Brand Value in Luxury. Industry Perspectives

Table of Contents

Corporate Social Responsibility and Brand Value in Luxury: Industry Perspectives

Introduction

Theoretical Background
Key Characteristics of Luxury
Brand Value
Ethical Concepts
Benefits of CSR Implementation
How is CSR Approached within Luxury?

Methodology
Selection of Interviewees for Exploratory Interviews and ‘Credibility Checks’
Interviewing and Analytic Approach

Results and Discussion
Exploratory Interviews
‘Credibility Checks’

Conclusion
Theoretical Contribution
Practical Contribution

References

Tables

Corporate Social Responsibility and Brand Value in Luxury: Industry Perspectives

Introduction

Corporate Social Responsibility (CSR) is the most common construct within the social responsibility literature (Grohmann & Bodur, 2015). CSR refers to ethical commitments undertaken by companies (Donato et al., 2020); and incorporates economic, environmental and social dimensions (Dahlin et al., 2020; Jung et al., 2020). These ethical commitments can be conflicting, as CSR is perceived by some authors as cynical (Grigore et al., 2020) given the disparities between the values of companies and society (Thorne et al., 2014). CSR efforts can also be perceived as a public relations effort to create the perception that business can do good and be profitable (Brennan, 2014).

The luxury industry has been a late adopter of CSR (Pessanha Gomes & Yarime, 2014) where customer interest in CSR has been traditionally low (De Pierro Bruno & Barki, 2014; J. N. Kapferer & Michaut, 2015). However, recent demands for brands to become more socially responsible (Muniz et al., 2019) have been gaining traction within the industry (Athwal et al., 2019). For example, the luxury industry is taking part in several initiatives, including the Leather Working Group, the Responsible Luxury Initiative, the Coloured Gemstones Working Group or the recent Fashion Pact signed in late 2019.

Within luxury, the industry’s most significant asset is brand value (U. Okonkwo, 2007). Brand value (BV) incorporates both, company- and consumer-based actions (Keller & Lehmann, 2006). While research on CSR and BV exists (Bhagwat et al., 2020; Melo & Galan, 2011; Muniz et al., 2019, 2019; Rahman et al., 2019; Torres et al., 2012), most of it is not luxury specific. Also, the majority of the current literature on luxury and CSR does not address the role that CSR has on BV (Achabou & Dekhili, 2013; Godart & Seong, 2014; Guercini & Ranfagni, 2013). The luxury industry has specific attributes and characteristics that set it apart from other industries (Holmqvist et al., 2020), making it imperative that CSR and BV are studied within a luxury context. With revenues exceeding $1.5 trillion dollars in 2019 (D’Arpizio et al., 2020), the luxury industry is highly significant from a business perspective, and CSR is likely to play a role in current and future revenues of luxury brands, and ultimately on financial sustainability over the long-term. Thus, it is essential to gain a better understanding of the role of CSR in BV. For instance, Mason and Simmons (2011) state that company’s performance may be affected by its involvement in CSR. Their study is not conducted within a luxury context and it is based on a review of the literature in the topic. Neri et al (2019) look at how company executives perceive CSR, but their study is focused in the technology sector. Diallo et al (2020) explore CSR and BV in luxury from a consumer approach but they do not analyze it from a company perspective. Also, while their results provide an initial understanding on the topic, they are based on a small sample from Tunisia and France that only looks at two luxury brands. Thus, further research looking at other luxury markets and brands across different categories is needed to better understand CSR and BV in luxury and its positioning to generate value. An additional consideration is that CSR is a company-based action (Dahlsrud, 2008), and therefore, it is necessary to study from a company-based perspective to gain a better understanding of the role it has for BV in luxury.

