Chapter 1: Introduction

1.1 Introduction

In the 80’s, luxury goods that used to belong to the upper class became visible, recognizable, and accessible to the public. Hence, the market for luxury goods went through an enormous demand growth spurt, and developed into a significant economic sector in the 90’s (Roux and Floch 1996). Louis Vuitton reported sales of nearly 2.5 billion Euros, increasing its net income by 80% between 2002 and 2004 (LVMH 2005).

LVMH Moët Hennessy Louis Vuitton, the world’s leading luxury group, achieved revenue of 4 billion euros in the first quarter of 2008. Organic revenue increased by 12% compared to the same period in 2007, which was also a period of strong growth. As a result of the negative impact of exchange rates, reported revenue growth is 5%. All business groups recorded double-digit organic revenue growth in the period, with the exception of Wines & Spirits. The Group continued to record excellent performances in Asia, the US and Europe.

A good attains the label “luxury” when it has the particular design, quality, performance or durability that is remarkably superior to the comparable substitute. Luxury goods have a lot to do with the consumers psyche and how it makes the person feel. In generally, luxury goods are considered to be the highest quality, and price in the market.

Brand consciousness among the Malaysian society has been increasing over the past few years, especially with the young generation who are now appetite for the luxury goods and brands especially from college, university students and young working adults. The population of the youth for aged between 20 and 29 aged is 20% which nearly make up the entire population in Malaysia.

Understanding the consumer behavior in this age group would be pivotal in ensuring luxury brands can better position themselves in the market and will be useful in marketing building brands. It makes good reason that research on the factor influences generation Y on the purchasing decision of luxury goods.

1.2 Background of Research

“Asia is considered by many international brands as a major sales region, with the improving personal financial status of Asian consumers and with the opening up of various developing markets, there is huge room for growth in the luxury sector,” said Karen Watson, Chief Communications Officer, ACNielsen Company(Consumer and Designer Brands , April 2008).

In Malaysia, the luxury goods sector has been growing along with the rest of the world over the past ten years. We can see that some of the shopping complex such as Kuala Lumpur City Center (KLCC) Mall that sell luxury goods and for up market. Over the years, the setting up for the up market such as Pavilions, The Garden and Star Hills have catered to the increasing demand of luxury goods. “In Malaysia the apparel industry has undergone great transformation with more and more brands entering the market, and the recent past years have seen the entry of numerous international brands. The apparel industry is worth RM 3.26 billion (approximately USD 1.1 billion) (Protégé Associates‟ Independent Market Report (2007)” (Khan and Khan, 2008)

The study on consumer behavior in relevance to luxury goods has gained a lot of interest over the course of the decades. Early research on a framework to define luxury and that of luxury seeking consumers started in the 19th century by Rae (1834). The early research was showed that a summary of the luxury seeking consumer behaviour which can be seen by Vigneron and Johnson (1999) where the values are conspicuous, unique, social and quality. Conspicuous and quality could be seen in the summary luxury seeking framework by Vigneron and Johnson (1999) who presented the luxury value perceptions., It has been stated as the notion of “buying to impress others” by concerning the motives for consuming luxury goods (Wiedman, Hennigs, Siebel, 2007).

Other researches were instrumental on other factors which influence purchase decisions, Khan and Khan (2005) provided the result by showing how reference groups influence on purchase decisions. It focuses on reference groups which are groups that individuals refer when making a purchase. From a consumer behaviour perspective, reference groups are important because they inform and make individuals aware of specific products and brands; provide individuals with opportunities to compare their own thinking with the attitudes and behaviour of the group; and influence individuals to adopt attitudes and behaviour that are consistent with the norms of the group (Khan and Khan, 2005).

Aesthetics appeal on purchasing decision also gained the attention of the researchers. Researchers such as done by Virginie, Irina and Pierre (2009) and Dubois, Laurent, Czellar (2001) influence the purchase decision on luxury goods.

