Corporate Social Responsibility and Brand Value in Luxury

Table of Contents

Abstract

List of Tables

List of Figures

Dedication

Acknowledgements

Author’s Declaration

Abbreviations

Chapter 1: Introduction
1.1 Research Rationale
1.1.1 Why Luxury?
1.1.2 Why CSR?
1.1.3 Why Brand Value?
1.1.4 Why Focusing on the Entire Luxury Industry Rather Than a Single Company?
1.1.5 Gap in Knowledge
1.2 Statement of Contribution
1.3 Research Questions
1.4 Research Objectives
1.5 Organization of the Thesis

Chapter 2: Literature Review
2.1 Luxury
2.1.1 What Is Luxury
2.1.1.1 Working Definition of Luxury
2.1.2 Luxury – A Business Model of Its Own
2.1.3 Complexity of the Luxury Industry
2.1.3.1 Differences by Category and Type of Product
2.1.3.2 Company and Consumer Perception of Luxury Brands
2.2 CSR and Luxury
2.2.1 Introduction to Business Ethical Concepts
2.2.1.1 Stakeholder Theory
2.2.1.2 Corporate Citizenship
2.2.1.3 CSR
2.2.2 CSR in Luxury
2.2.2.1 Compatibility of CSR and Luxury
2.2.2.2 Consumer Perspectives
2.2.2.3 Company Perspectives
2.2.3 How Can CSR Impact Brands?
2.2.3.1 Need for Further Research on Brand Value in Luxury
2.3 Brand Value in Luxury
2.3.1 What is Brand Value
2.3.1.1 Differences Between Brand Value and Brand Equity
2.3.1.2 How Brand Value/Equity Is Defined
2.3.2 Consumer-Based Brand Value
2.3.3 Company-Based Brand Value
2.3.3.1 Financial Approaches
2.3.3.2 Accounting Approaches
2.3.4 Working Definition of Brand Value
2.3.5 Brand Value in Luxury
2.3.6 Main Contributors to Brand Value

Chapter 3: Methodology
3.1 Research Approach
3.1.1 Epistemological and Ontological Approaches
3.1.2 Methodological Approaches
3.1.3 Selected Approaches
3.2 Qualitative Approach
3.2.1 Selection of US Data for Qualitative Phase
3.2.2 Recruitment Process
3.2.3 Interviewees
3.2.4 Interviewing Approach
3.2.4.1 Selection of Grand-Tour Question
3.2.4.2 Theme Selection
3.2.4.3 Preparing the Interviews
3.2.4.4 Interviewing Process
3.2.4.5 Interview Recording and Transcription
3.2.5 Data Analysis
3.2.6 ‘Credibility Checks’
3.3 Quantitative Approach
3.3.1 Selection of US Data for Quantitative Phase
3.3.2 BAV Database
3.3.2.1 Purchasing Categories in BAV’s Database
3.3.2.2 Brand Selection
3.3.2.3 Consumer Data Extracted from BAV Database
3.3.3 Financial and Additional Company Information
3.3.3.1 Information Extracted from Bloomberg
3.3.3.2 Market Capitalization
3.3.3.3 Number of Employees
3.3.3.4 Tobin’s Q Ratio
3.3.4 Information from Company Reports and Financial Filings
3.3.4.1 Counterfeiting
3.3.4.2 Country of Origin
3.3.4.3 Fully Controlled Distribution
3.3.4.4 Marketing and R&D/Design Expenses
3.3.5 CSR-Index
3.3.5.1 ESG Disclosure Score
3.3.5.2 CSRHub
3.3.5.3 DJSI
3.3.6 Interbrand
3.3.7 Consolidation of Dataset and Handling of Missing Data
3.3.8 Modeling Approach
3.3.8.1 Brand Value and Consumers
3.3.8.2 Brand Value Determinants and Market Capitalization
3.3.8.3 Brand Value Determinants in Luxury
3.4 Results, Analysis and Discussion from ‘Credibility Checks’
3.5 Summary of Variables Included in this Thesis
3.5.1 Excluded Equations
3.5.1.1 First Aim
3.5.1.2 Second Aim
3.5.1.3 Third Aim
3.6 Limitations

Chapter 4: Results, Analysis and Discussion from Qualitative Phase
4.1 CSR
4.1.1 Drivers
4.1.2 Implementation
4.1.2.1 Long-Term Vision of Luxury and CSR
4.1.2.2 ‘Getting Started with CSR Implementation’
4.1.2.3 ‘More Comprehensive CSR Implementation’
4.1.2.4 Barriers to CSR Implementation
4.2 Perceptions of Luxury
4.2.1 Complexity of the Luxury Industry
4.2.1.1 Heritage and Non-Heritage Brands
4.2.1.2 Luxury Goods vs. Luxury Services
4.2.1.3 Brand Category
4.2.1.4 Global Brands
4.2.2 Industry Perception
4.2.2.1 Upper Class and Prestigious
4.2.2.2 Emotion
4.3 How Brand Value is Perceived and Created in Luxury
4.3.1 How Brand Value is Perceived
4.3.2 Factors Creating Brand Value
4.3.2.1 Company Size
4.3.2.2 Control
4.3.2.3 Marketing
4.3.2.4 Product and Customer Experience
4.3.2.5 Consumer-Based Brand Value