Our research enriches Crane’s (2014) work on the strategic positioning of CSR by identifying how CSR is pursued within luxury. It enhances recent research on the compatibility of ethical concepts and luxury (Wisler, 2018) by analyzing how CSR is perceived by the luxury industry, within a U.S. context. Our study illuminates the literature on BV (Bardos et al., 2020; Rahman et al., 2019) by analyzing how CSR can contribute to BV in luxury; and it complements Diallo’s et al (2020) findings by analyzing CSR and BV from the luxury’s industry perspective. This perspective is essential given the current economic pressures faced by the industry. Due to these pressures, expenditures and investments made by luxury brands, including on CSR, are likely to face more scrutiny so that brands can remain financially sustainable.

CSR is based on company-specific contexts reflecting company strategies (Dahlsrud, 2008), and their organizational values, beliefs and business culture (Galbreath, 2010). Within luxury, as in other industries, environmental and ethical practices range considerably, from the use of recycled materials in products (Finn & Fraser, 2014), social and environmental practices within the supply chain (Towers et al., 2013) to philanthropy (Pessanha Gomes & Yarime, 2014) or even comprehensive implementation of sustainable strategies within the social and environmental domains of CSR (Carcano, 2013). Despite the limited engagement in CSR of the luxury industry as a whole, key luxury brands have been working in various CSR-related groups towards the use of more sustainable materials and better social standards in their supply chain. In a recent development, in October 2019, just five months before the start of the Covid-19 global pandemic, during the G7 Meeting in France, some of the largest luxury groups joined forces with other fashion and textile brands and signed the Fashion Pact. Through ‘the Pact’, participating companies, their suppliers and distributors seek to achieve environmental goals in global warming, biodiversity restoration and ocean protection (The Fashion Pact, 2019).

The Covid-19 global pandemic is likely to have significant and long-term impacts on the luxury industry. In 2020, the BV of the luxury brands included in Interbrand’s 2020 Best Global Brands list decreased an average of four percent, which represents a loss of $3.5 billion (Interbrand, 2020). On top of the overall decrease in BV, annual revenue for the personal luxury goods market was expected to fall 20 percent in 2020 (Meliado, 2020). The market turmoil has not only affected BV and revenue, but also mergers and acquisitions. LVMH almost cancelled its pre-Covid19 planned acquisition of Tiffany & Co., the largest merger in the story of the industry (Dalton & Kapner, 2020; Tsang & Friedman, 2019). To save the deal, Tiffany had to accept a $425 million discount on the original offer price (Royce-Greensill, 2020). As the luxury industry adapts to the challenges of a post-pandemic world, now more than ever, it is essential that luxury brands look into CSR, not only because of the potential benefits it can provide because not having it could erode BV (J. N. Kapferer & Michaut, 2015).

This paper enhances the existing literature of CSR and luxury by making the following contributions: We build on Crane’s Strategic Positioning of CSR (2014) by identifying, from an industry perspective, how CSR is pursued and positioned within luxury based on the inputs from stakeholders and senior executives from some of the most recognized brands in luxury. We unveil that CSR is a contributor to BV in luxury, analyze the compatibility between CSR and luxury, how CSR is consistent with luxury’s long-term vision, and how it can be pursued to increase BV.

In this study we use a qualitative methodological approach. After reviewing the literature on CSR, BV and luxury, we conduct exploratory and follow-up interviews (‘credibility checks’) with senior executives, brand managers and stakeholders from the luxury industry, and employ thematic analysis to conduct the analysis of the interviews.

Theoretical Background

Key Characteristics of Luxury

Luxury is different than other industries and marketing contexts due to its specific attributes and associations (Holmqvist et al., 2020), and the fact that each consumer perceives luxury differently, which makes it a subjective concept (J. N. Kapferer & Laurent, 2016). Key physical attributes of luxury include high quality, design, limited supply, design and excellence (Hoffmann & Coste-Maniôre, 2012; Nueno & Quelch, 1998; Vigneron & Johnson, 2004). Among its psychological attributes are its experiential, hedonic and dream factors (Chevalier, 2012; J. N. Kapferer, 2009; Tynan et al., 2010), and its association by consumers with upper class and prestige conferral (Banister et al., 2020; Chevalier, 2012; Lee & Bolton, 2020; U. Okonkwo, 2009; Tynan et al., 2010). Given the subjectivity of the concept of luxury, luxury can mean different things to different people. Chevalier (2012) proposes an inclusive definition of luxury which considers that all brands that are credible, well known and respected are luxury. Chevalier’s definition does not explicitly distinguish between products or services and fails to incorporate the association of consumers with upper class and prestige. Thus, in this study, we build on Chevalier’s work and consider luxury as a product or service that is well known, credible or respected that can be associated by consumers with upper class and prestige.