1.3 Research Question

Most of the consumers purchase the luxury goods for one of the following reasons. Purchasing decisions could be influence by the social factor example noted by (Khan and Khan, 2005).Other factors that should be taken into consideration include brand image, conspicuous and quality value which effect the purchase decisions before making the purchase. Aesthetics are also playing a crucial role influence on purchase of luxury goods

Based on the Literature Review in Chapter 2, which provides a detailed look at all the factors and variables above, the research questions at hand has to do with the present variables and the purchase decisions. The questions addressed in this research are:

• What are the critical factors (reference groups, perceived conspicuous, perceived quality, brand image and aesthetics) influence generations Y in purchasing decision of luxury goods in Malaysia?
• Is there any interaction between critical factors (reference groups, perceived conspicuous, perceived quality, brand image and aesthetics) and generation Y’s purchase decision on luxury goods in Malaysia?
• How the critical factors (reference groups, perceived conspicuous, perceived quality, brand image and aesthetics) have impacts on generation Y’s purchasing decision on luxury goods in Malaysia?

1.4 Research Objective

This study aims to address the following objectives of the study:

Main Objective:

To determine and identify the factors influence generation Y in purchasing decision of luxury products in Malaysia.

Specific objectives:

• To identify the critical factors (reference groups, perceived conspicuous, perceived quality, brand image and aesthetics) influence generation Y in purchasing decision of luxury products in Malaysia.
• To determine relationship between critical factors (reference groups, perceived conspicuous, perceived quality, brand image and aesthetics) and generation Y’s purchasing decision of luxury goods in Malaysia
• To determine the effect of critical factors (reference groups, perceived conspicuous, perceived quality, brand image and aesthetics) on purchasing decision of luxury goods in Malaysia.

1.5 Significant of the Study

The luxury goods market is growing rapidly and it is important for research to be done to understand the factors and variables that influence Generation Y purchase luxury goods in Malaysia. The research is important for a number of reasons. The factors influence purchasing decision or consumer behaviours toward luxury goods research has been done in American, Europe or Asia but there is a lack of research regarding purchase decisions on luxury brand products in Malaysia. The only research has been done was by Khan and Khan (2005). The research was about the gender differences in the purchase of luxury goods and covered with social influences and marketing influences.

1.6 Scope of the study

In this research, the research will be conducted under the scope of the purchasing of luxury goods. The research will investigate the factors that influence the generation Y in purchasing decision of luxury goods in Malaysia.

This research is going to focus on generation Y which includes males and females in Malaysia. The age the range of this research on generation Y between 20 to 29. This group of generation Y was chosen because they are college students, university students and young working adults. They are the consumers that showing the greatest purchasing power in the luxury goods market. Questionnaire will be given to the generation Y to know the factors that influence them in purchasing decision on luxury goods.

1.7 Organization of the Research Project

The outline of this thesis can be divided into three main parts. Chapter 1 would be the introduction to the paper, where an understanding of the luxury goods market would be presented, along with the trends the market is heading. A background of the study is also provided, citing the work done by past researchers and their findings. This chapter also provides a clear understanding of the problem statements as well as the objectives of this research paper. Chapter 1 would also justify the need for this research to carried out and provide a summary of the research methodology used to carry out the survey.

Chapter 2 would provide a review on the findings and results of past researchers. Chapter 2 titled literature review would be the assessment on research topics of interest to the researcher, such as topics concerning the factors that influence the purchase of luxury goods. Factors or variables that are being discussed in this chapter include the social influences, perceived conspicuous value, perceived quality value, brand image and aesthetics

Onwards to chapter 3 which is titles research methodology, this chapter would detail the relationships of all the variables present with the theoretical framework. The development of the research hypotheses would also be presented in this chapter along with the sampling design and procedures that would be used in the data collection process. Chapter 3 would then round up by pointing out the methods that would be used for data analysis as well as the variety of tests that would be used to test the hypotheses.

Chapter 4 is the “Data Analysis”, presents and analyses the raw data collected from the survey. After that, SPSS (Statistical Package for Social Science) will be used to present the most accurate statistic data and graph.

Chapter 5 explains the outcomes of the testing of the hypotheses determined from Chapter 4: Data Analysis. The acceptance or rejection of the hypothesis is discussed as well. Additionally, the concluded results of the hypothesis testing from this study are compared with results from previous researches to identify the differences and similarities.

1.8 Conclusion

This chapter has laid the foundation for the entire research. A background of the study was also given to show the progress made by past researchers on the topic at hand. An understanding of the luxury goods industry was presented along with the research questions and objectives this research intends to meet. Thus, the research question, research issues, limitations of the research and outline of the research have been presented, which will provide a guideline for the research. The above information can work as a base and lead into the detail interpretation on the research afterwards.