Chapter 5: Results, Analysis and Discussion from Quantitative Phase
5.1 Brand Value and Consumers
5.2 Brand Value and Market Capitalization
5.3 Luxury Perception and Relationship with Brand Value
5.4 Factors Correlated with Consumer-Based Brand Value
5.5 Factors Correlated with Country of Origin
5.6 Conclusion

Chapter 6: Results, Analysis and Discussion from ‘Credibility Checks’
6.1 CSR
6.1.1 Limited Genuine Interest in CSR within Luxury
6.1.2 Variation in CSR Interest by Consumer Type
6.1.2.1 Differences by Socioeconomic Level
6.1.2.2 Differences by Consumer Age and Product Category
6.1.3 CSR Perception in the Future
6.1.4 How CSR Can Be Pursued in Luxury
6.1.5 Positioning of CSR Efforts within Luxury
6.2 Brand Size
6.2.1 Increase Brand Awareness, Change Perceptions and Ability to Be More Conservative
6.2.2 Large Does not Always Mean Best
6.3 Controlled Distribution
6.4 Counterfeiting
6.5 Country of Origin
6.6 Marketing and R&D/Design
6.6.1 Marketing
6.6.2 R&D/Design
6.7 Consumer-Based Brand Value
6.7.1 Energized Differentiation
6.7.2 Esteem
6.7.3 Knowledge
6.7.4 Relevance
6.8 Differences within Luxury
6.9 Summary

Chapter 7: Conclusion
7.1 Conclusions Reached As a Result of This Thesis
7.2 Theoretical and Practical Contribution
7.2.1 Theoretical Contribution
7.2.1.1 CSR within Luxury
7.2.1.2 Brand Value in Luxury
7.2.2 Practical Contribution
7.3 Fulfillment of Research Objectives
7.3.1 Industry Perception of CSR and How it is Implemented (RO1a)
7.3.2 Perception of CSR as a Contributor to Brand Value (RO1b)
7.3.3 Perception of Brand Value within Luxury and How It is Managed (RO2)
7.3.4 Consumer’s Role in Brand Value (RO3a)
7.3.5 Companies’ Role in Brand Value (RO3b)
7.3.6 Managerial Implications
7.3.6.1 How the Luxury Industry Can Implement CSR to Create Brand Value
7.3.7 How the Industry Can Manage Brand Value
7.3.7.1 Company Size
7.3.7.2 Controlled Distribution
7.3.7.3 COO
7.3.7.4 Marketing and R&D/Design
7.3.7.5 Energized Differentiation
7.3.7.6 Esteem
7.3.7.7 Relevance
7.3.7.8 Managerial Implications from a CSR Perspective
7.4 Further Research

References

Appendix A

Appendix B

Appendix C

Appendix D

Appendix E

Abstract

With a combined annual revenue of approximately $250 billion dollars, the luxury industry is highly significant, from a financial and commercial point of view. Within luxury, an area that is becoming increasingly important due to the visibility of this industry is Corporate Social Responsibility (CSR). While consumers are still not actively demanding CSR in luxury products and services, and there is evidence that CSR is not a key area of interest for the luxury industry; the luxury industry is becoming the target of non-governmental organizations (NGOs) and other stakeholders interested in environmental and ethical practices. Thus, it is essential that luxury companies explore CSR implementation, as neglecting to do so, is likely to affect their brands and their brand value.

One of the most important assets that luxury firms have is brand value, an intangible asset influenced by consumer and company-led actions. CSR is a company-led action, which depending on how it is managed, can either increase or decrease brand value. It is important to note that to understand the role of CSR within luxury and how it can influence brand value, it is not possible to study CSR in isolation, as this would not fully reveal its importance in the wider context of brand value overall. Thus, CSR needs to be studied alongside other factors affecting brand value.

Despite the fact that CSR can influence brand value in luxury, CSR is still overlooked by the industry. Due to the increasing relevance of CSR within luxury, this research explores the role of CSR within luxury and how it, together with other factors, contributes to brand value in luxury. An additional consideration is that despite the importance of brand value in luxury, the industry does not normally measure, manage and leverage brand value. As a result, it is also necessary to examine how brand value is perceived within luxury.