Brand Value

BV is considered a strategic and highly prized asset (Christodoulides et al., 2015; Davcik et al., 2015). Despite its importance, there is no agreement in the literature on what constitutes BV, as the term is usually interchanged with brand equity (Ambler & Banvise, 1998; Christodoulides et al., 2015). Still, most authors agree that two key actors, consumers and companies, create BV or brand equity (Knowles, 2008; Raggio & Leone, 2007). BV captures the effect of actions pursued by firms and consumers (Knowles, 2008), something that financial indicators such as short-term sales and profits do not show (Simon & Sullivan, 1993). In addition to company and consumer actions, BV is also determined by functional, emotional and experiential facets (Christodoulides & Chernatony, 2010). In this study we use BV to refer to the brand assets created by luxury brands and luxury consumers. These brands assets include actions and functional, emotional and experiential faces.

Ethical Concepts

There are various concepts in the literature encompassing business ethics. The most common terms include stakeholder theory, corporate citizenship (CS) and CSR.

Stakeholder Theory

Organizations manage their relationships with stakeholders (Clarkson, 1995). Maignan and Ferrell (2000) consider that organizations have responsibilities to primary and secondary stakeholders. Primary stakeholders include shareholders/investors, employees, customers, suppliers and public stakeholders (all levels of government); while secondary stakeholders consist of non-core groups (e.g. media and non-governmental organizations) that are not involved in everyday transactions with the organization. Other authors, such as Russo and Perrini (2010), do not only see stakeholder theory as a set of responsibilities, but as good management and business practices undertaken by firms. This view is complemented by Carrigan et al (2013) who consider that business activities result in positive and negative impacts, and that value chains need to be explored to identify practices in need of improvement. These business activities relate to CSR, as CSR is seen as a more comprehensive version of stakeholder theory. (Russo & Perrini, 2010). The existing literature on stakeholder theory recognizes the importance that firms work together with stakeholders to develop best practices (Godart & Seong, 2014), as the success of a firm depends on the satisfaction of all stakeholders (Asgary & Li, 2016). Thus, stakeholder theory is necessary to discuss CSR, as it seeks to satisfy stakeholders that matter to an organization through corporate CSR practices (Cantrell et al., 2014).

Corporate Citizenship

In addition to stakeholder theory, corporate citizenship (CS) is another prominent concept in the literature related to the social role of businesses. Matten et al (2003) refer to corporate citizenship as voluntary actions such as community involvement and charitable giving pursued by firms. Van Marrewij (2003) considers that CS should focus on value creation, environmental aspects and human capital. Valor (2005) argues that CS is a term proposed by practitioners which draws from stakeholder theory and links social accountability with business operations. There seems to be disagreement in the literature regarding the role of CS for businesses, as company investments in public goods can be seen with suspicion, and therefore, it is better for firms to work together with other stakeholders in their social undertakings (Bhanji & Oxley, 2013). CS perceptions influence CSR perceptions (Evans & Davis, 2011). However, CSR is seen as ‘superior theory’ to advance the social control of companies (Valor, 2005); and it is a more overarching concept than CS, as the social aspect of CS is embedded in the social dimension of CSR.

Considering that CSR embeds both, stakeholder theory and CS, in this paper we select CSR as the concept to study the ethical actions pursued by luxury firms. In the subsection below we introduce the concept of CSR and outline the current state of knowledge on this topic, as it pertains to luxury.

