title: Innovative concepts in luxury marketing
Creators: name: Erkhova, Daria
Publisher: name: Universität Bern
Year: 2021
Subjects: subject: 330 Economics
subject: 650 Management &amp; public relations

description: Over the past two decades, nearly every company in each industry has been confronted with a number of environmental shifts. Rapid technological developments, increasing digital transformation, and evolving consumer preferences and tastes are creating a new competitive landscape where traditional marketing strategies are under threat (Kannan & Li, 2017; Leeflang, Verhoef, Dahlström, & Freundt, 2014). While for some industries the process of adaptation to these new realities has been relatively smooth, the luxury industry which is known for its exclusive character and resistance to innovations, has experienced dramatic challenges (Hennigs, Wiedmann, & Klarmann, 2012; Okonkwo, 2009). This dissertation investigates innovative concepts of luxury marketing associated with luxury firms’ strategic decisions and capabilities designed to overcome current market dynamism, to meet growing customer expectations, to improve firms’ marketing performance, and to achieve sustainable competitive advantage. The three papers outlined below address the distinctive nature of this industry and introduce new concepts in luxury marketing management.

Paper 1 examines the luxury goods industry as a prominent example of a specific strategic competitive arena, a concept which has been recently introduced into the strategic management literature. It shows that to successfully compete in the luxury arena, firms must complement their general marketing capabilities with the arena-specific ones. This study conceptually derives and empirically tests the impact of luxury arena-specific capabilities on firm performance and assesses their relative importance compared to that of general capabilities. Paper 2 focuses on the firms’ strategic decisions with regard to the design of luxury goods. It introduces the concept of product design extravagance as a new luxury aesthetic design element, which reflects the evolving consumer tastes with regard to product design and corresponds to the current trends in luxury market. The paper also investigates the role individual differences, such as consumers’ personality traits and personal motives, play in the formation of their product design preferences. Finally, Paper 3 addresses the importance of superior digital customer experience creation for luxury firms. Specifically, it investigates how luxury firms can effectively integrate new digital technologies into their everyday marketing practices to enhance and differentiate a unique luxury customer experience. In this regard, a set of luxury-specific digital customer experience capabilities which firms must develop in addition to the general digital capabilities are proposed in this paper.

Content of the Specific Papers
In Paper 1, I rely on the concept of the strategic competitive arena, which has been increasingly replacing the term industry in management research, specifically on the background of increased cross-industry competition. Respectively, this paper focuses on luxury competitive arena, which has traditionally included competitors of various products and services such as yachts, clothing, travelling, etc. which compete to satisfy customer needs specific in this arena (i.e., need for status and need for quality). I propose that possessing general marketing capabilities is not sufficient for success in a particular strategic competitive arena, such as the luxury arena. Rather, more specific arena-related marketing capabilities are needed. I test these propositions by means of a large-scale managerial survey of firms potentially competing in the luxury arena. I additionally assess the relative mediating effects of both general and arena-related marketing capabilities between a firm’s strategic intent to deliver specific customer value and its marketing and firm performance. Furthermore, I test how the mediating effects change under the conditions of high environmental turbulence. I find a stronger mediating effect of luxury arena-related as compared to general marketing capabilities between a firm’s strategic intent and its marketing performance (customer management performance). I also find that the mediating effect of arena-related marketing capabilities increases under the conditions of high customer-related turbulence. At the same time, the mediating effect of general marketing capabilities turns out to be higher in the conditions of low customer-related turbulence as compared to high customer-related turbulence. This study makes a significant contribution to the marketing literature as it extends the knowledge on marketing capabilities by applying an innovative, competitive arena-based perspective. The study identifies the relevant marketing capabilities that really drive firm’s performance in the luxury arena. It also expands the research on dynamic competition, as the findings demonstrate the important role of arena-related marketing capabilities as a buffer against environmental dynamism, namely, customer-related turbulence. Above that, the study is also of high practical relevance as it provides insights for managers on how firms can deal with intensified cross-industry competition and the disruption in their established business models by new arena entrants. The key implication is that firms should invest significant efforts to identify, build, and enhance their arena-related capabilities.

In Paper 2, I introduce product design extravagance as a new aesthetic design element, which is especially relevant in the context of the luxury goods industry, whereas prior insights have only focused on brand prominence (visibility and size of logo). By means of a field study based on real world data from luxury consumers, I empirically prove that extravagance is a key element of luxury product design as consumers exhibit a high probability of wearing extravagantly designed luxury products. I further investigate the drivers that shape consumer design preferences. Specifically, I draw on the identity-signaling and self-congruity perspectives and prior insights on luxury and everyday consumer aesthetics, and suggest that consumers’ preferences for specific aesthetic design elements (product design extravagance and brand prominence) are induced by two  fundamental personality traits: extraversion and openness to experience. Additionally, I propose the mechanism under which consumer preferences are formed, which implies that these traits trigger two underlying motivations in luxury consumption: the need for status and the need for uniqueness, which in turn shape consumer preferences in the choice of different types of luxury product designs (no logo vs. prominent logo and plain vs. extravagant design). By means of a large-scale empirical study of luxury consumers, I provide empirical evidence on the impact of consumer personality and motives on consumer aesthetic design preferences. This study demonstrates that extravagant luxury product design is preferred by extraverted individuals for satisfying their need for status and individuals open to experience for satisfying their need for uniqueness. In contrast, prominently marked luxury brands are chosen by extraverted individuals, who are driven by status motives. These findings are highly relevant for both academics and luxury managers. Thus, by introducing the concept of extravagance, this study provides a more comprehensive understanding of product design aesthetics in luxury, which is better suited to reflect the reality of luxury product design options and consumers’ choices. Furthermore, this paper extends the limited knowledge on the drivers of consumers’ aesthetic choices, such as consumer personality traits, and sheds the light on the process through which consumer aesthetic preferences are formed. Last but not the least, the study provides evidence that product design aesthetics have high strategic importance for luxury firms. In this regard, marketers should consider the significant role of consumer personality traits and motives when deciding on the product design elements. This should also be carefully regarded when designing the communication strategy of a luxury brand.

Paper 3 takes a closer look at customer experience management of luxury firms in the era of digitalization, and the resulting evolving customer shopping behavior and expectations. In this paper, I investigate which digital capabilities luxury firms require to develop in order to enhance and differentiate superior customer experience associated with luxury goods while balancing the tradeoff between a brand’s exclusive image and its wide accessibility in the digital space. In this regard, based on the insights from prior literature in luxury marketing, I argue that luxury brands delivering specific customer value such as status, uniqueness, functional or hedonic value should design their digital customer experience in such a way that it enhances the perceived luxury brand’s value for customers. Thus, it is proposed that for luxury firms it is not enough to possess general digital customer experience capabilities (i.e., which are valid across different industry contexts) but they also require to acquire additional luxury-specific digital capabilities which will enable them to enrich the luxury brand’s perceived value. Based on a qualitative study with senior digital marketing managers of luxury brands, this paper identifies four digital customer experience capabilities specific for the luxury industry. The key contribution of this paper is its contingency approach to customer experience and the related firm’s digital capabilities. This study provides empirical evidence that digital customer experience management in the luxury industry is different from that of non-luxury due to the specific perceived customer value of luxury goods, and for its realization luxury firms must employ specific digital customer experience capabilities. By defining these capabilities, this study provides important strategic insights for academics and luxury marketing managers on how to design uninterrupted luxury experience across multiple digital touch points and channels.