To meet these research goals, a mixed methods approach was selected. More specifically, a theoretical framework was built with input from the literature and interviews with key interviewees from the luxury industry. Then, the theoretical framework was tested quantitatively. The quantitative analysis was conducted with a dataset based on consumer panels, and additional secondary data including Bloomberg, CSRHub, Dow Jones Sustainability Index (DJSI), Interbrand, and company reports. The results were subject to ‘credibility checks’ with interviewees from the industry. It is noteworthy to highlight that for the statistical analysis, one of the largest datasets with US consumer data was used. Similarly, for the qualitative interviews, representatives from some of the largest luxury companies in the world in terms of brand value, and luxury stakeholders were recruited.

The results from this research suggest that despite the importance of brand value within luxury; brand value is not widely understood by the industry and it is not measured, managed or leveraged. This research also suggests that CSR, company size, having controlled distribution, country of origin, marketing and research and development (R&D)/design, energized differentiation, esteem, and relevance; are critical factors to brand value. Consequently, luxury brands need to manage all these determinants to be able to create and preserve brand value. Nevertheless, while all these determinants are important, their importance can vary by brand; depending on brand size, brand category, target market, and whether the brand is heritage or non-heritage.

With regard to CSR, an outcome from this research is that CSR is becoming an increasingly important contributor to brand value in luxury. Still, the luxury industry is not fully aware that CSR implementation is consistent with key luxury values such as high-quality and service and luxury’s long-term vision; and that stringent CSR policies and practices constitute a potential strategy to anticipate future regulatory and social constraints.

Furthermore, CSR implementation within luxury is generally limited to discrete actions, such as collaboration with the arts, compliance, local production, philanthropy/voluntarism, and use of environmentally friendlier materials. It is crucial that luxury companies incorporate CSR into the DNA of their brands and choose a CSR strategy aligned with their brand vision. Luxury brands may be able to positively change consumer perceptions of CSR and, thus, drive consumer demand. Also, engagement with CSR may result in a competitive advantage to them and in a potential increase in their brand value.

Moreover, the results suggest that brand knowledge is overemphasized by the luxury industry, although it does not appear to be essential for brand value in luxury. Additionally, with respect to brand relevance, this research makes a case to consider brand desirability as a potentially more appropriate determinant of brand value within a luxury context.

List of Tables

Table 1: Attributes in Definitions of Luxury

Table 2: Kapferer's Anti-Laws of Marketing

Table 3: Chevalier’s Luxury Categories

Table 4: Different Classifications of Luxury Brands

Table 5: Key Uncertainties and Gaps in Literature Regarding Luxury

Table 6: Historical Perspective of CSR

Table 7: Responsibilities of the Firm

Table 8: Negative Perceptions Associated with Luxury

Table 9: Business Benefits of CSR

Table 10: Main Characteristics of Company-Based and Consumer-Based Brand Value

Table 11: Potential Determinants of Brand Value

Table 12: List of Interviewees

Table 13: Steps to Conduct Thematic Analyses

Table 14: List of Interviewees for ‘Credibility Checks’

Table 15: Summary of Available Historical Data

Table 16: Purchasing Categories in BAV’s Consumer Panel

Table 17: Constructs Extracted from BAV’s Database

Table 18: Definitions of Bloomberg Variables Used in Analysis

Table 19: Missing Data Summary

Table 20: Guide to Present Final Results

Table 21: Independent Variables Included in Statistical Analysis

Table 22: Dependent and Control Variables Used in Statistical Analysis

Table 23: Initial Brand Categorization by Sector

Table 24: Final Brand Categorization by Sector

Table 25: Significant Determinants for Consumer Brand Value

Table 26: Significant Determinants for Market Capitalization

Table 27: Significant Determinants for Luxury Perception

Table 28: Correlation Matrix of Consumer-Based Brand Value Pillars with Other Determinants of Brand Value

Table 29: Correlation Matrix of COO with Other Determinants of Brand Value

Table 30: Findings from Statistical Analysis

Table 31: Final Findings from Qualitative and Quantitative Analysis

List of Figures

Figure 1: Attributes Commonly Found in Luxury

Figure 2: The Luxury Creation Process

Figure 3: Evolution of Carroll’s CSR Model Over Time

Figure 4: Keller’s Dimensions of Brand Knowledge

Figure 5: Potential Contributors to Brand Value in Luxury

Figure 6: Overview of Exploratory Research Approach Used

Figure 7: Initial Themes Emerging from Initial Transcript Search

Figure 8: Reviewed Themes

Figure 9: Refined Themes

Figure 10: Theoretical Framework of Determinants of Brand Value in Luxury

Figure 11: Statistically Significant Determinants in P1

Figure 12: Statistically Significant Determinants in P2

Figure 13: Statistically Significant Determinants in P3

Figure 14: Relevant/Irrelevant Determinants of Brand Value in Luxury

Figure 15: How CSR Can Be Addressed by Brands

Figure 16: Strategic Positioning of CSR Efforts

Figure 17: Determinants of Brand Value in Luxury

Dedication

To my late mother and grandmother Alicia.

