The influence of intangibility on luxury purchase intention

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MASTER’S THESIS

THE INFLUENCE OF INTANGIBILITY ON

LUXURY PURCHASE INTENTION

NAME:

Willem Bendert van Walsem

STUDENT NUMBER:

10880674

E-MAIL:

willemvanwalsem@gmail.com

DEGREE:

MSc Business Administration, Marketing

SUPERVISOR:

Dr. Karin Venetis

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THE INFLUENCE OF INTANGIBILITY ON LUXURY PURCHASE INTENTION – WILLEM VAN WALSEM

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STATEMENT OF ORIGINALITY & CONFIDENTIALITY

This document is written by Willem van Walsem who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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ABSTRACT

Luxurious products and services are known for their premium prices, high quality and their mythical sense of prestige. The luxury market is one of the few markets that is not likely to face economic downturns. Therefore, it has been an important concept in marketing. People may have various motivations to purchase or engage in luxury spending; people assume most luxury spending is done only for conspicuous reasons. Previous research has shown that people not only purchase luxury for social reasons, but also for personal and functional reasons. Furthermore, it has been proven that people who have strong aspirations – both intrinsic and extrinsic in nature – are more likely to purchase luxury branded goods. However, the majority of research on luxury has focused on goods and not on services.

In today’s economy, we’re moving into a service economy. Services make up for the majority of the world’s economy, which make them very important to study. Products and services differ in nature and characteristics. The most important characteristic is the concept of intangibility. Intangibility consists of a physical and mental part; this research focuses on physical intangibility. The objective of this research is to find if physical intangibility affects the relationship between personality, motivations and purchase intention for luxury.

The study consisted of a quantitative pre-test and a survey for the main study. Results showed that, contrary to previous expectations, social and functional value motivations do not have a significant effect on purchase intention for luxury products and services. However, personal value motivations do have a positive significant effect on purchase intention for luxury products and services. This relationship is, as expected, moderated by the concept of intangibility. This means that when a service contains a high level of intangibility, the relationship between personal value motivations and purchase intention for luxury becomes weaker. Other interesting significant findings include the effect of gender on purchase intention; women are more likely to purchase luxury goods and services than men. Furthermore, it is confirmed that consumers who score high on extrinsic aspirations are more likely to develop a higher purchase intention for luxury.

Key words: luxury, intangibility, motivations, social, functional, personal, personality,

aspirations, extrinsic, intrinsic

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THE INFLUENCE OF INTANGIBILITY ON LUXURY PURCHASE INTENTION – WILLEM VAN WALSEM 4

1. INTRODUCTION…….…….…….…….………….…….…….…….………5

2. LITERATURE REVIEW….…….…….….…….…….…….…….…….……….10

2.1 LUXURY DEFINED…….….…….…….…….…….…….…….……10

2.2 VALUE MOTIVATIONS…….……….…….…….…….…….…….…13

2.2.1 SOCIAL VALUE MOTIVATIONS….…….…….…….……13

2.2.2 PERSONAL VALUE MOTIVATIONS….…….…….……..15

2.2.3 FUNCTIONAL VALUE MOTIVATIONS….…….…….…..17

2.3 PERSONALITY…….…….…….…….…….…….…….…….…….…18

2.3.1 INTRINSIC ASPIRATIONS………...………18

2.3.2 EXTRINSIC ASPIRATIONS………..19

2.4 INTANGIBILITY…….…….………….…….…….…….…….…….….21

3.CONCEPTUAL FRAMEWORK & HYPOTHESES………...24

4. METHODOLOGY….…….…….…….…….…….…….…….…….…….….….30

4.1 PRE-TEST….…….…….…….…….…….…….…….…….…….……31

4.2 MAIN STUDY….…….…….…….…….…….…….…….…….…34

5. RESULTS…….…….…….…….…….…….…….…….…….…….…….……..39

5.1 SAMPLE….…….…….…….…….…….…….…….…….…….……...40

5.2 CORRELATION ANALYSIS….…….…….…….…….…….…….…40

5.3 CORRELATION TABLE….…….…….…….…….…….…….……...41

5.4 HYPOTHESES TESTING….…….…….…….…….…….…….…….42

6. DISCUSSION…….…….…….………….…….…….…….…….…….…….….47

6.1 FINDINGS……….……….……….………47

6.2 PRACTICAL IMPLICATIONS……….……….………50

6.3 THEORETICAL IMPLICATIONS……….………51

7. CONCLUSION…….…….…….…….…….…….…….…….…….…….……..53

7.1 CONCLUSION…….…….…….…….….….…….…….…….…….…53

7.2 LIMITATIONS & SUGGESTIONS FOR FUTURE RESEARCH…54

REFERENCES..…….…….…….…….…….…….…….…….………..53

APPENDIX…….…….…….…….…….…….…….…….…….………..56

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1: INTRODUCTION

Luxury is an interesting concept to researchers and consumers alike. Luxury brands are among the most profitable and fastest-growing brands segments (Shukla, 2012). The luxury market is one of the rare markets that is not likely to face economic downturns (Stokburger-Sauer & Telchman, 2013). According to Bain & Co. (2012) as cited by Brun and Castelli (2013), the luxury industry is estimated to reach a €1 trillion revenue in a couple of years. This makes the luxury market an attractive market for managers to operate. The luxury market does still not show any signs of slowing down. In today’s society, people are more likely to marry at a later age, which allows them to have more funds for self-directed and hedonic pleasures. This is why a bigger part of the disposable income goes to luxury products and services than before (Kapferer, 2010; Stokburger-Sauer & Telchman, 2013).

But what is luxury and how are luxurious goods and services different from their regular, ordinary equivalents? What sets luxurious goods apart from ‘ordinary’ goods is that they are able to satisfy socio-psychological needs (alongside material needs) more successfully (Vigneron & Johnson, 2004; Shukla, 2012). Luxury does not refer to a specific category of products; instead, it demonstrates a certain symbolic and experiential value to a good or service. Luxurious goods include (but are not limited to) shoes, clothing, watches, jewelry, boats, wines, houses and more; luxurious services include spas, hotels, restaurants and shopping services (Brun & Castelli, 2013; Vigneron & Johnson, 2004).

