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Click Here To Read: Can we tell authentic luxuy goods from fakes?

Summary (Via Mit)

MIT business professor Renee Richardson Gosline shows that people are often unsure about telling authentic luxury goods from fakes — until they see who’s using them.

Introduction (Via Mit)

Luxury goods are supposed to be expensive because of their quality: A sip of fine wine or the comforting feel of designer clothing should justify the price.

Yet ever since the sociologist Thorstein Veblen developed the idea of “conspicuous consumption” about a hundred years ago, it has been widely accepted that consumers own luxury goods for a second reason as well: to mark their own social status by distinguishing themselves from other groups of people.

How much does each of these rationales contribute to the value of high-end products? In a new working paper, “Rethinking Brand Contamination,” Renee Richardson Gosline, an assistant professor at the MIT Sloan School of Management, uses the phenomenon of counterfeit luxury goods to shed new light on this issue. Consumers, Gosline observes, struggle to distinguish the intrinsic qualities of real luxury goods from fakes; instead, they rely heavily on social cues to make those judgments. Indeed, when some consumers are shown pictures of people wearing luxury apparel, they are twice as confident in their ability to judge those products, and willing to pay twice as much for the apparel, as when those consumers are shown pictures of the goods alone.

Insights (Via MIT)

In effect, Gosline has quantified Veblen’s famous observation: Consumers are willing to pay twice as much for luxury apparel when they can use those products to send or receive social signals. As a practical matter, a luxury firm that can measure how much of the value of its products derive from their social cachet — up to half, in this case — can decide to what extent its resources should be applied to enhancing that cachet, or to maintaining the quality of the product itself.

This study comes as luxury-goods companies seek stability amid a shaky economy and the ongoing problem of counterfeiting. The global recession has hurt the industry, with sales of luxury products expected to be down 8 percent worldwide in 2009, according to the consultancy Bain & Co. Counterfeiting appears to be a significant global business; an often-cited estimate by the International Chamber of Commerce puts counterfeit goods at 5 to 7 percent of global sales, although such matters are difficult to measure.

Click Here To Read: Can we tell authentic luxuy goods from fakes?

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