Acknowledgements

I would like thank my father, my sister, Rafa, and Luis Fernando for all the encouragement and support provided during these years.

To begin with, nobody deserves more credit for this thesis than my supervisors, Iain Docherty and Deirdre Shaw. I am deeply grateful for all the guidance and support they kindly provided. Iain and Deirdre, thank you very much for everything. I cannot thank you enough.

I would like to include a special mention to Professor Donald Lehmann from Columbia Business School (CBS) in New York City, for leading my work during my two visits to Columbia University as part of the Chazen Visiting Scholar Program. Don, it was a privilege working together with you. Also, I highly appreciate the assistance given by Professor Ketty Maisonrouge from CBS. Ketty, your input was crucial to the success of this research effort. Thank you again!

Moreover, I would like to thank Anne Rivers and Anna Blender from BAV Consulting in New York for their valuable insight. I would also like to thank RobecoSAM AG for providing the components of the Dow Jones Sustainability World Index for this thesis. Furthermore, I would like to thank all my interviewees for their input. Without their help, this thesis would not have been possible.

Finally, I would like to thank anyone who in one way or another, helped me during this journey, especially: Jonathan and Susan Gledhill from Policy Navigation Group; Ramona, Sasha, IJ and all my friends; Cleopatra Velotsou; my former professors Luis Felipe Juarez, Isabel Burguete and Alberto Ibarra; and anyone who was unintentionally excluded from this list.

Author’s Declaration

I declare that, except where explicit reference is made to the contribution of others, that this dissertation is the result of my own work and has not been submitted for any other degree at the University of Glasgow or any other institution.

Signature

Printed Name: Ramón Bravo González

Abbreviations

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Chapter 1: Introduction

This thesis explores the topic of Corporate Social Responsibility (CSR) in luxury and how CSR, together with other factors, can impact brand value. Section 1.1 below discusses the rationale for this research. This discussion is followed by a statement of contribution, the research questions and their corresponding research objectives. The chapter then concludes with a summary of how the thesis content is organized.

1.1 Research Rationale

1.1.1 Why Luxury?

With approximately $250 billion dollars in revenue in 2014 (Bain & Company, 2015), the luxury industry is highly significant from a financial and commercial point of view. To put the size of the luxury industry within context, its annual revenue is similar to Finland’s Gross Domestic Product (GDP) in 2015.

The luxury industry has a number of characteristics that sets it apart from non-luxury. Among these characteristics is that luxury does not follow the laws of demand and supply. Thus, when the demand of luxury goods increases, the price increases as well (Bastien and Kapferer, 2013). Another key characteristic of luxury is that it has both, physical and psychological attributes. For example, in terms of physical attributes, luxury has elements of high-quality, functionality/usage value and design which can be observed in the actual product (See: Chevalier, 2012; De Barnier et al., 2012; Hoffmann and Coste-Maniôre, 2012; Kapferer, 2009; Vickers and Renand, 2003). With regard to its psychological attributes, luxury is predominantly associated with prestige (Godey et al., 2013; Tynan et al., 2010) and social status (Hansen and Wänke, 2011; Heine and Phan, 2011; Walley and Li, 2014). This association of luxury with prestige and social status has been historically prevalent, since luxury has been used by societies to create differentiation (Okonkwo, 2009). For instance, luxury brands are sold at prestigious locations at high prices (Kapferer, 2014), and many luxury items can only be afforded by the wealthiest echelons of society (Walley et al., 2013).

In addition to these attributes, another characteristic of luxury is the pursuit of strategies such as country of origin (COO), marketing or controlled distribution which are mainly dominant within a luxury context (Kapferer, 2009). By pursuing these types of strategies, luxury brands are able to create attributes such as excellence, quality, design, as well as prestige and upper class perception.

Due to the economic importance of the luxury industry, its visibility in the world’s marketplace, its ability to influence consumers, and the fact that it does not share the same characteristics as non-luxury; the luxury industry is worthy of further study.

1.1.2 Why CSR?

Within luxury, an area that grants research attention is CSR. This is not just because the issue has not been widely researched, but because the industry, unlike other industries, is a late adopter of CSR. (Pessanha Gomes and Yarime, 2014). As discussed below, luxury companies are increasingly facing external pressures to adopt CSR policies and practices. However, it is not known how CSR can impact brand perceptions and investment decisions. Therefore, this requires in-depth research and analysis.