In marketing the term “luxury” is frequently used as a way to communicate to consumers that the respective product or service is in a specific tier or group in any category (Dubois, Czellar & Laurent, 2005). The term ‘luxury’ is a frequently used phrase that indicates that a product or service is of a very high standard (Wiedmann et al., 2009). It is a common tool to differentiate the products or brand from other brands as a central driver of consumer preference and usage.

Luxury brands are known for their mythical sense of prestige that they bring to the product or service. For this group of products or services a special price can be asked. Furthermore, luxury is a construct that goes beyond cultures which makes it a very valuable construct. When a product, service or brand is perceived as luxurious, it is likely to appeal to customers from different cultures (Vigneron & Johnson, 2004).

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This makes it interesting for companies to engage in luxury marketing, as less effort has to be made to achieve cross-national results.

As luxury consumption has been a frequently studied topic, research has introduced multiple value motivations why one may purchase luxurious goods or services. The most evident reason why one would purchase luxury brands is because of social reasons. Status and conspicuousness of consumption are two main factors that are investigated in research; consumers frequently purchase luxurious goods with the goal of gaining status or belonging to a social group (Vigneron & Johnson, 2004; Shukla 2012). The primary goal for purchasing these luxury goods is to be associated with luxury brands by their environment (Vigneron & Johnson, 2004). However, recent research indicated that social value motivations might not be the most important reasons to purchase luxury brands. Consumers purchase luxurious goods not only for conspicuous reasons but also because of the functional attributes that luxury brands bring. Consumers frequently believe that luxurious goods are indeed of higher quality than their non-luxurious counterparts (Nueno & Quelch, 1998; Tynan, MecKechnie & Chhuon, 2010). The third category of motivations that exists is personal value motivations. Personal value motivations to purchase luxurious goods are drawn purely from the consumer’s perspective (Vigneron & Johnson, 2004; Amatulli & Guido, 2011). Consumers may purchase a product or service purely for hedonic reasons or to gain more self-awareness (Vigneron & Johnson, 2004; Shukla, 2012).

However, in the majority of research designs on luxury consumption only luxurious goods were researched. The renowned article by Vigneron and Johnson (2004) did not refer to any luxury brands specifically. Therefore, it is not clear if their work solely refers to goods, services or both. Hung, Chen et al. (2011) researched the antecedents of luxury brand purchase; however, they only limited their scope to high fashion brands such as Louis Vuitton, Burberry and Dolce & Gabbana. Bian and Forsythe (2012) researched the differences in purchase intention across cultures for luxury brands yet only focused on luxurious fashion apparel. Products and services are very different: in services, the consumer experiences ‘the product’. No physical ownership exists; it is perishable, intangible, and every service is custom-made (Shostack, 1977). Thus, very little research has been done on services only, let alone

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luxury services. The research done by Lee and Hwang in 2011 is one of the few examples does not focus on luxury goods but on luxury services; they researched the influences of psychological and demographical characteristics on attitudes towards luxury restaurants. However, they only focused on one type of service, which is restaurants, which leaves room for wondering what aspect of the respective service causes change in attitude.

Even though service firms have become the largest part of today’s world economy, a lack of research on services still exists (Sepulveda, 2014). Because of the development of new advanced communication technologies, the intangibility of products and services has become a more important issue. New technology enables the purchase of products or services online as well (Nepomuceno et al., 2012). However, intangibility comes with certain disadvantages. Due to the lack of physical components of the service, consumers find it harder to evaluate the good of service. This is not only before purchase, but happens during and after consuming or purchasing as well (Rushton & Carson, 1989; Bebko, 2000). Therefore, the level of intangibility may have an effect on the relationship between value motivations. Furthermore, this study will also look at whether one’s personality has an effect on purchase intention. In this study, a distinction is made between intrinsically oriented people and extrinsically oriented people (Truong, McColl & Kitchen, 2010); intrinsically oriented consumers hold intrinsic aspirations such as self-esteem whereas extrinsically oriented consumers are more likely to pursue extrinsic goals such as popularity and wealth.

This research will therefore attempt to provide an answer to the question whether service intangibility has an influence on motivations to purchase luxurious goods or services. Do consumers have the same value motivations for luxurious services as they do for products, and if not, how are they different?

This study will also look if personality has an effect on this relationship. Personality can be measured in various ways, one of them being looking at one’s personal aspirations (Truong, McColl & Kitchen, 2010). Consumers with intrinsic aspirations are more likely to strive for intrinsic goals such as health and self-acceptance. Consumers whose goals are more extrinsically oriented are more likely to pursue

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goals such as wealth and fame (Truong, McColl & Kitchen, 2010). Both types of personality are positively related to luxury consumption. Therefore, the concept of personality may also have an effect on the relationship between value motivations, purchase intention and intangibility.

Therefore, this study aims to answer the question whether the motivations to purchase luxurious goods and the effect that of one’s aspirations on purchase intention also apply to luxurious services. By answering these questions, we gain further scientific and practical insights on the luxury services industry. As perceptions of tangibility/intangibility can shape consumer experiences, this result may be of great potential for current marketers. Consumers may be manipulated to a certain extent on perceived intangibility, depending how the offering is presented to them (Hellén & Gummerus, 2013). Therefore, managers can use this information by possibly adjusting their marketing strategies and tactics when they are selling services as opposed to goods.

STRUCTURE OF THE PAPER

This study will focus on the purchase intention of luxurious services. Previous research has shown that purchase intention has significant implications and is positively related to the individual’s subsequent actions (Sung, Choi, Ahn & Song, 2015).

The second chapter consists of the literature review. In this chapter, the most important concepts of this research will be defined and clarified according to previous research. First, the concept of luxury will be defined. Even though luxury is a subjective term, the first chapter provides an answer to what sets luxurious goods and services apart from their ordinary counterparts.

Furthermore, the three types of value motivations will be explained and what effect they have on purchase intention for luxury products. The concept or personality according to one’s aspirations is introduced. Finally, the concept of intangibility – more specifically, physical intangibility – will be introduced and explained.

The next chapter will provide the theoretical framework and hypotheses that are used in this research. It will set the scope for the research in the next chapter. Finally,

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these results will be analyzed and discussed. Limitations and possible implications for theory and practice will be discussed.

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2: LITERATURE REVIEW

In this chapter the existing literature surrounding luxury, motivations, personality and intangibility will be addressed. It will provide definitions and illustrate the gap in literature, which will lead to the scope of this research. As a result, hypotheses are formed for this research in the next chapter.