Chapter 2: Literature Review

2.0Definition of Luxury Goods

The word ‘luxury’ can be defined as state of life in which has uses things that please the senses or pleasing to have but not essential. “A good attains the label as a “luxury” when it has a particular design, quality, performance or durability that is remarkably superior to the comparable substitutes” (Snapshot of U.S Luxury Good Market, 2007).

Dubois, Laurent and Czellar (2001) and Survanasuddhi (2007) stated a definition of the nature and characteristics of the concept of luxury. The six facets are excellent quality, very high price, scarcity and uniqueness, aesthetics and polysensuality, ancestral heritage and personal history and superfluousness.

Luxury goods are rising in popularity especially as consumers’ buying behavior is becoming more symbolized. Consumers feel that by owning luxury products can express their personality and set them apart. Thus, “luxury goods have been defined as goods for which the mere use or display of a particular branded product brings prestige on the owner, apart from any functional utility” (Nia and Zaikowsky,2000)

The term ‘prestige’ was defined as it consists of consumers’ motivations for chasing technical superiority, uniqueness, signaling wealth and status well as aesthetics appeal (Vigneron and Johnson, 1999). ‘Prestige’ and ‘luxury’ are used synonymously in the VIgneron and Johnson’s research. Vigneron and Johnson (1999) categorized three types of prestige brand as upmarket brands, premium brands and luxury brands, respectively in an increasing order of prestige. Hence, it was expected that people would have different perceptions of the level of prestige for the same brands, and that the overall prestige level of a brand would consider the prestige perceptions from different people.

“Luxury brands can be described as premium priced brands that consumers purchase for their psychological values (symbolic and hedonic), and not predominately for their economical and functional value” (Nueno and Quelch 1998; Stegeman, 2006).

However, the definition of luxury goods or brands cannot be fully recognized. The definition of luxury will be different and may not be the same for another researcher. Chadha & Husband (2006) definition limits itself in that it only pertains to luxury fashion goods instead there are other luxury goods that are also both universally available and accepted as luxury. The definition of luxury brands have been defined as fashionable and high quality consumers’ goods made by reputed luxury brands which contained wearable fashion goods such as handbag, wallet, shoes and belt (Chadha and Husband, 2006; Heinemann, 2008). Fashion can be reflection of the social, economic, political and artistic forces of the time.

Accoding to Gao, Norton, Zhang, To (2009), “luxury fashion goods are apparel, accessories, handbags, shoes, watches, jewellery, and perfume for which use or display of particular branded products brings prestige to owners, apart from any functional utility”. Snapshot of U.S Luxury Good Market (2007) stated fashion group represent the major product sector in the luxury goods market. It is important to know that the survey showed that “one sixth (16%) of the world’s consumers claim to buy designer brands” (ACNielsen, 2008).

For this research, the term luxury goods can be defined as the brands that are defined as luxurious in the annual “Consumer and Designer Brand Report 2008” by the global Nielson firm which the survey is the largest and it identified the following goods as the luxury fashion goods.

Calvin Klien Giorgio Armani Celine

Ralph Lauren Louis Vuitton Ferragamo

Diesel Burberry Chloe

Chanel Versace Marc Jacobs

Christian Dior Prada

Gucci Givenchy

DKNY Emporio Armani

Valentino Hermes Fendi

Yves Saint Lauren Max Mara

The fashion goods that show above are not the only goods that are stated as luxury in this research. Consumers allow to evaluate and include other brands which they think is luxury fashion goods for them.

Furthermore, there are many opinions and views of luxury from different leaders’ viewpoint stated in KPMG research (Managing Luxury Brand Growth, 2006). Luxury is explained in the table below as following:

2.1Generation Y

Generation Y are also referred as the Millennial Generation or Generation Next or Net Generation describes the demographic cohort following Generation X. Its members are often referred to as Millennials or Echo Boomers. According to Shareef Mahdavi (2008), Generation Y is the term used to describe children of the Baby Boomer generation, typically born between 1977 and 1995. McCrindle (2008) described the generation Y born in between 1980 and 1994. They are also referred to as ‘Millenials’ and ‘Echo Boomers’ in the western society, especially American Society.

