A Conceptualisation of Luxury Store Value for Chinese Consumers Introduction Two trends have been observed in China in recent years: (1) a steep increase in consumption of luxury items (Atsmon, Ducarne, Magni and Wu, 2012; KPMG, 2011); and (2) a preference for value-adding retail experiences (Atsmon, Ducarne, Li and Liao, 2012; KPMG, 2013). In this sense, the store plays a pivotal role for luxury brands as it is the place where they interact and build relationships with Chinese consumers (Chevalier and Gutsatz, 2012). China has indeed seen several store openings accounting for around 70% of new outlets globally in 2011 – for instance, 50% of Gucci’s and Tiffany’s new openings and all of Tod’s were in China (pwc, 2012). Prada announced they would launch 50 new stores by the end of 2013 (ChinaRetailNews, 2011). This increasing interest has been compounded by the way Chinese consumers are changing, becoming more sophisticated – they are able to recognise 59 luxury brands on average (KPMG, 2013) – and choosing brands that can be recognised by others, thus giving them a high-class status (Lu, 2008). Physical stores still seem to be more effective in influencing Chinese consumers (Atsmon, Ducarne, Magni and Wu, 2012) as they want to enjoy the complete luxury experience (Industrial Bank and Hurun Report, 2012). Concepts of Value Defining what these consumers might be looking for relies upon the relativistic nature of value, which involves preferences, people, and contexts (Dodds, Monroe and Grewal, 1991; Rintamaki, Kanto, Kuusela and Spence, 2006; Halbrook and Corfman, 1985). Essentially, value occurs through an interaction between object and subject (Holbrook, 1999). Zeithaml (1988) identifies four common uses of the term to arrive at the idea of “all factors, both qualitative and quantitative, subjective and objective, that make up the complete shopping experience” (Schechter, 1984): a consumer-centred approach has replaced the traditional firm-centred orientation. Berry, Carbone and Haeckel (2002) suggest that in order to build a complete and valuable shopping experience firms must orchestrate all the “clues” consumers interact with during the buying process (Verhoef et al., 2009). Every consumer perceives the experience differently from others and is involved at different levels such as rational, emotional, sensorial, physical and spiritual (Gentile, Spiller and Noci, 2007). Therefore, value is underpinned by the realisation of intrinsic and extrinsic benefits (Babin and Darden, 1995; Batra and Athola, 1991; Crowley, Spangenberg and Hughes, 1992; Mano and Oliver, 1993; Mathwick, Malhotra and Rigdon, 2001) as in “experiential, interactive, progressive, evolving and flexible” (Tynan, McKechnie and Chhuon, 2010, p. 1158). From this perspective of personal and multileveled creation of value, Babin, Darden and Griffin (1994) identify two main components of the “complete shopping experience”: utilitarian and hedonic shopping value. Utilitarian consumption has been defined as “an errand” or “work” (Batra and Athola, 1991; Hirschman and Holbrook, 1982) and the utilitarian consumer as rational and task related (Batra and Athola, 1991). On the other hand enjoyment, excitement, captivation, escapism, and spontaneity are important factors of hedonic shopping experience (Babin et al., 1994). For these reasons creating a superior consumer’s experience appears to be the fundamental objective in a retailing context (Verhoef et al., 2009). Value in Luxury Offerings Likewise, luxury goods encompass a high level of physical and psychological values (Wiedmann, Hennings and Siebels, 2009; Dubois and Czellar, 2002; Vigneron and Johnson, 2004). The concept of luxury is associated to the relationships between people, products and brands (P. Berthon, Pitt, Parent and J-P. Berthon, 2009): luxury products can be defined as “those whose ratio of functionality to price is low, while the ratio of intangible and situational utility to price is high” (Nueno and Quelch, 1998; cited in Vigneron and Johnson, 2004, p.486). In other words, luxury products are very rich in value. The literature offers several interpretations of the value that exceeds the functional value of the product itself. Vigneron