CSR is the most common term used in the literature to refer to ethical actions undertaken by firms (Galbreath, 2010). Because of its low CSR adoption and due to its high visibility, the luxury industry is becoming the target of non-governmental organizations (NGOs) and stakeholders interested in environmental and ethical practices (Kapferer and Michaut, 2015). Furthermore, the industry is also experiencing regulative and legislative pressures, and new industry standards requiring the pursuit of social and environmental practices (Carrigan et al., 2016; D’Souza et al., 2011). These practices form part of CSR (Dahlsrud, 2008; Idowu, 2009; Torres et al., 2012). However, despite these pressures, CSR is still overlooked by the luxury industry (Bendell and Kleanthous, 2008; Pessanha Gomes and Yarime, 2014).

To add complexity to this topic, within luxury, as in other industries, environmental and ethical practices range considerably, from the use of recycled materials in products (Finn and Fraser, 2014), social and environmental practices within the supply chain (Towers et al., 2013) to philanthropy (Pessanha Gomes and Yarime, 2014) or even the comprehensive implementation of sustainable strategies within the social and environmental domains of CSR (Carcano, 2013). A key consideration is that within luxury, CSR is not actively demanded by consumers (De Pierro Bruno and Barki, 2014; Kapferer and Michaut, 2015), although there is increasingly more consumer interest in CSR (Carrigan et al., 2013).

CSR has been extensively considered in non-luxury, but it has been overlooked within luxury. This lack of adoption brings a range of considerations in relation to CSR in addition to other criticisms of the industry such as conspicuous consumption, hedonism, or materialism. In summary, all these factors outlined above, but more specifically the visibility of the luxury industry, increased pressures from non-consumers (e.g. government, NGOs, and industry groups) to be more socially responsible. The inherent characteristics of this industry, which are not present in non-luxury, make it essential to explore the topic of CSR in luxury, from a luxury perspective.

1.1.3 Why Brand Value?

For luxury to exist it is essential to have an excellent product, but also to be able to create a dream around that product (Kapferer, 2009). Luxury relies on intangible attributes based on consumer perceptions to create value. This value, which can be referred to as brand value, is considered the most important asset within luxury (Okonkwo, 2007). Thus, a brand will create brand value depending on how successful it is in building these attributes and perceptions. Despite its importance, is not clear how brand value is actually perceived by the luxury industry.

CSR can affect luxury brands, as implementing it can help brands reduce risk (Kapferer and Michaut, 2015) as it can help brands ameliorate the effects of stakeholders and government demands to become more socially responsible. Additionally, while CSR is not actively demanded by luxury consumers, CSR awareness is increasing, which creates a possibility of higher CSR consumer demand in the future. A lack of CSR policies and practices can impact brand reputation, access to capital and brand value (Drews, 2010). Consequently, it is essential that luxury brands look into CSR, especially because not having it is something that could impact brand value (Kapferer and Michaut, 2015).

Still, brand value is a complex construct which is influenced by multiple factors, not only CSR. Brand value is determined by both consumer- and company-based factors (Christodoulides et al., 2015; Davcik et al., 2015). For example, brand value can be influenced by company-controlled actions such as company size or research and development (R&D) (Melo and Galan, 2011; Torres et al., 2012), but also by how consumers perceive a brand (Ambler and Banvise, 1998). Thus, the value of a brand will not only be contingent on the actions undertaken by a brand (e.g. CSR or R&D) but, as stated by Keller and Lehmann (2006), will also depend on what customers think about a brand and how they communicate about it.

This thesis seeks to understand CSR in luxury. However, since CSR is a contributor to brand value, it is not possible to look at CSR in isolation from brand value and the other determinants of brand value. Rather CSR needs to be understood within the context of brand value overall to reveal its importance relative to other elements. Additionally, CSR cannot be isolated from the internal aspects of a company (Deakin and Whittaker, 2007; White, 2006; Woermann, 2013). CSR is created based on company-specific contexts and, therefore, it reflects the business strategies of organizations (Dahlsrud, 2008), as well as organizational values, beliefs and firm culture (Galbreath, 2010).