Generation Y are individuals who born between 1977 to 1994 that have a free spending spirit and consist of 71 million 8 to 25 year olds (Horovitz, 2002; Sriviroj 2007). The wealthiest groups of people are between the ages of 19 to 25 year olds who are either employed in full time jobs or part time work even though there are group amount of generation Y consumers. The greatest purchasing power in the Generation Y college student takes place within the part-time student, who spends over $400 monthly on discretionary purchases while often maintaining full-time employment (Gardyn, 2002). Those who are either part time or at full time work are college students (Martin & Turley, 2004). Students always work as part time work to find extra funding for their excessive spending during the university hopdays or breaks. There are average 80% of students attending college or university are employed (Martin & Turley, 2004).

The financial knowledge of the average Generation Y consumer also earns them the awareness and respect of marketers even though their spending power alone is enough reason to pay significant attention to this group of consumers. The financial knowledge of the average Generation Y consumer also earns them the respect of marketers today. Generation Y consumers have a remarkable amount of disposable income due to the increasing of greater level in the economy over the past decade (Martin & Turley, 2004). Besides that, the research suggested that “Generation Y has more discretionary income than the previous generations and prefer to spend it on themselves rather than others. A reason for this may be because they are starting families later in life and therefore are able to spend their income on themselves without having to worry about others” (Angela Hughes, 2008)

The important of this group of consumers has taken on the greater level of meaning for marketer. “While the Baby Boomers grew up with television advertising influencing how they were marketed to and how they bought products, Generation Y has many different mediums that they grew up with, which is what makes marketing to them so much more difficult” (Angela Hughes, 2008). Marketers are playing the large part influence consumers’ behaviour through the knowledge of fashion. The reason is that teenagers are concerned about fashion value more than any other age groups (Koester and May,1985; Sriviroj 2007). One of the most influencers is the media because of media consist of a wide range of technology such as television, internet, mobile phone and DVD. (Angela Hughes, 2008, Sriviroj 2007). The internet has permanently changed the way that this generation shops by giving the information about products than the companies give the consumer. According to Angela Hughes (2008), he internet is also a powerful tool for this generation in spreading opinions about products to their peers. The largest differences between Generation Y and those that preceded them are Generation Y’s tremendous awareness and confidence. Generation Y is more likely than any previous generation to look up information before purchasing a product. Generation Y is more desirable to own the products that they know their peers will accept just to show they are part of the group. On the other hand, in the research of Sriviroj (2007) stated that television is strongly influence these generation which affect them as they will reflect their perceptions in “reality” as they have seen in television world. “Of the paid advertising channels of online, outdoor, newspaper, magazine, radio, TV and Theatrical, TV and newspaper are the most trusted media” (Nielsen Global Online Consumer Survey, 2009).

“Generation Y is poised to take over as the largest and most lucrative consumer group for marketers, a position that has long been held by the Baby Boomer generation” (Angela Hughes, 2008). In order to understand the generation Y consumers, it is important to think about factors that motivate these individuals towards the purchasing of luxury goods.

2.2 Social Influence

Previous research shows that group influences play an important role in influencing the purchase decisions (Brinberg and Plimpton, 1986; Martin and Bush 2000; Mascareches and Higby, 1993). The group members have been recognized as determinant of behavior. The fact that the people act in accordance with a frame of reference produced by the group to which they belong is a long accepted and sound premise (Merton and Rossi, 1949). However, many individuals did not behave like the majority of people in their recognized group (e.g., social class or educational level).The casual observation showed perplexing contradictions between group membership and behaviors. According to Merton and Rossi (1994), “a partial solution was found in the concept of “reference group”, which recognizes that people frequently orient themselves to other than membership group in shaping their behaviors and evaluations and that reference groups can perform a diversity of functions.”

Reference groups are generally defined as “actual or imaginary institutions, individuals, or groups conceived of having significant relevance upon an individual‟s evaluations, aspirations, or behavior” (Lessig and Park, 1975; Pertina, Prybutok, Zhang, 2008). Besides that, reference group also can be defined as “a group of people that significantly influence an individual’s behavior” (Bearden and Etzel, 1982). Reference group are important because they make the individual aware to a specific goods or brands and influence individuals to adopt attitude and behaviour that are consistent with the norm of the group.