and Johnson (2004) define two major dimensions of luxury value – personal and non-personal – and develop a Brand Luxury Index (BLI) to measure perceived luxury value. Wiedmann, Hennings and Siebels (2007) extend this idea through a four-variable model – financial, functional, social and individual – as luxury value drivers. P. Berthon et al. (2009) identify three components of value– objective or material, subjective or individual, collective or social – in relation to luxury brands. Thus, failing to create value in terms of individual and social dimensions would place barriers in the consumers’ perception (Sweeney, Soutar and Johnson, 1999). In fact, it can be argued that the store is the converging point of several value dimensions: “when retailers satisfy people-based needs, they are delivering value, which puts them in a much stronger position in the long term” (Harnett, 1998, p.21). A Motivational Approach to Value Similarly, “retailers who understand the multiplicity of motives for shopping have the best possibilities to create value for their customers” (Rintamaki et al., 2006, p. 7): Satisfying consumers’ needs implies understanding shopping motivations especially in the context of luxury products (Sanguanpiyapan and Jasper, 2010) as people no longer shop only to replace products or services, but may seek to fulfil personal or social needs (Davis and Hodges, 2012). This has led authors to consider the role of hedonic and social shopping motivations (Hirschman and Holbrook, 1982; Sheth, 1983; Tauber, 1972; Westbrook and Black, 1985), too, since Tauber’s (1972) work on personal and social motivations. For instance, Westbrook and Black (1985) empirically test the existence of two additional motivations: anticipated utility and choice optimisation, while Arnold and Reynolds (2003) investigate the relationship between shopping motivations and the assessments of hedonic and utilitarian shopping value. Therefore, Diep and Sweeney (2008) emphasise the importance of considering the value of the store itself; the experience in store is becoming fundamental and it may be more influential than the product itself (Kotler, 1973). Luxury Store Value: A Model With this in mind, Luxury Store Value (LSV) is inspired by the work of Sanguanpiyapan and Jasper (2010), Rintamaki et al. (2006), Diep and Sweeney (2008), and Thang and Tan (2003) as the converging point between consumers’ motivations and store attributes. Having a positive trade-off between these two forces creates value for consumers (Diep and Sweeney, 2008; Harnett, 1998). In this sense, value itself goes beyond merely utilitarian or functional aspects (Babin et al., 1994). This relativistic definition highlights the interaction between objects and people in a specific context and the fulfilment of functional needs as well as non-functional wants (Sheth, 1983). Thus, we offer a three-pronged conceptualisation of LSV, which incorporates functional value, individual value and social value (Figure 1).

Functional value refers to all factors that fall within the managerial control of the retailer (Terblanche and Boshoff, 2004). In this sense, outlets with a set of attributes that reflect consumer motivations to shopping and “with stimuli that enhance the favourable perceptions of consumers are likely to increase their preference for the stores” (Thang and Tan, 2003, p. 194). Individual and social dimensions of consumption (Sweeney et al., 1999) are instead

