Impact of Luxury Value Perceptions on Financial Performance of the Company — Academic Writing for Students

8 min readNov 19, 2020

1.0 Introduction

1.1 Problem Statement

In the earlier ages, before the 19 thcentury, the whole world was divided into two main classes on the basis of their wealth: the elite rich class that has an access to all the luxury amenities of day to day life, so as to live a luxurious life and poor middle class. Then, as the industrial revolution started to change the living standard of middle class population, and this gap between the classes started to bridge (Waldfogel, 2009).

Now, with the advent of new technologies and effect of globalisation; the perception of people towards buying luxury items is changing, because now it is in the reach of every individual who can afford it (Brad, Vermut, & Baran, 2013). One of the most common products nowadays, which has gone a transition, and change the perception of buying behavior of consumers are the cars. This literature review has been written to understand how the perception of consumer towards buying luxury cars has been changing rapidly, while taking some recent researches in consideration (Keller & Fay, 2012; Thurau, et al., 2010; Taylor-West, P., 2013; Russo et al., 2015) with the effect of some conventional marketing strategies and technological advancement (Weiss, Lurie, & MacInnis, 2008).

1.2 Background

I have completed Instrumentation and Control Engineering from India, and now I am pursuing Masters of Management for Engineers. I have been learning some new concepts of engineering in Automobile Industry, and I have come to know that automobile companies do not hesitate to spend large amounts of money to improve direct and indirect experience of consumers. I realized that all the new technologies are developed so that they could enhance the user experience and hence, the companies do not hesitate spending a large sum of money to improve direct and indirect experience to leverage brand reputation for product excellence (Steven, Ishida, & Wallace, 2009).

However, it is not necessary that such huge investments would always bring profit to these automobile companies. Hence, the research topic would be “Impact of Luxury Value Perceptions on Financial Performance of the Company: A case of Automobile Industry”. This research would guide the current and Future Managers in Automobile Companies to take sound decisions when the question of profitability and increasing returns is put forth (Fareena, Rohm, & Gao, 2009).

2.0 Literature Review

In order to understand the consumer perception and buying behavior for luxury cars, it is first of all mandatory to understand the changing perspective of consumers away from the traditional view; towards the more plausible view in contemporary marketing perspective. The traditional view of consumers as receivers has been changing over the few years, because consumers are no longer a mere receiver of the company and brand related information on products, rather they acts as senders of information, via expressing concerns and sharing information of the brand experience (Martin, Skiera, & Scha¨fers, 2005). Keller & Fay (2012) have done a significant work in their research; to better understand this changing perspective of today’s consumer perception. They further confirmed that WOM (word of mouth) has become a most pronouncing way to make a stir among the consumers about a luxury brand or product (Keller & Fay, 2012).

WOM derives a high degree of impact and credibility of the product and brand among the consumers. In their research, Keller & Fay have found that on average, among the 15 different luxury products and services categories, around 58 percent of consumers impute high credibility to the information they hear via a WOM conversation (Sledgianowski & Kulviwat, 2009). There were around 50 percent of these consumers who accept to buy a luxury product from the market after listening its praise through the WOM conversation. A further analysis in this case has revealed that the role of WOM conversation is more pronounced, with 25 percent of all WOM consumer conversations about luxury brands involved in the discussion (Rajiv, Machado, & Sellman, 2009).

Keller & Fay have been successful to explain the significance of WOM for the marketing of luxury brands and products. However, this study would have been more relevant if the new media are also discussed in the paper. A more pronounced research to understand the changing trends of marketing can be understood with the help of analyzing research paper by Henning-Thurau, et al. (2010) who explained the significance of new media over the WOM conversations. New media are nothing but the social networking websites and other digital media channels that help the WOM to become viral (Hennig-Thurau, Malthouse, & Friege, 2010). Following are some of the features of new media that makes it a great way of advertising and marketing: -

New media are digital: — The digital character of new media makes it a best weapon for making a WOM video, story, or image viral because there are virtually no marginal costs of producing extra copies of digital files, and in fact this work will be done by the consumers themselves.
Visible: — The new media activities done by consumers can be seen easily by other visitors. Entries made by consumers on forums, social networking sites, and blogs can be easily tracked by consumers and companies(Shahana & Lerman, 2007).
Real-time and Updated: — New media can be accessed easily by consumers at the time of production, which can allow the consumers to share experiences in real-time.
Ubiquitous: — New media allow consumers to share WOM messages with other consumers and companies instantly through their smartphones(Michelle & Tybout, 2006).

Although the findings made by Henning-Thurau, et al. (2010) are enough to understand the changing trends of marketing and advertising in contemporary situations. However, previous studies of by Henning-Thurau, et al. (2010) and Keller and Fay (2012) have not dealt with how these findings can be used in the luxury car market section.

So, a new research, done by Taylor-West, P. (2013) is considered, written in the context of the automotive industry where launches of new products, with the involvement of recent technologies are becoming increasingly complex for consumers to understand. This research has discovered that the level of involvement with the product of the consumers through WOM and conversation gave rise to different levels of enthusiasm and interest among the consumers, and has a direct impact on how different types of consumers, having different level of understanding of technologies, view the new luxury car products (Saker, Taylor-West, & Grzesinski, 2016).