2.1 LUXURY

The scope for this research is the purchase intention for luxurious services. In this chapter, luxury will be defined.

‘Luxury defines beauty; it is art applied to functional items. Like light, luxury is enlightening.’ (Kapferer, 1997)

When we look at the origin of the word luxury, some characteristics of the term luxury can be explained. The term ‘luxury’ derives from the Latin word of ‘luxuria’, which means ‘excess, luxury, extravagance. The Latin word ‘luxus’ means ‘indulgence of the senses’. In ancient civilizations, luxurious goods were a sign of wealth, power and exclusivity (Brun & Castelli, 2013).

However, the term ‘luxury’ is not limited to these definitions. Due to the subjective nature of the term, various definitions of the term luxury exist. In literature, definitions of luxury frequently focus on external attributes such as high price and premium quality (Nueno & Quelch, 1998; Tynan, MecKechnie & Chhuon, 2010). However, this definition is limited. Even though luxury products are very likely to have a high price, not every expensive product is a luxury product per se.

Dubois et al. (2001) identified a number of key characteristics of luxury brands. The following four criteria are used in this study to judge if a good or service is luxurious or not: high price, excellent quality, exclusivity and uniqueness.

First of all, the perceived high price is one of the most important components of luxury goods and services. Luxury products are known for their higher prices as they signal power and wealth; therefore, premium products are frequently confused for luxury products when they are not. This is because consumers often use high price as an indicator. For the consumer, a premium price often signals high quality, but high price does not guarantee high quality (Turunen & Laaksonen, 2011). Therefore, not all luxury goods have a high price, nor are high priced goods or services by

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definition luxurious. We can therefore say that a perceived higher cost is necessary for a good or service to be seen as luxurious; however, this condition is not sufficient (Brun & Castelli, 2013).

In the majority of research, high quality is mentioned as an important component of luxury products and services. However, this raises a question: can products or services of low quality still be regarded as luxurious, even though quality is relatively low? The importance goes beyond the field’s financial impact. However, different views on the importance of quality exist.

A luxury brand is a brand of which the functional utility to price is low while the ratio of intangible and situational utility to price is high (Nueno & Quelch, 1998). It is a selective and exclusive brand, which has an additional creative and emotional value for the consumer. (Chevalier & Massalovo, 2008). This means that consumers are willing to pay a price premium even though the functional utility of a product or service does not necessarily increase in the same rate as the price does. Stokburger-Sauer and Telchman (2013) even find that the functional value of a luxury brand does not have to be higher than a non-luxury brand’s value at all. However, even though the functional utility may be comparatively low to price as opposed to non-luxury products, luxurious products or services are of higher quality than their non-luxury counterparts (Turunen & Laaksonen, 2011).

Megehee and Spake (2012) explain luxury as a ‘configural experiential meaning that combines unique, scarce, aesthetic, functional and expensive elements and applies to both products and services. Thus, ‘luxury’ is a configuration of a unique, aesthetic, functional and expensive product-service experience.’ In a more socio-psychological context it is the ‘result of connection to a culture, state of being and lifestyle, whether or not is it personal or collective’. This definition shows that aside from the external attributes and benefits a luxury product or service may bring, it may also give internal pleasure. Therefore, the justification for one’s luxury purchase may be functional but also social or personal (Megehee & Spake, 2012; Vigneron & Johnson, 2004). These motivations will be explained in detail in the next chapter.

Luxury must be ‘continually re-differentiated, unceasingly recreating the distance between itself and its avatars’ (Kapferer & Bastien, 2009; Megehee & Spake, 2012). Luxury products yield extraordinary pleasures, especially in terms of psychological

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benefits rather than functional benefits (Kapferer, 1997). This definition shows that aside from the high price and quality, luxury products bring something extra that ordinary products do not. The opposite of a luxury good is an ordinary good (Tynan et al., 2010). However, it is difficult to say when something stops being an ordinary product and is considered a luxury product. In the end, it is up to the consumer to judge to which category a product belongs. The perception of what makes a luxury brand is not consistent across market segments, as it depends on the consumer’s perception of indulgent value (Bian & Forsythe, 2012).

This research will focus on accessible luxury according to the model created by Alleres (1990) as cited by Sung et al. (2015). In his research, he distinguished three main levels of luxury. The first is inaccessible luxury, which is solely obtainable by the most elite, upper class. This type of luxury includes fully customized goods and services for the highest class, which is only available for a select few. The second level of luxury is intermediate luxury, which is obtainable by the higher, professional class but not for everybody. The third, which is accessible luxury, is attainable even by the middle socioeconomic class; these people are likely to purchase these luxury goods for status. The services used in this research are not examples of inaccessible luxury as they are not only obtainable by the upper class; the services are arguably examples of accessible luxury as the middle socioeconomic class is capable of affording these services.

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2.2 MOTIVATIONS

In the previous chapter, we have seen that luxurious products and services not only bring functional value to the user, but also social and personal value (Megehee & Spake, 2011; Vigneron & Johnson, 2012; Hanzaee, Teimpourour & Teimourpour, 2012). Consumers may purchase luxurious products or services for functional, social, or personal reasons. It is very likely that consumers not only have one specific type of motivation for purchasing a luxurious good (Vigneron & Johsnon, 2004).

Vigneron and Johnson (2004) created a framework with two dimensions, namely personal and non-personal dimensions. Wiedmann. et al (2009) extended their framework by creating four dimensions: functional, social, individual and financial motivations. Financial and functional motivations, however, display many similarities; consumers are likely to purchase a product of quality while considering price as an important factor (Shukla, 2012). Therefore, in this research, financial reasons are considered part of the functional motives to purchase luxury brands.

This chapter introduces the three main types of value motivations. Even though it is assumed that these motivations exist alongside one another and are not exclusive, this research will study each type of value motivations individually.

2.2.1 SOCIAL VALUE MOTIVATIONS

Social motivations may be the most obvious type of reasons to indulge in luxury consumption. In consumer behavior, social motivations are generally seen as the most important driver of luxury consumption with symbolism being the most important factor (Kastanakis & Balabanis, 2014). Consumers may choose to purchase luxurious goods or services because of the influence of their environment to show that he or she is capable of purchasing such goods or services. This results in conspicuous consumption of services and thus to gain status from one’s environment (Shukla, 2012), as these products and services bring prestige and status to the owner (Kastakanis & Balabanis, 2014).

