20%
and 40%, so that they can find the difference easily when rating the same value. Some
of the respondents mentioned that some luxury consumers are not working, they don’t
have income personally but their family can support their purchase of luxuries, so we
change the question asking their personal income into the family income. It is after
the pre-test and improvement of our questionnaire that we began to send our
questionnaires out.
3.4 Sample Background Information
75% of these 315 respondents are from Shanghai, one of the most modern cities and
probably the largest luxury market in China. Also, among these 315 respondents, the
female is around the double amount of the male as Chart 3-4-1 shows. The
information about these respondent’ education background and the family annual
income is also shown as Chart 3-4-2 & Chart 3-4-3 below.
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Chart 3-4-1 Respondents’ Gender Background
Chart 3-4-2 Respondents’ Education Background
Chart 3-4-1 Respondents’ Annual Family Income
3.5 Reliability
Since the independent variable of Functional Dimension, Individual Dimension and
Social Dimension are the focal variables we would like to study, it is necessary for us
to test the reliability of their scales first.
Through SPSS with the 315 valid cases, at both price reductions,we test the reliability
68.57%
31.43%
0.00%
20.00%
40.00%
60.00%
80.00%
Female male
Gender
9.55%
48.73% 39.81%
2.87%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
High School or Below
Bachelor Master Docotor or Above
Education
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
<RMB 50K RMB 50K-100K
RMB 100K-200K
RMB 200K-500K
> RMB 500K
Annual Family Income
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of the variable of Functional Dimension which is made up by three items, i.e., the
perception for usability, uniqueness and quality. The results are as below Table 3-5-1
and Table 3-5-2
Reliability Statistics
Cronbach's
Alpha N of Items
,803 3
Table 3-5-1 Functional Dimension (Price Reduced 20 %)
Reliability Statistics
Cronbach's
Alpha N of Items
,812 3
Table 3-5-2 Functional Dimension (Price Reduced 40 %)
Similarly, we test the reliability of Individual Dimension which is also made up by
three items, i.e., the perception for self-identity, hedonic value and materialistic value
at both price reductions, shown as Table 3-5-3 and Table 3-5-4
Reliability Statistics
Cronbach's
Alpha N of Items
,906 3
Table 3-5-3 Individual Dimension (Price Reduced 20 %)
Reliability Statistics
Cronbach's
Alpha N of Items
,913 3
Table 3-5-4 Individual. Dimension (Price Reduced 40 %)
Lastly, we test the reliability of Social Dimension, which consists of two items, i.e.,
the perception for the conspicuousness value and prestige value, presented as below
Table 3-5-5 and Table 3-5-6
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Reliability Statistics
Cronbach's
Alpha N of Items
,846 2
Table 3-5-5 Social Dimension (Price Reduced 20 %)
Reliability Statistics
Cronbach's
Alpha N of Items
,873 2
Table 3-5-6 Social Dimension (Price Reduced 40 %)
The reliability test results (Table 3-5-1 to Table 3-5-6) show that all the Alpha
Coefficients are above 0.7 at both price reductions, suggesting very good internal
consistency reliability for the variables of Functional, Individual and Social
Dimension (Nunnally, 1978).
3.6 Correlation Matrix & Validity
To test the validity of the data from our online questionnaire, Pearson correlation
coefficients via SPSS is employed in this thesis to find the significantly correlated
constructs (variables).
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Table 3-6-1 Bivariate Pearson R (20% Price Reduction)
23
Table 3-6-2 Bivariate Pearson Correlation (40% Price Reduction)
24
Table 3-6-1 shows correlations between the dependent variable and all independents
variables at 20% price reduction. Table 3-6-2 shows correlations at 40% reduction. As
shown in the first column of both tables, none of the control variables (Income, Age,
Gender, Education, Residency) are significantly correlated with Willingness to Buy.
That is, all p-values (in brackets) are greater than .05. This indicates that we could
drop the control variables for further analysis since they are not important for
Willingness to Buy.
The three focal independent variables, Functional, Individual, and Social Dimensions,
are all significant and positively related to the dependent variable for both price
reductions. This is in line with our hypotheses and suggests these independent
variables are valid for further analysis. It is also important to note that none of the
correlations between independent variables are above .9, meaning that the data does
not show signs of multicollinearity. The highest correlation is between the social
dimension and individual dimension, .778 at 20% reduction and .795 at 40%
reduction.
