Do We Pay For Status?

Conventional wisdom holds that consumers are often "duped" into paying exorbitant prices for luxury goods that serve as status symbols.   Is that true?  Are we paying a significant premium for status?  HBS Professor Daniel Matter has been studying this question for some time.  He argues, "We like to believe that people pay for status for purely symbolic reasons, but the empirical evidence for that has been weak at best."  He explains, "To get at the symbolic value of status, we have to find evidence that buyers are willing to place a premium on status, holding constant quality and the reputation for quality... Look around and you may be hard-pressed to find a high-status producer that consistently produces second-grade products or a low-status producer that consistently produces first-grade products."  Matter's research suggests that the conventional wisdom may not be true. Consumers aren't being duped after all.  They aren't paying for status over substance, in most cases.  It's an interesting perspective.  For more, check out this article on the HBS Working Knowledge site.

Luxury Goods: How the Rich are Spending Their Money

The Wall Street Journal has a fantastic article today about how the wealthy are spending their money, specifically their attitudes toward luxury goods.  Christina Binkley reports:


"In fact, one time-honored tenet of the luxury industry—that discounted prices lower products' prestige—appears to no longer be true, according to several studies. A survey released in April by the American Affluence Research Center, a luxury consultant based in Alpharetta, Ga., found that 60% of respondents said discounts didn't affect their opinion of brands.  Items the rich do value at full price are one-of-a-kind clothes and accessories and experiences that create fond memories. Weekend getaways and vacations were the top two things the wealthy intended to spend more money on, Harrison Group says. The new luxuries are things that are in limited supply and have an emotional quality, rather than just a high price tag."

The data suggest that the discounting that took place during the recession has taken its toll on the perceptions of luxury brands.  Once those goods have been offered at steep discounts, it becomes difficult to bring pricing back to previously high levels.  Moreover, it appears that the recession may have some lingering attitudinal effects on all consumers, even those with high incomes.  Finally, the data suggest that wealthy consumers are most likely to have high willingness to pay for authentic experiences and more unique items, as opposed to mainstream luxury branded goods.  It will be interesting to see how this trend holds up as the economic recovery picks up steam.