Luxury

Store Value

Individual

Value

Social

Value

Functional

Value

Figure 1: Luxury Store Value

(LSV) Conceptualisation

based on personal and social motives for shopping as originally depicted by Tauber (1972) and framed in the observation that retailers must consider the multiplicity of motives for shopping in order to deliver value to consumers (Rintamaki et al., 2006). Wiedemann et al. (2007) hinted at self-identity, hedonic and materialistic value as the basis for individual value i.e. “consumer’s personal point of reference towards luxury consumption” (Bahar Teimourpour, Heidarzadeh Hanzaee and Babak Teimpourpour, 2013; Danzinger, 2005). On the other hand, symbolic cues and social appearance might influence patronage (Fuat Firat and Venkatesh, 1995, p. 249): Consumers tend to be affected by what others purchase and “place much emphasis on prestige over quality assurance” (Wiedemann et al., 2009). Finally, LSV itself looks at excitement, joy, happiness, feeling good and being admired (Diep and Sweeney, 2008, p. 404) as selected dimensions of this latent variable (see Appendix 1). Research Objectives The reason why luxury brands put so much effort on intensifying their presence in China is to build long-term relationships (Mijeong Kim, Sookhyun Kim and Lee, 2010, p. 293; Diller, 2000, p. 37) with local consumers. This is thought to lead to value (Jones, Reynolds and Arnold, 2006, p. 979; Mascarenhas, Kesavan and Bernacchi, 2006, pp. 398-399) through the set of observed and latent variables chosen for the proposed model (Figure 2). Therefore, the research is O1 - To appreciate direct and indirect relationships between shopping motives and the creation of Luxury Store Value (LSV) in China O2 - To contribute to the understanding of value perceptions for luxury goods in China based on in-store consumers’ experiences Data Collection The purpose and rationale of the survey (Creswell, 2003) is to try and define value for Chinese consumers by testing the proposed LSV model using a non-probability sample population of 200 valid respondents (from a total of 207). Participants are self-selected so one needs to be aware that “(the research cannot lead to) any definitive or conclusive statements about the results” (Kinnear and Taylor, 1991, p. 398) i.e. not a generalisation of the results. Nonetheless, the type of research and the desired results can be achieved only with the use of a quantitative survey method (Creswell, 2003). Questionnaires (see Appendix 2) were collected over the period between 30/5/2013 and 11/7/2013 through the website QuestionPro.com and a link placed in Sina Weibo, one of the most popular social media platforms in China. The post reached over 9,000 views (see Appendix 3); 604 people actually viewed the questionnaire and 200 of them completed it in full, an acceptable participation rate of 32.9% (Nulty, 2008). The final version of the questionnaire is the result of a three stage translation process: “Irrespective of the specific translation procedure utilised, it is important to verify the quality of the translation and to assess the equivalence of various versions” (Craig and Douglas, 2000, p. 216). Thus, after independent English-Chinese and Chinese-English translations, a third native Chinese speaker assessed the translation equivalence and made the necessary adjustments to preserve meaning. Data Analysis Without entering the specifics of the philosophical position adopted in this research (Little, Cunningham, Shahar and Widaman, 2002, p. 152), the chosen approach is for total disaggregation (Hult, Ketchen and Nichols, 2002, p. 578); the indicators used are the questionnaire items as selected from previous studies on the subject. A spurious model with multiple common causes (Edwards and Bagozzi, 2000, p. 165) is considered: “the unknown model parameters are estimated so that, in general, the model reproduced matrix ∑(L) comes as close as possible to the sample matrix S” (Raykov and Marcoulides, 2006, p.117). Although it is very demanding to assume that a model can be specified before it is fitted to the data, “the effects of specific constructs on general constructs are best described within the

realm of structural models that relate constructs to one another” (Williams, Vandenberg and Edwards, 2009, p. 555). Based on this premise, some improvements were made to increase the model fit (Schumacker and Lomax, 2004): for instance, “in SEM the researcher must model error as well as the variables” (Garson, 2012, p. 64). The standardised residual matrix was also examined (Schumacker and Lomax, 2004, p. 116) and items with high residuals eliminated. The process undertaken led to the final model presented in Figure 2, which shows acceptable fit indices (Hooper, Coughlan and Mullen, 2008) as detailed out in Appendix 4.