Veblen coined the term ‘conspicuous consumption’ in 1899, meaning that publicly observable consumption takes place (Kastanakis & Balabanis, 2012). According to him, consumers do not purchase luxury goods for their intrinsic value but solely to impress their peers and gain status among them (Brun & Castelli, 2013). In this case,

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the consumer purchases a luxury brand for its symbolic value rather than its functional utility. The underlying reasons include gaining status and thus self-esteem. In other words, it is a way to communicate to one’s peers that one is capable to purchase luxury.

For others, consuming the luxury product or service in public is a way for to communicate to others that they are wealthy or have high status (Vigneron & Johnson, 2004). This is in line with cost signaling theory, which explains why humans – and animals – will spend time and money in order to show their peers that they can afford to do so. This is a form of social competition (Lee, Ko & Megehee, 2015). Research has even shown that conspicuous luxury consumption may be a profitable social strategy as conspicuous luxury consumption elicits favorable treatment in social interactions (Nelissen & Meijers, 2011).

Consumers who purchase luxury products or service because of conspicuous reasons are more likely to perceive high price as an indicator for luxury. Therefore, when appealing to this specific group of customers, a prestige-pricing strategy is often used (Vigneron & Johnson, 2004).

Luxury consumption can frequently be explained because of the bandwagon effect. The bandwagon effect explains how consumers purchase a specific product or service because others do too. These consumers often copy the behavior of their hip, stylish counterparts and attempt to copy them by purchasing the same products or services. They do not want to be left behind; therefore they jump on the ‘bandwagon’ (Kastanakis & Balabanis, 2012; Ko & Megehee, 2012). Luxury goods and services are perceived to be indicators of success and indicate that the owner belongs to a successful group (Han et al. 2010; Kastanakis & Balabanis, 2012). Therefore, it is very important what other consumers are buying, especially ones that are highly regarded by others. According to Veblen (1899), it used to be more common for wealthy consumers to purchase luxury goods. Wealthy people wanted to display their status by acquiring luxurious goods that displayed their richness. However, it has become more common for the middle class to purchase luxurious goods. This way, middle class people can emulate being as wealthy as they perhaps may want to be (Silverstein & Fiske, 2003; Stokburger-Sauer & Telchman, 2013). This shows that purchasing luxurious goods or services indicate a certain lifestyle. This coincides with the definition of luxury is that luxury goods or status goods bring prestige to one who

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purchases the respective good, aside from the functional utility. When consumers are high in need of status, they are more likely to indulge in conspicuous consumption. Wealthy consumers are more likely to purchase luxurious goods, whereas less wealthy people are more likely to purchase counterfeit products to achieve a similar status. (Han, Nunes & Dreze, 2010).

The opposite of bandwagon consumption is snob consumption. This occurs when consumers refrain from buying a certain product or service because others are doing it too. For them, the perceived scarcity and thus the overall value of the goods has decreased (Kastanakis & Balabanis, 2012). Scarcity increases consumers’ preferences for a brand. This is because consumers express a need for uniqueness; a need to be different from others. This can be achieved by acquiring something that is difficult to obtain for their peers (Vigneron & Johnson, 2004). Luxury brands offer a degree of exclusivity that often cannot be obtained by purchasing ‘ordinary’ products. When a brand is more rare or more unique, it symbolizes more value for the consumer (Sun, 2011 as cited by Teimourpour et al., 2013). Therefore, scarcity of a product brings a certain type of status to the user.

It is interesting to note that cultures that are more collectivistic of nature are more likely to focus on social motivations than personal needs. The Chinese culture is a solid example: Chinese consumers find it important what others think of them. They often purchase luxury brands to be part of a social group (Yang, 1981; Wang, Sun & Song, 2011). Furthermore, Asian cultures that are collectivistic find the symbolic value of a product of service more important than its hedonic value, especially when the product is used or consumed in public. It has also been studied that giving luxury branded gifts is more common in Asian cultures than in other cultures; this is due to the fact that it gives a social message (Wong & Ahuvia, 1998; Wang et al., 2011).

2.2.2 PERSONAL VALUE MOTIVATIONS

In the past, research on luxury mainly focused on social reasons to purchase luxury brands. In recent years, however, a change in consumer’s view has occurred from a transactional relationship to a new individualistic model. This new model acknowledges the personal, internal motivations and thus sees it as a more holistic view on why consumers purchase luxury brands (Sung, Choi, Ahn & Song, 2014).

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The individual motivations to purchase a luxury brand are drawn from the personal perspective of the consumer. Individual motivations are more individualized than social motivations as it is more related to the consumer’s individual lifestyle (Vigneron & Johnson, 2004; Amatulli & Guido, 2011). Consumers who have personal motives to purchase luxury desire a pleasurable experience from the product and match their individual tastes to the product’s image (Wong & Ahuvia, 1998; Shukla, 2012).

Individual motivations consist of two main components: hedonic motivations and materialistic motivations. Consumers may purchase a luxury product or service for its hedonic value. This means that a consumer buys a product because of its aesthetics and exquisiteness. The consumer may think that by acquiring this product or service his life becomes more beautiful or comfortable (Vigneron & Johnson, 1999; Dubois, Laurent & Czellar, 2001). Hedonism mainly fulfills emotional fulfillment of the consumer (Shukla, 2012). It is the main driver behind emotional pleasure which may be stronger than the functional utility of a product or service (Lee & Hwang, 2011). Consumers may become attracted to a luxury product or service because of a positive emotional experience, which they link to the brand (Teimourpour et al., 2013). The hedonic component of luxurious motivations is very strong; otherwise it is ‘no longer luxury but simple snobbery’ (Kapferer & Bastien, 2009). Hedonic motives are seen as self-directed motives; they are about looking for the ultimate personal benefits which go beyond quality (Truong & McColl, 2011).

Materialism can be defined in various ways; one of which being that materialism stems from the desire to gain a certain status. Therefore, materialistic individuals are likely to think that luxury brands can bring them happiness. They judge themselves and others based on the possession of luxury brands (Vigneron & Johnson, 2004; Lee & Hwang, 2011). In this case, materialism would be viewed as a social motivation. However, materialism can also solely refer to the need of the consumer to possess a certain good and not being affected by its social environment (Shukla, 2012). Therefore, in this study materialism is considered a personal motivation. It is a common view that consumers view their possessions as part of their identity. Consumers may purchase luxury brands for their symbolic value to extend their own identity (Vigneron & Johnson, 2004). In research, this is sometimes seen as the primary motive for luxury consumption (Song et al., 2015). Luxury makes the

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consumer feel better about one self; when consuming or purchasing luxury, one feels a newly gained sense of pride and accomplishment (Keller, 2009).