1.1.4 Why Focusing on the Entire Luxury Industry Rather Than a Single Company?

This thesis explores CSR and brand value in luxury from an industry-level perspective rather than from a company-level approach. Research already exists that looks at single companies to identify which elements can contribute to brand success (see Cavender and Kincade, 2014; Cohen, 2009). Existing research, however, has not looked at brand value in luxury from a more holistic approach by considering company- and consumer-based factors contributing to brand value through an industry-level approach. Within luxury there are multiple ways to categorize brands, including, the extent of their core trade, quality, product usage, or manufacturing process (see Ahuvia et al., 2013; Kapferer, 2009; Nueno and Quelch, 1998; Urde and Greyser, 2015). While all luxury brands share common values, such as the presence of physical and psychological attributes in the products and services they offer; luxury brands are not identical. Thus, the utility of exploring CSR and brand value of single brands such as Prada, Tiffany & Co. or Gucci would hinder the relevance of this research in terms of its theoretical and practical contributions for the whole luxury industry. As a result, this research takes a more inclusive approach to the exploration of brand value by approaching CSR and brand value in luxury from an industry-level perspective rather than from an individual company level perspective. The unveiling of how CSR and other factors contribute to brand value in the luxury industry creates a foundation for the understanding of this complex topic. Furthermore, it makes it possible for academics and practitioners to conduct follow-up research and analysis to determine how the importance of these factors can change at the company level, depending on the specific characteristics of a brand.

1.1.5 Gap in Knowledge

In the literature, there is evidence that brand value is the most important asset in luxury (Okonkwo, 2007; Wood, 2000). There is also recognition that CSR can contribute to brand value in luxury (Cavender and Kincade, 2014; Kapferer and Michaut, 2015). Nevertheless, it is not clear which CSR-related policies and practices undertaken by luxury companies can influence brand value within this industry. Furthermore, there is no empirical research on CSR and brand value in luxury and, therefore, it is unknown which determinants of brand value can be influenced by CSR, if any. Also, while there is literature looking at CSR and luxury , and there is also non-luxury research on CSR and brand value (Melo and Galan, 2011; Torres et al., 2012; Wang, 2010); it is not evident from the literature the role that CSR has within the luxury industry.

In addition, it should be noted that there is no agreement in the literature as to what exactly constitutes brand value (Davcik et al., 2015; Knowles, 2008; Simon and Sullivan, 1993; Stahl et al., 2012; Torres and Tribó, 2011). It is also not clear which factors can create and preserve brand value in luxury. The non-luxury literature has proposed and analyzed a number of factors that in addition to CSR can create brand value. However, these elements have not been analyzed all together within a luxury context. Moreover, it is not clear how brand value is perceived by executives and stakeholders within the luxury industry, which strategies can create value, and if it is something they actively manage and leverage, given the apparent importance that brand value has for the industry. To be clear, in this thesis, leverage of brand value refers to the action of strategically managing this asset by luxury brands.

1.2 Statement of Contribution

The study of CSR in luxury within the context of brand value seeks to address the key gaps in knowledge discussed in the section above. This thesis makes a contribution by identifying the determinants of brand value that can be influenced by CSR, how CSR is perceived within luxury, and what elements constitute brand value in luxury. In addition to help address these theoretical gaps, this thesis also contributes to the luxury industry by identifying how CSR can be approached within luxury, and unveiling the key determinants of brand value that need to be pursued by the industry. The following subsections outline the theoretical and practical contribution of this thesis. Then, these contributions are recapitulated and discussed in more detail in the conclusion chapter (see section 7.2).

Theoretical Contributions:

- Provided an understanding of how CSR was perceived within luxury by:
- Identifying how CSR was understood by the industry; and whether it was considered by the industry to be a key contributor to brand value. This contribution added a new perspective to existing research on CSR and brand value by analyzing this topic from within the industry (see Kapferer and Michaut-Denizeau, 2014; Melo and Galan, 2011; Torres et al., 2012)
- Identifying how CSR was pursued within luxury. Existing research on CSR positioning (See: Crane, 2014; Visser, 2012) had not explicitly addressed CSR positioning within luxury and how it was mainly pursued as a branding activity by luxury brands
- Brand value was analyzed within a luxury context from a holistic perspective by including company- and consumer-based factors. Existing research had only concentrated on either, company-based or consumer-based factors, without looking at both (see Ailawadi et al., 2003; Melo and Galan, 2011; Stahl et al., 2012; Torres et al., 2012). By conducting this research, it was possible to identify the most relevant factors for brand value in luxury: Company size, Controlled Distribution, Country of Origin, CSR, Energized Differentiation, Esteem, Marketing and R&D/Design, and Relevance
- A luxury construct based on consumer perceptions of upper class and prestige was proposed. Further, changes to two consumer-based constructs, esteem and relevance, were suggested to make them more relevant within a luxury context. These factors had not been used in the literature in empirical analyses related to luxury. Thus, this set a precedent for their inclusion in future studies related to luxury and brand value

Practical Contributions:

- Identified key factors for the industry to create and preserve brand value. In addition, this research unveiled which factors were overemphasized and overlooked by the industry. By identifying which determinants of brand value mattered the most, the luxury industry could redirect its efforts into the determinants with a greater impact.
- Analyzed the consistency between luxury and CSR. In addition, this researched looked into how CSR could be approached by the industry.