25
4. Analysis & Results
We used SPSS and ran a regression analysis to test our hypotheses. The results are
shown below.
Table 4-1 Model Summary of Regression (Price Reduced 20%)
Table 4-2 ANOVA of Regression (Price Reduced 20%)
Table 4-3 Coefficients of Regression (Price Reduced 20%)
26
Table 4-4 Model Summary of Regression (Price Reduced 40%)
Table 4-5 ANOVA of Regression (Price Reduced 40%)
Table 4-6 Coefficients of Regression (Price Reduced 40%)
Table 4-1 to 4-3 show when price is reduced by 20%, and Table 4-4 to 4-6 show the
results when price reduced by 40%. The R Squares in the model summaries (Table 4-1
& 4-4) have shown the models can explain acceptable percent of the variance in
willingness to buy at both price reductions. The ANOVA Tables 4-2 and 4-5 indicate
the both models are significant (p <0.005). The VIF columns in the Coefficients Table
4-3 and 4-6 imply the data does not show signs of multicollinearity since they are all
27
below 10.
4.1 In the Functional Dimension:
Hypothesis 1a: The Chinese consumers’ perception of luxury values in its functional
dimension (uniqueness, quality and usability) will influence the willingness to buy
when the price is reduced 20%.
From the Coefficients Table (4-3), the significance (p value) of Functional Dimension
is 0.509, which is above 0.05, so there is no significantly casual relationship between
people’s perception of the luxury values in the functional dimension and their
willingness to buy. Hypothesis 1a can NOT be proved.
Hypothesis 1b: The Chinese consumers’ perception of luxury values in its functional
dimension (uniqueness, quality and usability) will influence the willingness to buy
when the price is reduced 40%.
From the Coefficients Table (4-6), the significance (p value) of Individual
Dimension is 0.723, which is above 0.05, so there is no significantly casual
relationship between people’s perception of the luxury values in the functional
dimension and their willingness to buy. Hypothesis 1b can NOT be proved.
4.2 In the Individual Dimension:
Hypothesis 2a: The Chinese consumers’ perception of luxury values in its individual
dimension (self-identity, hedonic value and materialistic value) will influence the
willingness to buy when the price is reduced 20%.
From the Coefficients Table (4-3), the significance (p value) of Individual
Dimension is 0.000, which is below 0.05, so there is a significantly casual relationship
28
between people’s perception of the luxury values in the functional dimension and their
willingness to buy. Hypothesis 2a can be proved. Since the Standardized Coefficients
Beta is 0.410 >0, the luxury value perception in the individual dimension has a
positive relationship with Willingness to Buy when price is reduced by 20%.
Hypothesis 2b: The Chinese consumers’ perception in its individual (self-identity,
hedonic value and materialistic value) will influence the willingness to buy when the
price is reduced 40%.
From the Coefficients Table (4-6), the significance (p value) of Individual Dimension
is 0.000, which is below 0.05, so there is a significantly casual relationship between
people’s perception of the luxury values in the functional dimension and their
willingness to buy. Hypothesis 2b can be proved. Since the Standardized Coefficients
Beta is 0.588 >0, the Individual Dimension has a positive relationship with
Willingness to Buy when price is reduced by 40%.
4.3 In the Social Dimension:
Hypothesis 3a: The Chinese consumers’ perception of luxury values in its social
dimension (conspicuousness value and prestige value in social networks) will
influence the willingness to buy when the price is reduced 20%.
From the Coefficients Table (4-3), the significance (p value) of Social Dimension is
0.000, which is below 0.05, so there is a significantly casual relationship between
people’s perception of the luxury values in the functional dimension and their
willingness to buy. Hypothesis 3a can be proved. Since the Standardized Coefficients
Beta is 0.365 >0, the Individual Dimension has a positive relationship with
Willingness to Buy when price is reduced by 20%.
Hypothesis 3b: The Chinese consumers’ perception of luxury values in its social
29
dimension (conspicuousness value and prestige value in social networks) will
influence the willingness to buy when the price is reduced 40%.