2.2.3 FUNCTIONAL VALUE MOTIVATIONS

Consumers may purchase luxury brands purely because of functional reasons or because of a combination with other reasons. They perceive luxury brands to be practically better than their ordinary equivalents (Teimourpour et al., 2013) and are willing to pay a price premium for a product or service of better quality. .

Frequently, luxury products are products of premium quality, which may be the primary reason for purchasing such a product (Nueno & Quelch, 1998; Tynan, MecKechnie & Chhuon, 2010). Even though not all luxury brands may indeed be of higher quality than their ordinary counterparts, it is common for consumers to believe that the luxury product has higher value. Therefore, a high price makes a luxury branded product or service more attractive because consumers identify these products or services of higher quality (Vigneron & Johnson, 2004). Though luxury products and services may be more expensive than their ordinary counterparts, a significantly positive relationship between price and quality does exist (Rao & Monroe, 1989 as cited by Shukla, 2012). As luxury products are frequently high-involvement products due to the magnitude of the expenditure, the price-quality component of a good or service plays a significant part (Shukla, 2012).

Furthermore, consumers may purchase luxurious products because of the added uniqueness of a product (Vigneron & Johnson, 2004; Shukla, 2012). Luxurious products are scarcer than their ordinary counterparts, which give the consumer a sense of uniqueness. When the consumer acquires or consumes this unique good or service, he feels different from his peers (Tian et al., 2011; Lee & Hwang, 2011). Consumers who are likely to avoid similarity from their peers and who are likely to break rules are linked to the need for uniqueness, and thus are more likely to engage in luxury consumption. For some people, it is more important to possibly negatively distinguish oneself from his or her peers than to belong to the masses (Lee & Hwang, 2011). Therefore, the consumer is more likely to resist conformity by purchasing handcrafted or personalized items, which are often seen as luxurious items (Tian et al., 2011).

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2.3 PERSONALITY

This research will also look at whether one’s personality has an effect on the relationship between intangibility, motivations and purchase intention. One way to look at personality is to see what kind of aspirations one aspires. People are likely to act according to their own, unique personal aspirations. Therefore, the relationship between psychological needs and goal pursuits is very close (Truong, McColl & Kitchen, 2010). In research, two major classes are distinguished. A distinction is made between people with intrinsic aspirations - people who mostly pursue individual goals, and people with extrinsic aspirations - people who are more likely to pursue extrinsic goals (Grouzet et al., 2005).

This chapter will elaborate on this distinction between intrinsically and extrinsically oriented consumers.

2.3.1 INTRINSIC ASPIRATIONS

Consumers who are individually motivated are more likely to have intrinsic goals. Intrinsic goals include self-acceptance (growth), affiliation (relatedness), community feeling (helpfulness) and physical fitness (health). These goals are internally oriented and are driven by autonomous reasons; individuals who pursue intrinsic goals do this achieve inner joy and satisfaction (Truong, McColl & Kitchen, 2010). These pursuits are generally congruent with the psychological needs for relatedness, autonomy and competence and are considered satisfying to pursue (Grouzet et al., 2005).

Three personal luxury values have been proven to have a significant relationship with the intention to purchase luxury fashion brands: self-directed pleasure, self-gifting and self-identity. When one has a high level of self-directed pleasure, self-gift giving or self-identity, the purchase intention of luxury brands increases (Kim, Yoo, Choi, Kim, & Johnson, 2011).

User and usage imagery congruity are strong predictors for brand attitude and brand loyalty for luxury products (Fang, Jianyao, Mizerski & Soh, 2012).. The similarity between a consumer’s own self-image and the typical user’s image plays a significant role in consumer’s attitude or purchasing attention. This need for similarity can be for both intrinsic and extrinsic motivations and both have a positive relationship to luxury brand preference. Furthermore, the level of self-attitude also

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has a positive effect on brand preference for luxury products, which is also an internal aspiration. This means that when one has a clear, positive sense of self, he or she is more likely to engage in luxury brand consumption (Liu, Li, Mizerski & Soh, 2012). However, consumers who are intrinsically motivated are less likely to engage in luxury consumption for conspicuous reasons (Truong & McColl, 2011). Intrinsic motivations are negatively linked to conspicuous consumption. These consumers are still likely to purchase luxury brands, but mainly for quality and personal purposes.

2.3.2 EXTRINSIC ASPIRATIONS

Extrinsically oriented people may pursue goals such as financial success (money and luxury), social recognition (fame) and attractive appearances (Truong, McColl & Kitchen, 2010). Consumers that have extrinsic aspirations are often concerned about how they look and how their environment perceives them. It is common for them to look for success in the form of praise and rewards (Truong, McColl & Kitchen, 2010). This is because for them, these are often a means to get something else (Grouzet et al., 2005). In their model, Truong, McColl and Kitchen distinguish three traits as being extrinsically oriented: wealth, which covers financial success; popularity, which is about social recognition and image and having an appealing appearance. They found that consumers who pursue their extrinsic goals have a positive relationship with purchase intention for luxury goods; they are more likely to follow ideals according to their environment. Extrinsically oriented consumers are more likely to be attracted to luxury goods than intrinsically oriented consumers, although a positive relationship for both types exists (Truong, McColl & Kitchen, 2011).

Extrinsically oriented consumers are less likely to form their own opinions of a product or service. They frequently find inspiration from their environment and adjust their ideals accordingly. Consumers who purchase luxury goods are more likely to purchase goods because of the symbolic value instead of the functional value (Chen, Zhu, Le & Wu, 2014). Consumers who are more likely to engage in bandwagon consumption behavior are linked to striving for wealth and status. These consumers are affected by their environment in creating their own personal goals and needs. This makes them less susceptible to normative influence and need for uniqueness, which results in a higher purchase intention for luxury products (Kastakanis & Balabanis, 2012).

