A key asset in luxury. What matters for brand value creation?

A key asset in luxury: What matters for brand value creation?

Introduction

With approximately $1.3 trillion dollars in revenue in 2021 (D'Arpizio et al. 2021), the luxury industry is highly significant from a financial and perspective. One of the key characteristics of luxury is its reliance on intangible attributes based on consumer perceptions to create value. This value, which can be referred to as brand value (BV), is considered the most important asset within luxury (Okonkwo 2007). While the luxury industry experienced significant growth in the past decade, the industry experienced a considerable decrease in revenue due to the impacts of Covid-19. For instance, as shown in Figure x, the annual revenue of the personal luxury goods market decreased from $318 billion in 2019 to $220 billion in 2020. The revenue of the luxury industry rebounded to $320 billion in 2021 (D'Arpizio et al. 2021), but given the current inflationary pressures and disruptions to global supply chains, there is still uncertainty regarding the short-term prospects of the industry. Figure 1 below presents the historical revenue of the personal luxury goods market.

Figure 1: Historical Personal Luxury Good Market
(1996-2021)

Abbildung in dieser Leseprobe nicht enthalten

Data Source: D'Arpizio et al. (2021)

Given the significance of the luxury industry from an economic perspective, and the fact that BV is the most important asset in luxury (Okonkwo 2007; Wood 2000), now, more than ever, it is critical to know the most important determinants of BV within luxury, so that they can be leveraged as part of a brand's strategy. BV has been widely studied in the literature (Bhagwat et al. 2020; Melo and Galan 2011; Steenkamp 2014; Torres et al. 2012). However, BV has not been analysed holistically within a luxury context by including both, consumer- and company-based factors. Existing studies on BV do not consider the specific attributes, associations and business context of luxury, and therefore, their findings, do not allow to gain a full understanding of the most important determinants within the BV chain in luxury. This paper seeks to answer two research questions (RQ): RQ1. What are the most important determinants of BV from the luxury industry's perspective?; and RQ2. What are the most important company- and consumer-based BV determinants within luxury?

The luxury industry is currently facing not only short-term pressures resulting from the Covid-19 pandemic, but also calls to become more sustainable. The fashion industry is a great contributor to global greenhouse gas emissions (GHG) (Moran, Eichelmann, and Buggy 2021). In the past decade luxury brands have started to achieve efficiencies in lighting, temperature, transportation and energy consumption, and some have even adopted formal environmental management systems such as ISO 14001 (Amatulli et al. 2017). During the COP 26 Conference in Glasgow, the signatories of the Fashion Industry Charter for Climate Action agreed to cut their emissions in half during the next decade. Luxury groups like Burberry and Kering were signatories of the Charter. LVMH is not a signatory, but it has already committed to reduce its energy use by 50 percent compared to 2019 levels, and cut GHG by over 50 percent by 2030 (Mellor 2021).

Thus, it is essential that we know which are the most important determinants of BV in luxury and thus address this gap in the literature. By knowing which luxury-specific consumer- and company- based factors contribute to BV within the industry, and how, we do not only advance luxury research knowledge but make a contribution to the industry so that it can strategically manage the determinants of BV that matter the most. The specific attributes and associations of luxury, and the fact that luxury differs from other business and marketing contexts (Holmqvist, Wirtz, and Fritze 2020) makes it necessary to study BV within a luxury context. Due to absence of a luxury-specific BV model in the literature, this paper builds on the work of Keller and Lehmann's (2006) 'BV chain'. Their model is not specific for the luxury industry, so to make it suitable within a luxury context, we incorporate company- and consumer-led actions that are related to the luxury industry.

This paper makes three incremental contributions to the literature: First, it contributes to the existing literature on BV by identifying the factors that create and preserve BV in luxury, from both, a consumer and company perspective. Second, it advances luxury research by identifying the determinants of BV that are overemphasised and overlooked. Third, it sets a precedent for the inclusion of a luxury construct based on consumer perceptions of how prestigious and upper class a brand is considered to be. In terms of its managerial contributions, this paper provides recommendations on the key factors that create value within luxury, so that they can be leveraged as part of a brand strategy.