From the Coefficients Table (4-6), the significance (p value) of Functional Dimension
is 0.009, which is above 0.05, so there is no significantly casual relationship between
people’s perception of the luxury values in the social dimension and their willingness
to buy. Hypothesis 3b can NOT be proved.
We can conclude our model as in the next page (Chart 4-7),
Chart 4-7 The Relationships Between Luxury Value Perception and Willingness to Buy
30
5. Discussion, Conclusion and Managerial Implication
Standardized beta coefficient compares the strength of the effect of each individual
independent variable to the dependent variable. The higher the absolute value of the
beta coefficient, the stronger the effect (Pallant, 2011). By comparing the standardized
beta coefficients in the regression test for the average perception of values in each
dimension as the independent variable and the willingness to buy as the dependent
variable, we can find the differences in the degree of impact of the perception on
willingness to buy.
From the Table 4-1 to 4-6, we make a comparison of Standardized Coefficients Beta
in the regression of both price reductions shown as Table 5-1.
Comparison of Both Price Reduction
Price Reduction Dimension Beta Sig
20% Functional ,032 ,509
40% Functional -,0.18 ,723
20% Individual ,410 ,000
40% Individual ,588 ,000
20% Social ,365 ,000
40% Social ,181 ,009
Table 5-1 Standardized Coefficients Beta of Both Price Reduction
We can find something interesting. The impact of the luxury value perception on
willingness to buy varies in different dimensions. When the price is reduced, the
luxury value perception in individual dimension has the strongest significant impact
on the willingness among the three dimensions. In functional dimension, when the
price decreases both by 20% and 40%, there is no significant causal relationship
between the value perception and the willingness to buy, which implies that, at least in
China, the perception of functional values, such as the perception of the quality,
31
usability, and uniqueness, do not influence the consumers’ willingness to buy. This
result violates the prestige pricing strategy widely used for luxury goods, as it sets a
rather high price to suggest high quality (McCarthy and Perreault, 1987) in order to
make the luxury goods more desirable.
When there is a discount of 20%, there is a significant and positive relationship
between the value perception in the individual dimension and the willingness to buy
(Sig=0.00 < 0.05, Standardized Coefficient Beta=0.410 >0). When the discount is
40%, the relationship in individual dimension is more positively and significantly
related since the Beta under the Standardized Coefficients is rising from 0.410 to
0.588 and the Sig.=0.00 <0.05. These figures implies that the Chinese luxury
customers’ perception on self-identity, hedonic value and materialistic value, will play
an important impact on their willingness to buy, and the more the price is reduced, the
more impact the perception will insert on the willingness to buy.
In the social dimension, when the price is cut just 20%, there is a significant and
positive relationship between the value perception in the social dimension and the
willingness to buy (Sig=0.00 < 0.05, Standardized Coefficient Beta=0.365>0). The
impact of social dimension is not as strong as the impact in individual dimension at
this price reduction, but it is significant. However, when the price decrease further by
40%, this kind of relationship disappears (Sig=0.09 > 0.05), which means, when the
price of luxury goods is reduced to 40%, there is no significant relationship between
how the Chinese luxury customers view the social values of the luxury goods and
their willingness to buy.
We can draw the conclusion that, in the Chinese luxury market, the willingness to buy
is most sensitive to the value perception in individual dimension, and the perceived
values in individual dimension on the willingness to buy is the least sensitive to the
reduction of price. By contrast, if the price is reduced substantially, such as 40%
lower than the normal price, the perception of functional values and social values
32
even will not influence the willingness to buy significantly. This might help to explain
why the total sales amount increased when there was a big discount promotion in
most Chinese luxury stores in 2015, since the values in the individual dimension play
an even more important role in the Chinese luxury market (BAIN, 2017), the decrease
of luxury prices did not damage the Chinese people’s willingness to buy but helped a
lot in attracting new customers.
BAIN & Company has revealed the fact the Millennial generation, people born after
1980, has become the main source of luxury consumers in China. These Chinese are
characterized as the ones who intend to make their first luxury purchase at a earlier
age and show much interest in luxuries which are in fashion, casual style, and in
season (BAIN, 2017). These Chinese Millennials’ preferences are more likely to fall
into the individual dimension of luxury values. Due to the age, they might not be as
rich as the elder, but they have more desire in possessing luxury goods.