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A study done by Otero-López and Villardefrancos (2015) found that people who are more extrinsically oriented are more likely to indulge in compulsive buying behavior. As extrinsically oriented people are more likely to value attractiveness and (perceived) financial success, these people are more likely to be sensitive to compulsive buying behavior. They found that this includes spending more prestigious and thus, more luxurious products. However, they found that people who have strong intrinsic aspirations are also more likely to engage in compulsive behavior than people whose intrinsic aspirations are lower. Therefore, consumers who score high on aspirations are more likely to engage in luxury consumption.

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2.4: INTANGIBILITY

Previous research on luxury branding has mainly focused on luxury products. When researching luxury brands, often only luxury goods are used in research. This research will attempt to find an answer whether motivations to purchase luxury goods differ from those to purchase luxurious services.

Services differ from products in many ways. The nature of services (e.g. intangibility, perishability, heterogeneity, variability and inseparability) as well as the way of delivery and degree of customer interaction are what distinguishes services not only from goods, but also from one another (Sepulveda, 2014). These natures and characteristics have made it difficult to not only market them, but also to properly study them. Services cannot be communicated as easily which makes it harder for firms to internationalize. To market services effectively, these challenges must be overcome (Hyder & Fregidou-Malama, 2009).

This research will focus on one key characteristic of what differentiates services from products: intangibility. Intangibility is often seen as the key characteristic that distinguishes services from goods (Bebko, 2000) as it is the only typical service characteristic that is common to all services (Klein & Lewis, 1985; Flipo, 1989) and it is commonly seen as the characteristic that best differentiates services from material goods (Zeithaml & Bitner, 1996 as cited by Bebko, 2000). Service intangibility is an influential variable when determining the success of internationalization.

Intangibility comes with certain disadvantages when marketing a product. For example, tangible components are easier for consumers to evaluate. Thus, less effort is required when attempting to reach the consumer (Hartman & Lindgren, 1993; Cloninger, 2004). Therefore, it may be beneficial to tangibilize services. High intangibility of a service may reduce a firm’s early proactiveness towards foreign markets and it will be less likely for radical innovations to emerge (Sepulveda, 2014). It is important to customers because it makes products and services more difficult – in some cases even impossible – to evaluate before use, and sometimes even during and after use. The product or service is more difficult for the consumer to make sense of and to evaluate than a more tangible equivalent. Products and services with a high level of intangibility are seen as increasing risk for the consumer; when

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consumers cannot see the tangible result of a service, it makes it more difficult for them to set expectations (Bebko, 2000). Therefore, it is important for managers to address intangibility when marketing products (Rushton & Carson, 1989).

Services are considered intangible by nature, but the majority of services displays tangible characteristics. Spending a night in a hotel may be intangible in nature, but the service consumption consists of various physical components. The quality of the bed, room decorations and other factors play a large factor in evaluating overall service for the consumer (Cloninger, 2004).

On the other hand, material goods are also capable of exhibiting intangible characteristics. Examples are software and music, which are seen as goods but arguably display intangible characteristics (Laroche et al., 2005). Another example is that many goods come with extra customer services to support the consumer purchase. It is common to receive customer support when purchasing physical goods (Laroche et al., 2005; Cloninger, 2004). Therefore, very few pure goods or services exist as many are a combination of goods and services. Therefore, all goods and services are regarded of having a certain level of intangibility. Goods and services are not seen as exclusively tangible or intangible in nature; instead of a dichotomy, an intangibility continuum exists with some goods and services containing a higher level of intangibility than others (Shostack, 1977; Hellén & Gummerus, 2013). Lines are often blurred which often makes it difficult for the consumer to classify (Cloninger, 2004).

In recent literature, a distinction has been made between three main components: physical intangibility, mental intangibility and generality (Laroche, Bergeron & Goutaland, 2001; Laroche, Yang, McDougall & Bergeron, 2005).

The first component of intangibility is physical intangibility. Physical intangibility relates to extent that the product cannot be touched or seen. The product or service lacks a physical component due to which it is not accessible to one’s senses (Laroche et al., 2005). This is in line with Kotler and Bloom’s (1984) as cited by Laroche et al. (2010) definition of intangibility; they describe intangibility as “what cannot be seen, tested, felt, heard or smelled”.

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Services differ from products in the sense that they are untouchable. You cannot touch a hotel night, a restaurant visit or a massage. Even though all services have physical (thus, tangible) components to them, the service itself is not physically tangible (Flipo, 1988). Services have varying levels of perceived physical intangibility; it is up to the consumer to determine the level of intangibility that a service possesses. It is possible to make a service more physically tangible by adding more physical components. For example, a night in a hotel can be judged based on its in-room facilities, variety of meals and transportation (Chang & Tarn, 2008; Khang, Yu & Lee, 2014). This is an example adding more physical evidence - “the environment in which the service is delivered and where the firm and the customer interact” – (Zeithaml & Bitner, 1996 as cited by Bebko, 2000) of the process, which needs to be taken into consideration when evaluating tangibility.

Intangibility may also refer to the mental process in which it is harder to grasp a concept. Mental intangibility is connected to physical intangibility in the sense that the consumer does not have a consistent conception of an object of construct. This especially occurs when the user lacks experience in using the aforementioned object (Laroche et al., 2003). Therefore, a product or service that is mentally intangible is difficult to grasp for the consumer. Even when a product can be fully tangible to the consumer, for instance the engine of a car, the concept may be mentally intangible. Mentally intangible components of a hotel night may include the customers’ feeling of relaxation, reservation system and their overall satisfaction with the hotel (Chang & Tarn, 2008).

A third construct, generality, relates to the extent to which the consumer finds it difficult to grasp the concept of a product or service. For example, for some consumers it is easier to describe the features of their new computer in terms of specifications and quality than to describe the unique features of the hotel that they visited that night. Both products and services can be perceived as general when consumers are not able to identify definitions, features or results in the consumers’ mind (Laroche et al., 2001). The features of a specific product can be described with high accuracy, whereas services and products that are more general in nature are more abstract. For example, when a restaurant provides ‘higher quality’ food, it is seen as an abstract and thus a general construct; however, when it is offered via

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more measurable – thus, tangible – components such as award winning chefs, the service becomes more specific (Nepomuceno et al., 2012).

For this study, the concept of physical intangibility will be used when referring to intangibility. This means that intangibility refers to the extent to which it is ‘untouchable’. The reason for choosing physical intangibility is that physical intangibility is a concept that is more easily manipulated by the manager. Therefore, the study brings more practical implications when focusing on physical intangibility. (Flipo, 1984).