Literature Review

We conducted the following approach to review and analyse the literature. First, we conducted a literature review to understand what luxury means and what its main attributes are. Second, we reviewed the luxury literature to identify what constitutes BV. Third, we identified the potential consumer and company-based contributors to BV in the luxury literature. We complemented this literature search by looking into the non­luxury literature to ensure that other contributors of BV applicable to luxury were not excluded.

Attributes of Luxury and Luxury Perception

One of the reasons that sets luxury apart from non-luxury is that is has both, physical and psychological attributes. Physical attributes include high quality (Hoffmann and Coste-Maniore 2012), design (Nueno and Quelch 1998), limited supply (Vigneron and Johnson 2004) and excellence (Hoffmann and Coste-Maniore 2012); while psychological attributes are experiential and hedonic value (Chevalier 2012; Tynan, McKechnie, and Chhuon 2010) as well as a dream factor (J. N. Kapferer 2009). In addition to these attributes, from a consumer perspective, luxury differs from non-luxury as it is associated to exclusivity and social status conferral (Chevalier 2012; Okonkwo 2009; J.-N. Kapferer and Valette-Florence 2021); and with upper class and prestige (Okonkwo 2009; Tynan, McKechnie, and Chhuon 2010).

Luxury is subjective, as each consumer has a different perception of luxury (J. N. Kapferer and Laurent 2016). While luxury has different meanings to different people, it can be associated with an upper class and prestige perception (Holmqvist, Wirtz, and Fritze 2020; Lee and Bolton 2020; Liu et al. 2016). Chevalier (2012, 3) defines luxury as something that "carries a brand that is well known, credible and respected". This definition captures the physical and psychological attributes of luxury and the fact that luxury brands need to be well known, credible and respected. Moreover, it captures the consumers' perception that a luxury product can have a wide price range, something that expands the frontier of what can be called luxury. Still, this definition fails to acknowledge consumers' associations towards luxury (Banister, Roper, and Potavanich 2020), and how status, which is synonymous of upper class and prestige, is considered a key characteristic of luxury (Banister, Roper, and Potavanich 2020; Lee and Bolton 2020; Chan and Northey 2021). In addition, Chevalier's definition does not specify whether it applies to products or services. For this study, we address these limitations by proposing a working definition of luxury based on Chevalier's definition. As a result, we define luxury as: "A well-known, credible or respected product or service that consumers can associate with upper class or prestige". This definition takes existing work forward by making it more inclusive and incorporating consumer perceptions related to luxury; and by analysing this definition empirically as part of the quantitative analysis in order to understand how its two elements, upper class and prestige perception, are related to BV.

What is Brand Value?

The construct of BV (also known as brand equity) has been widely studied in the literature but the great majority of the existing research has not been conducted within a luxury context. Existing studies on BV address a number of research areas ranging from its dimensions (Christodoulides and Chernatony 2010), to its determinants and how it can be studied and measured (Ailawadi, Lehmann, and Neslin 2003). BV is considered a strategic asset for companies (Davcik, Silva, and Hair 2015) and it is one of their most prized assets (Christodoulides, Cadogan, and Veloutsou 2015). Financial indicators regularly used within business like short­term sales and profits are not able to capture the effect of actions pursued by a firm (Simon and Sullivan 1993). Thus, because of the strategic importance of BV for brands, especially within the luxury industry, its study constitutes a novel way to assess the impact of actions which cannot normally be measured with financial indicators.