CSR

CSR is seen in the literature as a collection of concepts related to business ethics (Silberhorn & Warren, 2007). These concepts are considered dynamic given that they are constantly changing and being improved (Bair & Palpacuer, 2015; Matten & Moon, 2020). According to Joyner and Payne (2002), CSR has been in existence since the 1930’s, when it was defined around economic, legal, moral, social and physical aspects of the environment. They state that the concept of CSR changed overtime; evolving from a focus on community values in the 1940’s; to a concept in the 1950’s that grouped together every business policy upon society to ensure community stability; and a strategy to support community institutions and multiple stakeholders in the 70’s and 80’s. One of the most influential models of CSR is the one proposed by Carroll (1979, 1998, 1999) who in the late 1970’s stated that firms have four main responsibilities: discretionary, ethical, legal and economic. Caroll’s model was reviewed twice during the 1990’s by replacing discretionary responsibility with philanthropic responsibilities, and subsequently legal responsibilities with compliance, and economic responsibilities with profitability. While Carroll’s model stresses the need for firms to be both, profitable and responsible, those responsibilities do not go far enough to achieve sustainability or the social good. Thus, in the 2000’s, CSR was associated with transparency, stakeholder engagement and reporting/transparency practices (van Marrewijk, 2003); economic, environmental and social dimensions (Ketola, 2008; Sotorrío & Sánchez, 2008); and voluntariness (Dahlsrud, 2008). CSR is also been seen a way for companies to address environmental or social issues (Brennan, 2014) where strategic efforts are made to implement socially responsible and ethical policies such as reporting, which will make firms accountable to stakeholders (Russo & Perrini, 2010). In fact, economic, social and environmental factors, also known as the triple bottom line (I. A. Davies & Crane, 2010), have become ‘institutionalized’ through reporting and are now synonymous of corporate sustainability (Milne & Gray, 2013). More recent literature looks at other dimensions of CSR such as employees, supply chain, product safety and firm engagement with the community and see these as part of a corporate social performance (Zolotoy et al., 2019). It is important to note that all these undertakings are not necessarily purely altruistic, as firms may expect benefits from their CSR pursuits (Cantrell et al., 2014) and they seek to maintain an advantage by undertaking these activities (Perry et al., 2014).

In summary, as discussed above, there is significant variability on what constitutes CSR. For this paper, we follow Crane (2013) and avoid entering into the debate of how CSR should be defined. Instead, we use the most common elements of the definitions we discussed to refer to CSR as actions undertaken by firms seeking to achieve a positive environmental, social or economic impact.

It should be mentioned that CSR, like other ethical concepts, is not free of criticisms in the literature. CSR is considered by some authors a simplistic concept (Orlitzky, 2015) that is not making significant impact (Barkemeyer, 2009) due to its lack of accountability resulting from the absence of mandatory CSR standards (Hess, 2014). Moreover, CSR is seen as a public relations effort to convince others that businesses can be profitable and do good (Brennan, 2014); when in reality there can be disparities between the values of companies and the society (Thorne et al., 2014). Despite these criticisms, CSR is a step in the right direction in order to address economic, social or environmental issues.

Benefits of CSR Implementation

CSR has become increasingly important within businesses as it can create benefits for firms. CSR can influence investment or purchase decisions (Grohmann & Bodur, 2015), grant improved access to capital (Zolotoy et al., 2019) and impact performance (Harjoto & Jo, 2011; Meier et al., 2019; Mishra, 2015). Stakeholders and companies have more integrated relationships which make it necessary for firms to focus on market and nonmarket stakeholders in order to create value (Asgary & Li, 2016). Emerging research on luxury shows that CSR messages in luxury can have an impact on BV (Muniz et al., 2019), and that CSR can affect product desirability and product quality (Diallo et al., 2020). These findings complement non-luxury studies showing how CSR can impact firms and BV (Bhagwat et al., 2020; Melo & Galan, 2011; Torres et al., 2012). Despite the evidence in the literature suggesting that CSR can influence BV, two main issues remain: The non-luxury literature is not fully applicable to luxury, as luxury requires a business model on its own (Holmqvist et al., 2020). Then, the current luxury literature has not comprehensively studied the topic from a company perspective and existing results are based on study-specific surveys with limited scope. Diallo’s et al (2020) study is based on an online survey conducted with French and Tunisian participants looking at two luxury brands and does not explore BV from a company-based perspective. Muniz et al (2019) study BV and CSR from a consumer perspective, and their analysis extends to participants from Spain, USA and Australia. However, their study, which only looks at one luxury brand, is based on student perceptions and not actual luxury consumers. Due to the importance of BV in luxury, it is essential to complement the existing knowledge on the topic by gaining an understanding of how, from an industry perspective, CSR can influence BV. This understanding will not only be useful to enhance the literature on the topic but can help luxury brands position their CSR and BV efforts to remain financially sustainable over time.