Nevertheless, it is important to remember that the hypotheses about effect priority (Kline, 2011) were made before one could reasonably infer a causal relation. Temporal precedence means that the presumed cause has to occur before the presumed effect (Frenz, Nielsen and Walters, 2011): This is not warranted as the variables were measured simultaneously. Findings The data confirm that Chinese consumers are becoming more value conscious (KPMG, 2013). Specifically, they see the shopping trip as a personal treat (Vigneron and Johnson, 2004) and a manifestation of social/relational value i.e. more directed towards others (Sheth and Parvatiyar, 1995, p. 261; Smith and Colgate, 2007, p. 12). The former presents itself as the pursuit of happiness in a shopping trip, the pleasure of learning about a new trend, and the private gains arising from music, smell, and other sensory benefits (Weidmann et al., 2007; Weidmann et al., 2009; Bahar Teimourpour et al., 2013). These are very similar expectations to those seen elsewhere, indeed evidence of the changing trends in the luxury retail industry in China. Likewise, the model seems to link store visits with a certain social status, reflecting the prominence of the experience in store as source of value, which offers both intrinsic and extrinsic benefits (Babin and Darden, 1995; Batra and Athola, 1991; Crowley et al., 1992; Mano and Oliver, 1993; Mathwick et al., 2001). With regards to store attributes the model essentially agrees with the main verdict from the critical literature review. Location has been found to be one fundamental attribute of the store for the Chinese consumer as previously discovered by Chevalier and Gutsatz (2012). The rise of rent fees paid for outlets located in premium sites is a further confirmation of the significance of this attribute (Atsmon et al., 2012b). The appearance of the store also influences the perception of value e.g. aesthetic (Woodall, 2003, p. 9): The Chinese consumers expect superior and eye-catching interior and exterior of the store. Finally, yet importantly, the quality of the merchandise is crucial (Holbrook, 1999). In fact, Chinese consumers are willing to pay a premium price for products that show high standard and durability (KPMG, 2013). A store that is able to emphasise (Smith and Colgate, 2007, p. 15) the quality of its products would appear to be set to provide superior perceived value (Kaplan and Norton, 1996, pp. 73-74). Besides the mere tangible attributes, which refer to the functional value, hedonic components strongly affect the Using Structural Equation Modeling as an alternative to multiple regression analysis (Garson, 2012) allowed the researchers to dig further into the complexity of the relationships within

Figure 2: LSV Model Fit (please

see Appendix 5 for a magnified

AMOS screen grab)

the proposed model. Looking at the outcome measures of motivation it appears that the store represent a converging point of beliefs, status, feelings, perceptions and sensations (Figure 3). Thus, the overall in-store experience (Hopkinson and Davashish, 1999, p. 273) as the delivery of intangible attributes can be linked with the creation of store value.

Ultimately, it can be argued that there is a relationship between each latent independent variable – functional value, individual value and social value - and the latent dependent variable – Luxury Store Value (LSV) – whose total effects (Kline, 2011, p. 167) are: Total effect of functional value on LSV: (.80*.51) + (.62*.39) + .22 = .8698 Total effect of individual value on LSV: (.80*.22) + (.63*.39) + .51 = .9317 Total effect of social value on LSV: (.63*.51) + (.62*.22) + .39 = .8477 The model has predicted covariance between the functional, individual and social value as well as a direct effect for every one of those variables on LSV (Objective 2). As such and in the case of the surveyed Chinese consumers, individual value appears to have a bigger influence on LSV than the other latent independent variables (Atsmon et al., 2012a, pp. 27-28). In other terms, it can be advanced here that self-identity, hedonic and materialistic value (Wiedemann et al., 2007) is more likely to elicit an emotional response (Bagozzi, 1992, p. 188), eventual satisfaction and possible behavioural intentions (Chang and Dibb, 2012, p. 258) in Chinese shoppers. Further Remarks The overall question of “What is a luxury brand?” (Okonkwo, n.a.) was not tackled in the research; respondents were allowed to think of retail experiences with what they regarded as luxury brands. This choice was consciously made based on the understanding that “abstract formed objects possess multiple components that form the object’s meaning” (Stegemann, Denize and Miller, 2007, p. 6), which is indeed hard to pinpoint in absolute terms. In terms of Structural Equation Modeling, further consideration could be given to how to deal with “models containing multidimensional constructs” (Williams et al., 2009, p. 559), the potential role of parcels as opposed to items (Little et al., 2002) and composite/construct reliability (Fornell and Larcker, 1981) – the observed variables are essentially averaged out and estimated latent variables are then free to co-vary in a simplified version of the model. As the Chinese consumer becomes more mainstream i.e. more similar to its Western world counterpart, e-commerce will take hold further (Atsmon et al., 2012a, p. 29). Functional attributes have already been showed to matter online (Forsythe, Liu, Shannon and Gardner, 2006, p. 71) especially for relatively heavy shoppers. To a lesser extent, this is also true of hedonic shopping motives (Sarkar, 2011, p. 60). The current model may therefore constitute a platform for observations in this arena, too. In this respect and as a final reflection, qualitative research could follow to “capture and discover meaning once the researcher becomes immersed in the data.” (Neuman, 2003, p. 145) “Qualitative methods may assist in understanding the underlying explanations of significance” (Amaratunga, Baldry, Sarshar and Newton, 2002, p. 24) regarding why individual value has emerged as the stronger driver of LSV.