1.3 Research Questions

Given the complexity of the topic of CSR and brand value in luxury it was necessary to craft research questions (RQ)s, in order to give direction to this research. Thus, three RQs were for formulated for this thesis. The questions address the role of CSR in luxury, brand value perception and brand value creation. These questions are presented below. To enhance clarity, RQ1 and RQ3 were divided into two subquestions:

RQ1: What is the role of CSR in luxury?

RQ1a) How is CSR perceived by the luxury industry?

RQ1b) Do CSR actions undertaken by luxury companies contribute to brand value?

RQ2: How is brand value perceived by the luxury industry?

RQ3: What other factors create and maintain brand value in luxury?

RQ3a) What consumer-driven factors create and maintain brand value in luxury?

RQ3b) What company-driven factors create and maintain brand value in luxury?

1.4 Research Objectives

The research questions introduced above provide general direction to this research, in terms of what needs to be answered to be able to respond the research questions. Additionally, to keep the research within focus, it is important to define research objectives (RO)s for each of those RQs. Then, by achieving these ROs, it will be possible to respond to the RQs. This section outlines the ROs that were set for this thesis. To add clarity, the numbers of the ROs correspond to the numbers of the RQs.

RO1

- RO1a) To identify how luxury companies and luxury stakeholders perceive the concept of CSR, and their approaches to implement CSR
- RO1b) To identify if luxury companies and luxury stakeholders consider that the CSR actions undertaken by brands contribute to brand value in luxury

RO2

- To identify how luxury companies and luxury stakeholders perceive the concept of brand value
- To explore the actions taken by luxury brands to manage brand value

RO3

- RO3a) To identify consumers’ role in creating brand value
- RO3b)
- To identify companies’ role in creating brand value
- To identify how brand value can impact luxury brands
- To provide insight into what factors companies need to focus on to increase and maintain their brand value
- To Identify if there are differences within the luxury industry that could affect how brand value is managed

1.5 Organization of the Thesis

To address these RQs, a mixed methods approach was selected. After conducting the literature review, a conceptual framework of brand value in luxury was proposed. This conceptual framework was refined with input from qualitative interviews with industry participants. Then, a database was built with data based on consumer panels, and from additional publicly available sources. The framework was tested statistically using linear modeling and correlation matrices. Finally, the results from the statistical analysis were discussed with industry experts during the ‘credibility checks’, so that it was possible to refine the model with the most significant determinants for brand value in luxury.

This thesis was structured in seven chapters, inclusive of this introduction. The following is a summary of how this thesis was organized:

- Chapter 1: Introduction

- Chapter 2: Literature Review. This chapter explored the concept of luxury, the differences between luxury and non-luxury, as well as the complexity of the luxury industry. Furthermore, this chapter explored CSR and how it related to other terms related to ethical actions undertaken by firms, such as stakeholder theory or corporate citizenship. Moreover, it explored the association between CSR and luxury, as well as how CSR was connected to brand value. Finally, the chapter explored the construct of brand value and how it could be studied from a company or consumer perspective. This chapter provided working definitions of CSR, brand value and luxury which will were used throughout the thesis. Moreover, after a review of the literature on brand value in luxury, the chapter concluded with a theoretical framework identifying key potential determinants of brand value in luxury.

- Chapter 3: Methodology. This chapter discussed the research approach selected for this thesis. Since a mixed-methods approach was chosen to conduct this work, this chapter further discussed the qualitative and quantitative methodology selected; the research propositions guiding the quantitative analysis; and methodological limitations of these approaches.

- Chapter 4: Results, Analysis and Discussion of Qualitative Phase. In this chapter, the results from the qualitative interviews with industry experts and stakeholders were presented. These results were presented around three key themes: CSR, luxury and brand value. The chapter concluded with a revised version of the theoretical framework introduced in Chapter 2.

- Chapter 5: Results, Analysis and Discussion of Quantitative Phase. The results were analysed and discussed around three research propositions: Brand value and consumers; brand value and market capitalization; and brand value and luxury perception. The chapter concluded with a list of statistically significant determinants for brand value based on the quantitative analysis.

- Chapter 6: Results, Analysis and Discussion from ‘Credibility Checks’. The results from Chapter 4 were subject to ‘credibility checks’ with representatives from the luxury industry and stakeholders. The data obtained from the ‘credibility checks’ were used to analyse and discuss the results, and thus determine which determinants of brand value were more important within the sample.

- Chapter 7: Conclusion. This chapter discussed the outcomes of this research and how the research objectives outlined earlier in this introduction were fulfilled. Then it elaborated on how this research advanced the understanding of CSR and brand value in luxury and how it made a theoretical contribution to the literature. The chapter concluded with potential areas for future research in the areas of CSR and brand value.