How is CSR Approached within Luxury?

CSR responsibilities can be approached internally or externally (Argandoña & Hoivik, 2009); and there are various ways for firms to approach CSR to create value: from a consumer, company, supplier or reporting perspective (Caruana & Chatzidakis, 2014). From a consumer perspective, there is evidence in the literature that CSR has not been an important consideration within luxury. Davies et al (2012) found that consumers of luxury products are less likely to consider ethics in their purchases. Janssen et al (2013) studied the topic of luxury consumption and found that consumers associate product ephemerality to CSR perception; and the compatibility of CSR and luxury depends on product category, with items such as jewelry being a better fit from a CSR perspective than ephemeral products such as clothing. Furthermore, consumers may overlook CSR features in products if they are not actively communicated by brands (Moraes et al., 2015). From a company perspective, CSR can be implemented through philanthropy, by pursuing CSR activities as branding efforts (Moraes et al., 2015; Pessanha Gomes & Yarime, 2014); or by adopting environmental and social standards, and creating business lines aimed at achieving social and environmental benefits (Halme & Laurila, 2009). With regard to the extent of CSR implementation, existing research suggests that CSR activities within luxury are normally pursued by leading brands (McEachern, 2015) although these actions are generally not comprehensive (Pedersen, 2009), as they are generally motivated by cost cutting approaches (Karaosman et al., 2020). Furthermore, CSR activities tend to fluctuate with economic cycles, because during downturns brands focus their CSR pursuits on reputation enhancement strategies (Harrison & Berman, 2016).

While the literature introduced above provides insights on how CSR is approached within luxury, most of the existing research is not conducted within a full luxury context, and when a luxury context is considered, the studies are limited in scope or by basing their results on small consumer or company samples. Thus, it is not clear which specific CSR approaches are undertaken by the industry, how widespread CSR is within luxury, and what motivates luxury companies to implement CSR. Due to the increasing pressures on the luxury industry to be more sustainable and considering that CSR is likely to have implications for BV in luxury, it is necessary to understand these aspects of CSR in order to manage it strategically within luxury.

Crane’s Strategic Positioning of CSR

In our study we use Crane’s (2014) strategic positioning of CSR to identify how CSR is positioned within luxury. Crane’s proposed four categories to position CSR: ethical/CSR niche, CSR orientation, cost focus and cost leadership. Following Crane, CSR niche applies when a brand decides to fully implement CSR across the entire organization. The brands in this positioning category seek to satisfy a niche group of consumers, which means that the brands in this group are generally small in size. CSR orientation refers to having CSR considerations within the brand, such as CSR policies for suppliers, or the use of environmentally friendly materials. Brands in this positioning category see CSR as an important part of their business or as an add-on that can help them differentiate themselves. Brands that adopt this positioning do not promote their products based on CSR attributes or make CSR a key part of their selling proposition. Brands in the CSR orientation category tend to be larger in size than brands in the CSR niche category. Brands in a cost focus positioning seek to implement CSR efforts due to cost considerations. For example, brands may seek to reduce their energy consumption due to cost cutting approaches and not because of the environmental benefits that those emission reductions can provide. Within the brand leadership category, brands seek to pursue CSR as pre-empting efforts to anticipate regulatory change. For example, if brands become aware of upcoming greenhouse gas (GHG) standards or proposals to cut emissions, they may anticipate changes by implementing them first to be more competitive.

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