Figure 3: Luxury Store Value

(LSV) effects

Appendix 1: Luxury Store Value (LSV) Conceptual Model

Luxury

Store ValueIndividual

Value

Social

Value

Functional

Value

Location

Store atmosphere

Quality merchandise

Reputation

In-store service

Role playing

Diversion

Self-gratification

Learning about new

trends

Sensory stimulation

Status and authority

Communication with

others…

Peer group attraction

Communication

salesperson

Social interaction

Feel excited walking

into that store

Sense of joy looking

at merchandise

Happy about shopping

environment

Feel good about

myself in that store

Admiration by others

Appendix 2: Final Questionnaire (English version) To answer following question, please use few minutes to recall your memory of shopping experience in luxury brand stores. In addition, please write down the name of the luxury stores that you have been to. From number one (strongly agree) to seven (strongly disagree), please express your agreement with the statements according to your situation.

1. Very good location of the store 2. The high-class decoration of the store gives a superior feeling and an eye-catching

looking. 3. Superior quality of the product 4. I always recommend this store to others 5. Staff in the shop is very helpful and knowledgeable. 6. Visiting this store shows my social status 7. This store offers me a diversion from my daily life routine. 8. This store makes me feel happy. 9. Shopping in this store helps me understand the fashion trend 10. This store provides me with many sensory benefits (e.g.: smell, music…etc.) 11. Shopping at this store makes me feel full of power 12. The group of people shopping in this store are similar to me 13. This store is the kind of store that people I admire or respect would come 14. I felt valuable when I communicated with the staff in the shop 15. This shop gave me the opportunity to interact with others 16. I felt excited when I walked to the store 17. Looking at the merchandise in the store gave me a sense of joy 18. I felt happy when I shopped in this store, due to the good shopping environment it

provided 19. I have been to the store and I felt good about myself. 20. I think others will feel jealous if I am going to shopping in that store

Do you remember if you bought anything on that occasion?

• Yes

• No

Appendix 3: Sina Weibo Questionnaire Views

Appendix 4: Model Fit Summary – Final AMOS Output CMIN

Model NPAR CMIN DF P CMIN/DF

Default model 54 117,615 65 ,000 1,809

Saturated model 119 ,000 0

Independence model 28 2308,401 91 ,000 25,367

Baseline Comparisons

Model NFI

Delta1 RFI

rho1 IFI

Delta2 TLI

rho2 CFI

Default model ,949 ,929 ,977 ,967 ,976

Saturated model 1,000

1,000

1,000

Independence model ,000 ,000 ,000 ,000 ,000

Parsimony-Adjusted Measures

Model PRATIO PNFI PCFI

Default model ,714 ,678 ,697

Saturated model ,000 ,000 ,000

Independence model 1,000 ,000 ,000

NCP

Model NCP LO 90 HI 90

Default model 52,615 26,113 86,954

Saturated model ,000 ,000 ,000

Independence model 2217,401 2064,530 2377,621

FMIN

Model FMIN F0 LO 90 HI 90

Default model ,600 ,268 ,133 ,444

Saturated model ,000 ,000 ,000 ,000

Independence model 11,778 11,313 10,533 12,131

RMSEA

Model RMSEA LO 90 HI 90 PCLOSE

Default model ,064 ,045 ,083 ,103

Independence model ,353 ,340 ,365 ,000

AIC

Model AIC BCC BIC CAIC

Default model 225,615 234,566

Saturated model 238,000 257,724

Independence model 2364,401 2369,042

ECVI

Model ECVI LO 90 HI 90 MECVI

Default model 1,151 1,016 1,326 1,197

Saturated model 1,214 1,214 1,214 1,315

Independence model 12,063 11,283 12,881 12,087

HOELTER

Model HOELTER

.05 HOELTER

.01

Default model 142 158

Independence model 10 11

Appendix 5: LSV Model Fit (AMOS screen grab)

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