Status Goods and Vertical Line Extensions

Self Cite

S hould brands selling status goods design high-end and low-end products to look the same or different? In this paper, we study how brands make this aesthetic design differentiation decision. We first empirically analyze the impact of a brand's aesthetic design differentiation on consumers' preferences for the brand's products using seven years of data of a status good (i.e., cars). We find that consumers prefer high-end products of a brand to look more differentiated but prefer low-end products of the brand to look less differentiated, which seems to present brands a product design dilemma, that is, neither design unification nor diversification within a brand can enhance the appeal of the brand's high-end and lowend products at the same time. Based on this finding, we set up a game-theoretic model to analyze brands' equilibrium design strategies. Interestingly, we find that the opposing preferences for design differentiation can lead brands to choose asymmetric design strategies, that is, one brand unifies design while another brand diversifies design, which can be a win-win outcome. We also give conditions where both brands unify design or both brands diversify design while the latter can be a prisoner's dilemma. Furthermore, vertical differentiation (e.g., in brand strength) between brands affects the profitability of design diversification or unification. In addition, we show that the aesthetic design decision has important implications on how brands should set prices and functionalities of products and how much brands should invest in brand-building activities (e.g., advertising).

Section: Introductionmentioning

confidence: 99%

Same or Different? An Aesthetic Design Question

Yan

2019

Self Cite

“…Our study also contributes to a growing body of literature in operations management on luxury goods (e.g., Chiu et al. 2018, Li 2019, Li and Liu 2019). Their foci are on firm strategies in branding luxury goods whereas our focus is on a consumer's willingness to pay for different types of signals attached to luxury goods.…”

Section: Introductionmentioning

confidence: 55%

“…While an extensive literature has shown that, in general, strong brand signals are preferred and influential in consumers' purchasing decisions (e.g., Erdem andSwait 1998, Rao et al 1999), our findings suggest that, in the luxury goods market, a quiet brand signal may be preferred to a loud brand signal. Our study also contributes to a growing body of literature in operations management on luxury goods (e.g., Chiu et al 2018, Li 2019, Li and Liu 2019. Their foci are on firm strategies in branding luxury goods whereas our focus is on a consumer's willingness to pay for different types of signals attached to luxury goods.…”

Section: Introductionmentioning

confidence: 80%

Willingness to Pay for Status Signals in Online Luxury Markets

Yuan¹,

Deily

Yao

2022

W e study consumers' valuation of status signals by estimating their willingness to pay for a luxury item with a quiet vs. a prominent logo. We collected data from two online markets on sales of two luxury handbags that differ principally in the prominence of their logo. We use these data to estimate the premium in consumers' willingness to pay for the handbag with the quiet logo, and to estimate how the condition of the handbag affects that premium. We find consumers are willing to pay a sizeable premium of $161-$174, or 17%-18% of the retail price, for quiet handbags as compared to loud handbags. Furthermore, while consumers' willingness to pay for both types of handbags is less for handbags in worse condition, it diminishes more rapidly with the worsening condition for quiet handbags. Our findings suggest that counter to conventional wisdom, consumers are willing to pay more for quietly marked luxury goods that allow them to signal a more targeted group of peers with similar cultural capital or social connectedness.

“…Conspicuous consumption of status products signals the owner's wealth and social status, thereby providing status Production and Operations Management benefits for consumption (Bagwell & Bernheim, 1996;Belk, 1988;Veblen, 1934). We follow Rao and Schaefer (2013) to formulate consumers' status utility from consuming status products (for similar use, see Gao et al, 2016;Li, 2019). We describe the formulation of status utility for buyers and nonbuyers and explain the rationale behind it.…”

Section: Status Utilitymentioning

confidence: 99%

Parallel imports of status goods: A strategic analysis of aesthetic design

Zhang

Schaefer

2022

Self Cite

Parallel imports of gray products across markets are a worldwide concern for manufacturers. Extant research has focused on parallel imports of regular goods that do not provide status value. In this paper, we investigate parallel imports of conspicuously consumed status goods. We consider a manufacturer who directly sells a status product to consumers in two markets that value the product differently and a gray marketer that can import the product across markets. Our analysis shows that, though parallel imports decrease a manufacturer's profit from selling regular goods, it can increase their profit from selling status goods. Furthermore, the manufacturer decides whether to use the same or different aesthetic design for products across markets. With the same design, the gray and manufacturer‐authorized products look identical, while different designs make them distinguishable, which affects their status value. We find that parallel imports benefit the manufacturer in a broader range of situations under the different‐design strategy, whereas the same‐design strategy increases the gray marketer's profit. When the two markets are sufficiently similar, the manufacturer uses the same design to induce parallel imports. When the two markets are sufficiently different, the manufacturer uses different designs to either deter parallel imports or improve their profit while competing with the gray marketer.