Therefore, we might go to a managerial implication for the managers of Chinese
luxury market. Since reducing the price can attract the new customers who are
longing for luxuries but with a limited budget, and regarding the existing Chinese
luxury customers, with the prerequisite that they can find more self-identity, hedonic
value and materialistic value in the luxury goods. Our study shows the Chinese luxury
customers probably will not care much about the possibly reduced quality, uniqueness,
usability, prestige value and conspicuousness value which might be caused by the
price reductions. Reducing the price, together with the enhancement of the values in
the individual dimension, might be a very effective measure to attract the new
customers and there is low risks in losing the current customers at least in the Chinese
luxury market.
33
6. Limitations
The findings of this study are contingent upon some limitations, which also provide
avenues for further research. For instance, we mainly rely on our own social
relationship network to collect the respondents of our survey, the samples might lack
enough diversity. In addition, information might be incorrect during the transfer, the
translation of various values might be ambiguous, and will lead to the
misunderstanding of the respondents.
Also, from our data, when the price is reduced from 20% to 40%, the total rating
scores of functional values decrease 32.85%, those for the social values decrease
11.9%, and those for the individual values decrease 10.26%, however, the rating
scores of willingness to buy only drops 3.03%, which implies, there are probably
many other factors influencing Chinese customers' willingness to buy luxury goods,
such as the consumers’ previous knowledge on luxury goods, the influence of the
advertisements, the consumers’ loyalty for one particular brand, consumers'
purchasing habits, and the cultural difference, but they are not discussed in this thesis.
For future research, combining the quantitative study with qualitative method might
be a more rigor and scientific choice. In-depth interviews can be applied to help
understand more about the process of consumer psychology change and find more
factors adequate for this study.
Moreover, it is difficult to evaluate value with accurate scores or degrees. Consumers
may have different standards in answering the questions. During our research, we also
find that the Chinese respondents prefer to make an overall assessment of the luxury
goods instead of dividing the value of a piece of luxury goods into so many
dimensions. They purchase, but they might not consciously score each value. Their
responses might be biased in our survey.
34
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8. Appendix 1
Survey on willingness to purchase luxury goods
This questionnaire is an anonymous survey conducted by student major business and
economics at Uppsala University in Sweden and will not retain any o personal
information. Please select only one answer for each question in order. Please respond
to your first response when answering. The results of this survey are only for
scientific research and will take up a few minutes of your time. Thank you for your
participation!
I. What is your gender?
II. What is your age?
III. What is your annual disposable income in the last year? (exclude cost of living,
debt, and other costs.)
IV. Have you ever bought a bag worth more than 10,000 Yuan or a purse more than
2,000 Yuan?
V. Where do you live?
1. Suppose there is a luxury bag priced at 10,000 Yuan, how do you rate this luxury
bag's particular function to achieve the goal to satisfy your needs?
(The highest score is 7 points; the lowest score is 1 point)
1a. If this luxury bag is cut by 20% and it is a long-term price reduction, then how
do you rate this luxury bag's the particular function to achieve the goal to satisfy
your needs?
(the highest score is 7 points and the lowest score is 1 point)
1b. If this luxury bag is cut by 40% and it is a long-term price reduction, then
what do you think is the score of this luxury bag's the particular function to
achieve the goal to satisfy your needs?
(the highest score is 7 points and the lowest score is 1 point)
39
2. Suppose there is a luxury bag priced at 10,000 Yuan, what do you think is the
score of this luxury bag's excellent product quality and performance that not
mass-produced, but often hand-made?
(The highest score is 7 points; the lowest score is 1 point)
2a. If this luxury bag is cut by 20% and it is a long-term price reduction, then what
do you think is the score of this luxury bag's excellent product quality and
performance that not mass-produced, but often hand-made?
(the highest score is 7 points and the lowest score is 1 point)
2b. If this luxury bag is cut by 40% and it is a long-term price reduction, then how
do you rate this luxury bag's excellent product quality and performance that not
mass-produced, but often hand-made?
(the highest score is 7 points and the lowest score is 1 point)
3. Suppose there is a luxury bag priced at 10,000 Yuan, what do you think is the
score of its perceived exclusivity and rareness as a limited product?
