Do Consumers Tone It Down Even in a Recession? Think Again!

Newswise — Reports of the death of conspicuous consumption during the recent recession have been greatly exaggerated, says a new study from the USC Marshall School of Business. The research finds a number of the world’s foremost luxury houses introduced even more conspicuously branded goods at the height of the recession, rather than abandoning prominent logos for more subdued designs.

The authors also found no evidence to suggest luxury houses are toning it down, suggesting wealthy consumers still interested in purchasing high-end items, such as designer handbags, desire items that are far from subtle.

“Conspicuous Consumption in a Recession: Toning it Down or Turning it Up?” a study forthcoming in the Journal of Consumer Psychology and co-authored by USC Marshall School of Business Associate Professor Joseph Nunes along with Xavier Drèze, Associate Professor of Marketing at UCLA's Anderson School of Management and USC Marshall School of Business doctoral student Young Jee Han, suggests that conspicuous consumption endures, even during a recession.

The authors conclude consumers who do not exit the luxury goods market remain interested in logo-laden products and are willing to pay premium prices for them. Before the recession, consumers used luxury brand logos to signal that they are one of the fiscal elites. During a recession, Nunes said, consumers may want to signal that “they are still prospering, and that they’re doing just fine despite the recession.”

Utilizing data collected before and in the midst of the 2008-9 recession from the world’s top luxury goods manufacturers Louis Vuitton and Gucci, the researchers found “products introduced during the recession actually display the brand far more prominently than those products which were withdrawn.” This resulted in designer handbags that were more conspicuously branded than before the recession.

Nunes said he and his fellow researchers launched the study in response to reports that consumers were shying away from loud logos and conspicuous consumption due to the financial crisis. “We asked, ‘Is this true?’ Because it didn’t look that way on the street. And we found the data tell a much different story.”

“We decided to look at consumer behavior from the firm side to see if companies were responding to all of these reports of consumers no longer wanting to engage in conspicuous consumption. Yet, no firm in our study toned things down by offering less conspicuously branded products,” Nunes said. Further, Nunes noted, companies either maintained or increased the extent of logo-laden products in their advertising - an outlet affording companies the ability to portray their brand any way they like.

For the study, researchers compared data from January 2008, prior to the October 2008 collapse of the markets, to data from May 2009, in the midst of the recession. They focused primarily on luxury handbags, considered the “quintessential status good,” focusing on Louis Vuitton and Gucci, the No. 1 and No. 2 ranked luxury brands in 2008, according to Interbrand. They also paid close attention to changes in prices and the number of items offered. The researchers also looked at luxury brand offerings from Hermès, Burberry, Dolce & Gabbana, Fendi and Prada.

The study’s key findings: • If consumers had demanded fewer conspicuously branded products during the recession, companies would have responded with more understated designs. Instead, the researchers observed the exact opposite: Companies produced and advertised goods that continued prominently displaying their logos, or displayed them more prominently.• If luxury goods manufacturers failed to meet consumers’ demand for less conspicuously branded goods, profitability should have suffered. Rather, the parent companies of these luxury firms “appeared to have fared well during the period in question.”• Luxury handbag superpowers such as Louis Vuitton and Gucci increased their prices, on average, across their handbag product lines.The data, said Nunes, “suggests that these companies are reading the consumers correctly. These are savvy companies that really understand their customers; they understand that they cater to a certain segment that desires products used to signal their status. That desire doesn’t go away, even in hard times.”