To Buy or Not to Buy?uu.diva-portal.org/smash/get/diva2:1241208/FULLTEXT01.pdf · 2018-08-23 · 1...

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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



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



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 %)


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


Cronbach's

Alpha N of Items

,906 3

Table 3-5-3 Individual Dimension (Price Reduced 20 %)


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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Cronbach's

Alpha N of Items

,846 2

Table 3-5-5 Social Dimension (Price Reduced 20 %)


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)

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Table 3-6-2 Bivariate Pearson Correlation (40% Price Reduction)

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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



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



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


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



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


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



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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38

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?


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?


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?


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?



score of its perceived exclusivity and rareness as a limited product?



do you rate its perceived exclusivity and rareness as a limited product?



what do you think is the score of its perceived exclusivity and rareness as a

limited product?


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?



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?



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?



score of this luxury bag's emotional value and intrinsic enjoyment brought by

luxury goods?


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?



what do you think is the score of this luxury bag's emotional value and intrinsic

enjoyment brought by luxury goods?


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?



much do you rate possessing the luxury goods can play a central role in one’s life?



much do you rate possessing the luxury goods can play a central role in one’s life?



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?


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)?


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)?


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


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?


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?


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?


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?


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