In the literature, BV and brand equity (BE) are often used interchangeably and there is no agreement on its definition or components. Aaker (1991) states that BE are assets and liabilities linked to a brand, that can depend on the value of a product or service to a firm or a firm's customers. Jones (2005) argues that BV is created by multiple stakeholders, including company actors, customers, as well as other parties such as NGOs or the media. Keller and Lehmann (2006) define BE as the value created by customer, product and final market. Raggio and Leone (2007) use BE to refer to the value created by the consumer, and BV to the value created by the company. Knowles (2008) differentiates between two types of BV, marketing/customer-based and financial/firm-based BV. Christodoulides and Chernatony (2010) refer to BV as BE, but they subdivide it into two main methodological streams, firm-based BE, and consumer-based BE. They state that BE is determined not only by consumer and company actions, but of functional, emotional and experiential facets. Davcik et al (2015) do not differentiate between various types of BV, but consider that BV is a unified construct made of consumer elements and company assets. While there is no agreement in the literature in terms of what BV and BE are (Ambler and Banvise 1998; Christodoulides, Cadogan, and Veloutsou 2015); most of the existing definitions share that BV is driven by both, companies and consumers. Thus, in this study, we use the term BV to refer to the brand assets created by luxury companies and luxury consumers, and include not only actions, but functional, emotional and experiential facets. We refer to these actions and facets as determinants of BV in luxury.

Determinants of Brand Value in Luxury

While there is extensive literature on both consumer- and company-based BV; there is very limited literature about what creates and preserves BV within luxury. Steemkamp (2014) analyses BV attributes for premium and prestige brands, and discuss factors such as R and D or design, country of origin (COO) and marketing. However, this study fails to analyse how specific company-based factors contribute to BV. Fionda and Moore (2009) discuss success dimensions for luxury fashion brands, but in their study there is no empirical evidence on which factors create BV in luxury. Kim et al (2014) look at consumer perceptions but fail to analyse company-led actions, and as a result, it only explains a limited proportion of the whole BV construct. Torres et al (2012) and Melo and Galan (2011) study how BV can be generated by looking into how CSR, company size, and investments on R and D could also influence BV. Muniz et al (2019) find that CSR messages in luxury can have an impact on BV. Bhagwat et al (2020) conduct a study incorporating how company-specific variables such as CSR, firm size, advertising expenditures or marketing capability, together with Chief Executive Officers (CEOs) views, can affected firm value. Their study provides insights on actions that can affect firm value, but it is not luxury-specific and it does not incorporate consumer-based actions. Pope and Kim (2021) analyse if CSR scores and brand value are correlated. The study uses brand value estimates from Brand Finance and includes information on brands from multiple sectors, ranging from manufacturing to transportation and finance. The study finds that companies included in CSR listings have higher brand value. However, the study is also not luxury-specific.

In summary, despite the strategic importance of BV in luxury, there is a clear gap in knowledge with regard to which elements create and preserve BV within the industry. None of the existing literature on luxury addresses BV holistically by taking into account a consumer- and company- based approach. Thus, in this paper, we address this critical gap in knowledge, which is essential to understand BV in luxury from a theoretical perspective and ensure that luxury brands can manage the elements of BV that matter the most, in order to remain financially sustainable.

Keller and Lehmann's Brand Value Chain from a Luxury Context

Keller and Lehmann (2006) propose a model which integrates company actions, consumer thoughts, feelings and actions into financial market impact. BV is the reason why consumers can be attracted to or put off by a brand. At first, a brand may be identified with the product it manufactures, but over time, consumer attachments and associations beyond that product can be developed. These attachments or associations are created by factors such as advertisements and usage experience, which in the end will influence how a brand is valued in monetary terms. According to Keller and Lehmann, the value of a brand ultimately depends on consumer actions and words.

Following Keller and Lehmann (2006), the value of a brand would be made up of the perceptions of current and potential customers towards the brand, and what they buy, how they display it and how they talk about it. These perceptions can be influenced, in part, by how the brand markets its products, which includes where the boutiques are located and how the products are offered. Furthermore, a brand has intangible value, which can be monetized based on current and future sales. However, this value can fluctuate depending on how the brand conducts its marketing activities and how consumer perceptions influence current and future purchases of that brand.