(The highest score is 7 points; the lowest score is 1 point)
3a. If this luxury bag is cut by 20% and it is a long-term price reduction, then how
do you rate its perceived exclusivity and rareness as a limited product?
(the highest score is 7 points and the lowest score is 1 point)
3b. If this luxury bag is cut by 40% and it is a long-term price reduction, then
what do you think is the score of its perceived exclusivity and rareness as a
limited product?
(the highest score is 7 points and the lowest score is 1 point)
4. Suppose there is a luxury bag priced at 10,000 Yuan, how much do you rate the
40
luxury good’s internal/private facet of one’s self in terms of the way the individual
perceives him or herself?
(The highest score is 7 points; the lowest score is 1 point)
4a. If this luxury bag is cut by 20% and it is a long-term price reduction, then how
much do you rate the luxury good’s internal/private facet of one’s self in terms of
the way the individual perceives him or herself?
(the highest score is 7 points and the lowest score is 1 point)
4b. If this luxury bag is cut by 40% and it is a long-term price reduction, then how
much do you rate the luxury good’s internal/private facet of one’s self in terms of
the way the individual perceives him or herself?
(the highest score is 7 points and the lowest score is 1 point)
5. Suppose there is a luxury bag priced at 10,000 Yuan, what do you think is the
score of this luxury bag's emotional value and intrinsic enjoyment brought by
luxury goods?
(The highest score is 7 points; the lowest score is 1 point)
5a. If this luxury bag is cut by 20% and it is a long-term price reduction, then what
do you think is the score of this luxury bag's emotional value and intrinsic
enjoyment brought by luxury goods?
(the highest score is 7 points and the lowest score is 1 point)
5b. If this luxury bag is cut by 40% and it is a long-term price reduction, then
what do you think is the score of this luxury bag's emotional value and intrinsic
enjoyment brought by luxury goods?
(the highest score is 7 points and the lowest score is 1 point)
6. Suppose there is a luxury bag priced at 10,000 Yuan, how much do you rate
41
possessing the luxury goods can play a central role in one’s life?
(The highest score is 7 points; the lowest score is 1 point)
6a. If this luxury bag is cut by 20% and it is a long-term price reduction, then how
much do you rate possessing the luxury goods can play a central role in one’s life?
(the highest score is 7 points and the lowest score is 1 point)
6b. If this luxury bag is cut by 40% and it is a long-term price reduction, then how
much do you rate possessing the luxury goods can play a central role in one’s life?
(the highest score is 7 points and the lowest score is 1 point)
7. Suppose there is a luxury bag priced at 10,000 Yuan, what do you think is the
score of this luxury bag's conspicuous consumption plays a significant part in
shaping preferences for many products which are purchased or consumed in
public contexts?
(The highest score is 7 points; the lowest score is 1 point)
7a. If this luxury bag is cut by 20% and it is a long-term price reduction, what do
you think is the score of this luxury bag's conspicuous value (the influence from
reference group when consuming luxury product)?
(the highest score is 7 points and the lowest score is 1 point)
7b. If this luxury bag is cut by 40% and it is a long-term price reduction, what do
you think is the score of this luxury bag's conspicuous value (the influence from
reference group when consuming luxury product)?
(the highest score is 7 points and the lowest score is 1 point)
8. Suppose there is a luxury bag priced at 10,000 Yuan, how much do you rate the
utility of luxury good in possessing a social status and retaining a social group
membership?
42
(The highest score is 7 points; the lowest score is 1 point)
8a. If this luxury bag is cut by 20% and it is a long-term price reduction, how
much do you rate the utility of luxury good in possessing a social status and
retaining a social group membership?
(the highest score is 7 points and the lowest score is 1 point)
8b. If this luxury bag is cut by 40% and it is a long-term price reduction, how
much do you rate the utility of luxury good in possessing a social status and
retaining a social group membership?
(the highest score is 7 points and the lowest score is 1 point)
9. Suppose there is a luxury bag original priced at 10,000 Yuan, and the price is now
cut by 20%, how much do you rate your willingness to buy?
(the highest score is 7 points and the lowest score is 1 point)
10. Suppose there is a luxury bag original priced at 10,000 Yuan, and the price is now
cut by 40%, how much do you rate your willingness to buy?
(the highest score is 7 points and the lowest score is 1 point)