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3: CONCEPTUAL FRAMEWORK & HYPOTHESES

This chapter will introduce the hypotheses that are based on the theory described in the previous chapters. Therefore, the study used a deductive approach by creating new hypotheses based on previous research.

This entire study is set in the field of luxury and only refers to luxurious products and services.

In previous literature, different types of motivations have been distinguished for purchasing luxury goods. Consumers may purchase luxury products or services because of one of these value motivations only. However, it is more likely that a purchase is made based on a combination of these value motivations (Vigneron & Johnson, 2004; Shukla, 2012; Truong, McColl, 2011). Therefore, it is therefore assumed that when value motivations for luxury products and services are high, the overall purchase intention increases. However, this study will look at the three types of motivations individually to determine what types of motivations are most affected in the landscape of services.

The most traditional and arguably the most important driver for luxury consumption is social value motivations (Kastanakis & Balabanis, 2012). Consumers may have social value motivations to purchase luxury goods. This means that when the consumer is looking for more status or values to consume products publically, purchase intention for luxury goods and services increases. Even in the case of services it is expected that consumers will pursue social motivations; because of social media or knowledge about the service, they are able to communicate to their environment that they are capable of purchasing a luxurious service.

H1: When consumer’s social value motivations are high, purchase intention

increases.

Recent literature has found that consumers also have personal reasons to engage in luxury consumption (Vigneron & Johnson, 2004; Shukla, 2012). This means that consumers are likely to purchase luxury products and services for hedonic or materialistic means. These motivations are more in line with the consumer’s individual lifestyles and preferences (Amatulli & Guido, 2011). It is expected that

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consumers will pursue these motivations – especially hedonic motivations – when purchasing luxurious services.

H2: When consumer’s personal value motivations are high, the purchase intention

for luxury services increases.

Finally, consumers may have functional value motivations to purchase luxury products. Consumers may purchase a luxury product because of the high quality or uniqueness of a product (Shukla, 2012). Even though the functional utility of luxury products to price may be comparatively low, luxury products bring intangibile and situational utility to products that their ordinary counterparts do not have (Nueno & Quelch, 1998). Furthermore, it is agreed upon that the overall quality is higher than ordinary products (Turunen & Laaksonen, 2011; Tynan, MecKechnie & Chhuon, 2010). Furthermore, consumers may purchase luxury products because of the added uniqueness of a product. Luxury products are known to be scarcer. Therefore, consumers may purchase these goods to obtain a product that is more unique and sets them apart from their peers (Vigneron & Johnson, 2004; Tian et al., 2011; Lee & Hwang, 2011). It is expected that consumers may also purchase luxurious services for higher quality and a sense of more uniqueness.

H3: When consumer’s functional value motivations are high, the purchase

intention for luxury services increases.

Services have become the largest part of the world economy. Due to modern day technology, it has become possible to internationalize and export services in ways that were not possible before (Sepulveda, 2014). However, research on services has been comparatively lagging.

The key construct that separates services from goods is the degree of intangibility (Bebko, 2000). A higher degree of intangibility makes a good or service harder to evaluate (Klein & Lewis, 1985). For consumers, it is easier to evaluate tangible components, especially before consumption (Hartman & Lindgren, 1993; Cloninger, 2004). It is more difficult for the consumer to grasp the concept and to make a clear mental picture when the product or service contains a high degree of intangibility (Rushton & Carson, 1989). Therefore, the consumer experiences a higher level of

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perceived risk when purchasing services as opposed to products due to the high degree of intangibility (Laroche et al., 2010). It is not only before consumption that consumers find it harder to evaluate services; also during and after consumption of the service consumers have difficulties with the respective evaluation (Laroche et al., 2001). It is expected that the level of intangibility of a product or service will affect consumers who have social value motivations to purchase luxury products. Intangible elements are more difficult to display to one’s peers, which is why it is more likely that a high degree of intangibility will affect consumers who purchase luxury products for conspicuous consumption.

This leads to the following hypothesis:

H4: Physical intangibility has a negative effect on the relationship between social

value motivations and purchase intention for luxury.

Consumers who pursue personal motivations are more likely to purchase for hedonic or materialistic reasons. However, intangibility brings more perceived risk to the consumer (Hartman & Lindgren, 1993; Cloninger, 2004). Materialistic consumers will perceive services as having higher risk due to the fact that they cannot ‘own’ the services. Therefore, it is expected that a high degree of intangibility has a negative effect on the relationship between personal value motivations and purchase intention.

H6: Physical intangibility has a negative effect on the relationship between

personal value motivations and purchase intention for luxury.

Consumers may also have functional value motivations to purchase luxury brands. However, intangibility brings more risk and uncertainty when choosing for a product (Hartman & Lindgren, 1993; Cloninger, 2004). Consumers who have motivations that are quality-price related are more likely to perceive a highly intangible product or service as risky and are less likely to choose a situation that provides less risk. Therefore, the following hypothesis is formed:

H6: Physical intangibility has a negative effect on the relationship between

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Value motivations specifically refer to a situational construct; one may have motivations at a specific time and place, but these may be different at another point in time. However, the personality of a consumer is more lasting. It is not related to just one situation.

For this research, a distinction has been made between intrinsic aspirations and extrinsic aspirations. Consumers who have intrinsic goals, such as inner joy and satisfaction are more likely to pursue their own specific goals (Fang et al., 2012). This means that when the consumer strives for a high level of self-attitude, he is more likely to engage in luxury consumption (Liu, Li, Mizerski & Soh, 2012).

At the same time, people can also pursue their extrinsic aspirations. Extrinsic goals include wealth, social recognition and to have an attractive appearance (Truong et al., 2010). Consumers who follow their extrinsic goals are more likely to engage in compulsive buying behavior, which includes spending on luxury items (Otero-López & Villardefrancos, 2015).

Previous research has shown that this validates for luxury goods; in research done by Truong et al. in 2010, various product categories were tested. This showed that for consumers who scored high on aspirations, their purchase intention for luxury products increases. However, it has not yet been proven if intrinsic aspirations have a positive effect on purchase intention for luxurious services. Therefore, the following hypotheses are formed:

H7: An intrinsically oriented personality has a positive effect on purchase intention

for luxury.

H8: An extrinsically oriented personality has a positive effect on purchase

intention for luxury.