This comprehensive model is suitable for the study of BV, since it incorporates, both, consumer- and company­based determinants. Due to the presence of physical (high quality, limited supply, excellence) and psychological attributes within luxury (experiential, hedonic and dream factor), and its association with upper class and prestige, to study BV in luxury, it is necessary to do it within a luxury context. Therefore, Keller and Lehmann's general model for BV needs to be adapted to make it relevant for luxury. To adapt this model into a luxury context, we create a theoretical framework with the potential contributors of BV in luxury. In our proposed theoretical framework, BV is created by both, company- and consumer-based determinants. To identify the company-based determinants of our framework, first, we build on the work of Melo and Galan (2011) and Torres et al (2012) who quantitatively analyse the key determinants of BV for the most valuable brands in the world. We then select the dependent variables modelled in both papers, which are CSR, company size and R and D. Second, we add from the luxury literature we reviewed other key variables for the industry in order to tailor our analysis into a luxury-specific context. We incorporate COO (Steenkamp 2014); marketing and design, which are also present in Keller and Lehmann (2006), Steemkamp (2014) and Fionda and Moore (2009); controlled distribution (Fionda and Moore 2009), and counterfeiting (Han, Nunes, and Dreze 2010; J. N. Kapferer and Michaut 2014; Wilcox, Kim, and Sen 2009; Khan, Fazili, and Bashir 2021). To identify the consumer-based determinants of BV, we build on the work of Keller and Lehmann (2006), by analysing company actions, consumer thoughts, feelings and actions and how they result in financial market impact. To incorporate these elements into our framework we follow Datta et al (2017) which use energised differentiation, esteem, knowledge and relevance as measures of consumer-based BV.

To summarize, our theoretical framework incorporates, within company-based BV, CSR, company size, R and D, marketing, controlled distribution, counterfeiting and COO. Within consumer-based BV, our framework includes energised differentiation, esteem, knowledge and relevance. Following we discuss how we analyse our framework quantitatively and then validate it qualitatively to identify the most important determinants of BV.

Material and Methods

In this paper, first, we conduct a quantitative analysis at the brand level of the potential determinants of BV in our proposed framework using linear modelling (Im). This analysis follows Harrison and Reilly (2011) and identifies which luxury specific consumer- and company-based determinants are statistically significant for BV and luxury. Then, we subject these findings to qualitative interviews with executives and stakeholders from the luxury industry for validation ('credibility checks'). Interviewees include some of the most prominent luxury brands in the world in terms of BV. The results from the quantitative analysis and the 'credibility checks' are combined to conclude with which determinants matter for BV in luxury, and which ones are overlooked and overemphasised.

Dataset

We then build a dataset with each of the potential determinants of BV in our proposed framework. We use the following data sources in the dataset: A database provided by BAV consulting in New York (BAV database), Bloomberg suite, annual company report and financial filings, and databases with CSR information (CSRHub, ESG Disclosure Ratings and DowJones Sustainability Index Components).

BAV, a New York City-based consulting firm, provided their proprietary database for this study. BAV's database is considered the largest dataset in the world with consumer information (Keller 2008) and it has been used in various studies on BV (Mizik and Jacobson 2009; Schuiling and Kapferer 2004; Stahl et al. 2012). The dataset uses consumer data from a panel of over 17,000 consumers, including consumers of luxury goods (BAV Consulting 2014). For this study, we use a dataset from 2013 with evaluations from U.S. consumers. This is the latest available dataset at the time when the analysis was conducted. BAV's dataset has data on 236 brands, which are categorized as luxury brands by BAV. From these 236 brands, 101 publicly traded brands are analysed, based on data availability. BAV's core components are four marketing pillars or constructs, which relate to consumer BV. These key pillars are: Energised differentiation. Relevance, Esteem and Knowledge. Energised differentiation is measured by combining the scores of how dynamic, innovative, distinctive, unique and different a brand is. Esteem is measured based on leadership, reliability and high-quality scores. Relevance and knowledge are based on individual scores.

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