Taylor-West, P. (2013) has also found that the consumers’ level of EIF (Expertise, Involvement, and Familiarity) with a specific luxury car brand or product can be easily captured with the help of a multi-dimensional scale, so as to measure consumer product knowledge and provide an accurate segmentation tool for the company. Meanwhile, since most of the consumers are not familiar with the technical specifications of the luxury car brands and SUV’s, so a WOM video, message, or story sent through a new media channel seems more plausible than traditional advertising through radio, TV, newspaper, and other such media channels.

The theories explained in the earlier paper by Taylor-West, P. (2013) are enough to understand the basic difference among the marketing of luxury car products in the market, via new media and WOM. However, recently there is another significant change in the buyer behavior towards buying cars, which is called green marketing. Russo et al. (2015) found in his research that as the concern for saving the natural environment of our world has been increasing rapidly; the consumers are diverting towards a green versions of luxury car models.

Russo et al. (2015) analyzes that buying green luxury cars is a motivating factor for the consumers because of societal benefit appeal, and consumers are willing to pay more to purchase such cars because they think there will be a long term profit of buying such cars (Michael, Bucklin, & Pauwels, 2009). For example, Tesla launched a fully electric car model on its inception, whose cost was around $1,00,000, but instead of the expensive price, the CEO of the company, Mr. Ellen Musk has been successful to advertise this car as a most fuel efficient and non-pollutant car. The consumers who buy this expensive car thought that since it is a battery operated car, so its running cost will be low, as well as the maintenance cost (Russo, Morrone, & Calace, 2015).

3.0 Conclusion

This world is going through a major transition after the introduction of the internet and globalisation to the world. The GDP and basic income of some countries have reached a new high and technology has become an integral part of every individual living in this planet. This is the reason why the automobile companies need to adopt new strategies, as discussed in this literature review, to get maximum benefit from their company. This literature review has been written while considering all constraints, however, there might be some limitations, depending upon the available information.

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4.0 References

Brad, F., Vermut, M., & Baran, R. (2013). Quantifying the role of social voice in marketing effectiveness. Journal of Advertising Research, 10(1), 22–33.

Fareena, S., Rohm, A. J., & Gao, T. T. (2009). Factors Influencing Acceptance of Mobile Marketing: A Two-Country Study of Youth Markets. Journal of Interactive Marketing, 23(11), 308–320.

Hennig-Thurau, ,. T., Malthouse, E. C., & Friege, C. (2010). The Impact of New Media on Customer Relationships. Journal of Service Research, 13(3), 311–330.

Keller, E., & Fay, B. (2012). Word-of-Mouth Advocacy: A New Key to Advertising Effectiveness. Journal of Advertising Research, 52(4), 1–7.

Martin, S., Skiera, B., & Scha¨fers, B. (2005). ‘Measuring Individual Frictional Costs and Willingness-to-Pay via NameYour-Own-Price Mechanisms. Journal of Interactive Marketing, 18(4), 22–36.

Michael, T., Bucklin, R. E., & Pauwels, K. (2009). Estimating the Dynamic Effects of Online Word-of-Mouth on Member Growth of a Social Network Site. Journal of Marketing, 73(2), 90–102.

Michelle, R., & Tybout, A. (2006). When Will a Brand Scandal Spill over, and How Should Competitors Respond. Journal of Marketing Research, 43(3), 366–373.

Rajiv, S. K., Machado, F. C., & Sellman, C. (2009). Digital Rights Management or Discard Restrictions on Music? Journal of Marketing, 74(2), 40–54.

Russo, A., Morrone, D., & Calace, D. (2015). The Green Side of the Automotive Industry: A Consumer-Based Analysis. Journal of Marketing Development and Competitiveness, 9(2), 59–65.

Saker, J. M., Taylor-West, P., & Grzesinski, A. (2016). The changing channel power relationship between customers and dealerships in the retail automotive sector. Loughborough University Institutional Repository, 15(2), 1–21.

Shahana, S., & Lerman, D. (2007). Why Are You Telling Me This? An Examination into Negative Consumer Reviews on the Web. Journal of Interactive Marketing, 21(4), 76–94.

Sledgianowski, D., & Kulviwat, S. (2009). Using Social Network sites: The Effects Of Playfullness, Critical Mass And Trust In a Hedonic Context. Journal of Computer Information Systems, 49(4), 74–83.

Steven, T., Ishida, A. C., & Wallace, D. W. (2009). Intention to Engage in Digital Piracy. Journal of Service Research, 11(3), 246–262.

Waldfogel, J. (2009). ‘Lost on the Web: Does Web Distribution Stimulate or Depress Television Viewing. ‘ Information Economics and Policy, 21(2), 158–168.

Weiss, A. M., Lurie, N. H., & MacInnis, D. C. (2008). Listening to Strangers: Whose Responses Are Valuable, How Valuable Are They, and Why. Journal of Marketing Research, 45(1), 425–436.

Originally published at https://academicwritingforstudents.com on November 19, 2020.