Aside from the direct effect on purchase intention, it is expected that an extrinsic personality has an effect on the relationship between intangibility, value motivations and purchase intention. Consumers who have extrinsically oriented personalities are likely perceiving risky situations as less risky (Otero-López & Villardefrancos, 2015). People who strive for wealth, which is one of the key extrinsic aspirations, are more likely to act according to their goals without thinking about the consequences (Nelissen & Meijers, 2011). Furthermore, consumers who strive for status les susceptible to intrinsic factors such as need for uniqueness and quality (Kastakanis &

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Balabanis, 2012). Therefore, it is expected that consumers who score high on extrinsic aspirations are less likely to perceive physical intangibility as a risk-inducing factor, the following hypotheses are formed:

H9: An extrinsically oriented personality weakens the effect of intangibility on the

relationship between personal value motivations and purchase intention for luxury.

relationship between social value motivations and purchase intention for luxury.

relationship between functional value motivations and purchase intention for luxury.

This leads to the following conceptual model, which will be researched in the following chapters:

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4: METHODOLOGY

This research will investigate if intangibility has an influence on the motivations to purchase luxury brands. This is investigated with a within-subject experimental design. Three different types of value motivations will be tested; social, personal and functional motivations. Furthermore, it will be tested whether the trait of personality has an effect on this relationship. Online surveys are administered and distributed to measure the constructs in the model.

A quantitative pre-test is conducted to confirm that the chosen services are suitable for this research. It aimed to find two similar services that differ significantly in perceived physical intangibility and meet the other criteria listed below.

The final study consists of a survey combined with an experiment. The survey tests the respondents’ general motivations to purchase luxury branded services. Furthermore, the experiment researches whether the construct of intangibility will influence these relationships and if personality has an influence on this relationship.

REQUIREMENTS

The two services used in this research must satisfy the following criteria: - They must be perceived as luxurious services

- They must be known by the respondents

- They must significantly differ in physical intangibility and be fairly constant in mental intangibility

- They must display similar outcomes in terms of likability and likelihood to purchase

It is chosen to not choose known luxury brands but scenarios of services. This allows controlling for the maximum amount of variables and not have possible other factors, such as likability or usage of brands, interfere with the results.

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4.1 PRE-TEST

The pre-test consisted of an internet-based survey that allowed to determine which two services would be used in the final survey. The pre-test tested the following constructs:

- if the services used are seen as luxury services

- which services would differ in the level of intangibility, but

- which services would display the highest similarities in terms of purchase intention and probability of purchase.

For this pre-test, 10 different scenarios (e.g. restaurants, airlines, hotels, personal shoppers) were created to test the stimuli. The 10 scenarios varied in service types, but were created to be as similar as possible. This allowed controlling for as much variance as possible. For some services, it was difficult to create similar services as they differed in nature such as the time being consumed. However, the scenarios were created to be as similar as possible by controlling for factors such as price, location and service duration.

All scenarios were presented to every respondent. First, the concept of intangibility was explained according to suitable theory. Then, respondents were asked to rate each service based on intangibility, likability, purchase intention and perceived luxury. Every item was measured on a 7-point Likert scale.

4.1.1 SAMPLE

The sample for the pre-test consisted of 27 people (17 men and 10 women). All participants had the Dutch nationality. The participants’ age ranged from 21 to 35, with a median of 26 and standard deviation of 2.13. The questionnaire was developed via Qualtrics. Respondents were approached via various social media such as WhatsApp or Facebook and face-to-face interactions. After the data collection process was completed, they were analyzed via SPSS.

4.1.2 MEASURES

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Perceived luxury

First of all, to fulfill the requirements the service has to be seen as a luxurious. Respondents were given the definition of luxury according to this research. For each of the ten scenarios, they were asked to rate perceived luxury (“I consider this service to be a luxurious service”) according to a 7-point Likert scale with 1 being the lowest and 7 being the highest. Services only qualified for further research when they received a higher score than 4, which is the average.

Intangibility

To qualify for the final research, services have to vary in physical tangibility whilst displaying similar values in mental intangibility. Respondents were first given proper definitions of mental and physical intangibility. Then, in each scenario, they were asked to rate perceived physical/mental intangibility on a 1 to 7 Likert scale (“I consider this service to be physically/mentally intangible”).

4.1.3 CONTROL VARIABLES

Furthermore, respondents were asked for every variable to rate their intention to purchase (“I would purchase this service” and to rate the price-quality ratio “I find the price suitable for the service”.)

4.1.4 RESULTS

To test if the services are seen as luxurious services and to test for intangibility, descriptive statistics have been used to assess whether the brands would satisfy the criteria.

When deciding for two services that meet the previously mentioned criteria, two services stand out: restaurant and personal shopper. For these two services, perceived luxury was high with significant values of 6 and 6,44 respectively; both services display similar values in mental intangibility, whereas displaying a solid difference in physical intangibility (3,44 for the restaurant and 5,37 for the personal shopper). Other values, such as purchase intention and price-quality ratio displayed values that were consistently similar. Therefore, these two services are used in the final study.

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THE INFLUENCE OF INTANGIBILITY ON LUXURY PURCHASE INTENTION – WILLEM VAN WALSEM 33 Service Perceived luxury M (SD) Physical intangibility M (SD) Mental intangibility M (SD) Purchase intention M (SD) Hotel 6 (1.12) 4,19 (2.13) 2,96 (1.56) 3,26 (1.23) Restaurant 6 (1.54) 3,44 (1.21) 3,11 (1.84) 2,32 (1.91) Dental 5,22 (1.82) 4,26 (0.72) 3,7 (1.01) 3,96 (2.23) Account 3,78 (1.90) 5,15 (1.81) 5,22 (0.99) 3,19 (2.01) Gardener 4,81 (2.12) 3,74 (1.14) 3,22 (1.42) 3,19 (1.89) Airlines 5,52 (1.01) 4,41 (0.84) 3,33 (1.18) 3,59 (1.62) Translation 3,07 (1.11) 4,74 (0.82) 3,81 (1.33) 3,15 (1.87) Personal 5,89 (1.34) 4,63 (2.06) 3,81 (0.92) 2,74 (1.22) Haircut 4,74 (1.81) 4,59 (1.59) 3,15 (1.48) 2,26 (1.49) Personal shopper 6,44 (1.22) 5,37 (1.49) 3,96 (1.21) 2,04 (1.83)

The influence of intangibility on luxury purchase intention

MASTER’S THESIS