The normative and informative social influences are the most widely accepted influence. Normative social influence is based on the tendency to conform to the expectation of others while informational influence is based on the desire to make informed decisions and optimize the choice (Stephen Yang and He, 2009; Khan and Khan, 2005). Berden and Etzel (1982) examined that the reference group influence by product and the brand purchase decision. Previous research studied group influences in marketing strategy and consumer’s purchasing behaviour. Specifically, three types of group influences are studied which is information, utilitarian and value expressive influences (Stephen Yang and He; Bearden and Etzel, 1982; Makgosa and Mohube, 2007; Pertina, Prybutok, Zhang, 2008). Informational influence is reflected when an individual perceives enhancement of knowledge and ability to cope with environment when using information from opinion leaders, experts, or product users. Utilitarian influence manifests through the process of compliance with those who can exercise reward or punishment power. Value-expressive reference group function is based on the identification process whereas an individual who associates oneself with a group to enhance self-concept adopts this group’s consumption patterns. Reference groups have been found to specify what the desirable and undesirable goods are (Bristol and Malengburg, 2005; Khan and Khan, 2005). Many researchers have argued that individuals are more susceptible to reference groups influence when the goods is conspicuous and publicly consumed (Bearden and Etzel, 1982; Makgosa and Mohube, 2007; Batra, Homer, Kahle, 2009; Morris and White, 2009).

The influence of a reference group on consumer behavior can be done in one of two ways, either directly or indirectly. In the research Stephen Yang and He (2009), reference groups refer the group that individual has frequent contact with (such as family members, work associates, classmates, friends, etc.). These group is refers to the groups used by an individual to direct one’ purchasing behaviour in particular situation. These are generally referred as direct reference group (Schiffman and Kanuk, 1994). On the other hand, it included “the groups that does not have the membership in or direct contact with, such as certain expected groups or people in a certain social level (Stephen Yang and He, 2009). Based on the work of Khan and Khan (2005), the direct reference group influence was illustrated as “families, friends, co-worker, formal social groups and other leisure groups”. This differs from the indirect reference groups comprise of “individuals and groups that influence consumers’ purchase intentions without having and direct contact such as celebrities and sport personalities” (Khan and Khan, 2005).

2.2.1 Direct Reference Groups

Direct reference groups can be defined as direct contact from the individual or groups with the consumers. With the reference from ….., it showed that families, friends, co-worker, formal social groups and other leisure groups are under this categories. A person has several reference groups for various subjects or different decisions normally. For example, “a woman may consult one reference group when she is purchasing a car and a different reference group for lingerie” (Consumer Behaviour, no date).These direct reference groups are the one who frequently contact with the consumers, It can be seen that the groups views from direct reference groups whether purchase the goods in order to be like group members, believing in group members’ decisions or a sign of wanting to fit in the group.

The previous researchers have carried out the investigations on how the role models (parents, relatives, peers) influence teenagers’ purchase intentions and behavior (Martin and Bush; Subramanian and Subramanian, 1995)) and how parents and peers influence various products and brands’ purchase decisions (Bearden and Etzel, 1982). Researcher has shown that overt family communication can and often does influence younger consumers’ attitudes toward purchases and their consumption patterns (Martin and Bush).

Consumers always do not feel confident enough to evaluate alone. They will consult a friend or partner by inviting them along to a potential purchase can enhance the process. “Having a peer present meant that shop assistants become largely irrelevant and that evaluation of a brand centered largely on initial peer reaction to fit, style and price-based decisions” (Guy W.Mullarkey, 2001). “It is also interesting to note that of all the three direct reference groups, friends tend to exert the greatest influence where individuals purchase brands because they identify themselves with their peers” (Khan and Khan, 2005).

From the numerous researches that have been done, direct reference groups influence make an immediate impact to the consumers. Therefore, it can be concluded that direct reference groups play a significant role in providing relevant information, deemed necessary to make a purchase and conform the group norm.

2.2.2 Indirect Reference Groups

Indirect reference groups is the group that influence consumers’ purchase decisions without having any direct contact with the consumers such as celebrities and sport personalities. Khan and Khan (2005) defined celebrities as “individuals who are well known to the public for their advertisements in areas other than product class endorsed” and that they represent “an idealisation of life”.

In luxury goods industry, it will be much easier by connecting the brand to a celebrity and is even viewed, in some instances, as a necessity. This is because a luxury goods company is in the business of building and selling dreams, and nothing is more helpful in making such dreams concrete and thus more believable in the eyes of the consumer, than communicating it through a famous personality. Celebrities are being increasingly used in marketing communication by marketers to lend personality to their products in India (Matrade Chennai, 2005).