Chapter 2: Literature Review

As discussed in the Introduction, this thesis seeks to explore the role of Corporate Social Responsibility in luxury by contextualizing it within the other factors influencing brand value in luxury. This chapter is structured as follows. First, to get an understanding of the luxury industry, a literature review was conducted on what luxury means, its main attributes, and how different the luxury industry is from non-luxury. Second, considering that CSR actions may have an impact on brand value, and brand value is an important asset within luxury, a literature review on CSR was conducted, including what it is, how it is related to brand value, and what are the main research gaps from a luxury perspective. Third, since brand value is a complex construct, and does not only comprise CSR, it is also necessary to explore the construct of brand value in the literature. These three elements; Luxury, CSR and Brand Value in Luxury are discussed in the sections below.

2.1 Luxury

2.1.1 What Is Luxury

Since this thesis is centered around luxury; first, it is important to understand the concept of luxury. There is an extensive literature attempting to address the concept of luxury. However, as stated by Miller and Mills (2012), researchers have proposed multiple attributes and dimensions to define it, but there is absolutely no agreement as to what luxury is (Godey et al., 2013; Kim et al., 2016). In fact, luxury is often perceived as a “complex, ambiguous and ambivalent concept” (Walley and Li, 2014, p. 1) and a “diversified construct” (Godart and Seong, 2014, p. 15). Thus, the sole objective of this section is not to make a case against or for those definitions but to outline the main attributes luxury is associated with. To make it easier to understand the different attributes associated with luxury, Chandon et al (2015) propose three main dimensions: Motivations to consume luxury products; values that luxury products represent to consumers; and perceptions of exclusivity conveyed by those products. For example, a motivation that may drive consumers to buy luxury products is to highlight a connection with a certain social group; while a value to consumers could be hedonism or self-indulgence; and a perception of exclusivity would be how rare the luxury item is.

There are considerable differences in the literature with regard to what constitutes luxury. The following section provides an overview of the different definitions of luxury and their attributes.

According to Godart and Seong (2014, p. 14) luxury originates from “the desires of powerful, high status consumers who want to assert their status and power”. For Hoffmann and Coste-Maniôre (2012), luxury has four important principles: Excellence, authenticity, value and quality. For Vigneron and Johnson (2004) luxury needs to have a factor of human involvement, be valued by others, and have limited supply. Luxury can also be defined as a combination of key components, which should always be present in a luxury product: Exclusivity (rarity), quality (high-quality and design), hedonism (the product is pleasant to use and gives satisfaction), and brand image (renowned, different and strongly positioned) (Chevalier, 2012). De Barnier et al (2012) consider that luxury has superior quality, has a hedonic factor, a high price, it is rare, it has a selective distribution, an important level of creativity, and it is prestigious. Phau and Prendergast (2000) consider that luxury must have four characteristics: Brand identity, customer awareness, exclusivity and quality. Kapferer (2009) proposes that three key elements must be present in a luxury good: Usage value (functionality of a product), exchange value (a competence to distinguish it, besides the price level) and work value (an intangible such as a concept created by the founder of a firm and applied to a production process to create a unique product). A key difference between non-luxury products and luxury is that in the former, only usage and exchange values are present, but not work value.

Nueno and Quelch (1998) consider that luxury has four characteristics: Premium quality, a heritage of craftsmanship, a recognizable style or identity and limited production/scarcity.

According to Kapferer (2009), for Veblen (a Norwegian economist from the XIX century), luxury is the most desirable (from a social perspective), as it places the consumer at the top of the hierarchy. This concept derives in the creation of Veblen goods, which are goods where the price increases as the demand increases. Therefore, luxury goods are Veblen goods (Ibid, 2009). For Godey et al (2013), based on the results of an empirical study, luxury is mainly associated with exclusivity, prestige and elite perception. Along the same lines, Okonkwo (2009) states that the reason for the existence of luxury has been, through centuries, to highlight social class distinction, and to mark differentiation by possessing luxury goods.

Berry (1994, pp. 5, 40) defines a luxury good as “an indulgence. It is a good that is thought desirable or pleasing by an individual…it is a good that it would be nice to have or experience”. Berry also states that luxury has four subcategories: Sustenance, shelter, clothing and leisure. To illustrate these subcategories, he provides the example of a weekend holiday in a luxury hotel. Sustenance would be related to food and drink, for example caviar and champagne. Shelter would be related to the accommodation provided by the establishment as well as the luxury services provided (e.g. Spa or health center). Clothing would be related to, for example, apparel or jewelry offered in the hotel. Leisure would be the fact that the weekend stay is a holiday and the hotel will provide an array of leisure activities.

Vigneron and Johnson (2004, p. 486) present a different definition of luxury, which incorporates elements related to product use. For them, luxury goods can be defined as “goods for which the simple use or display of a particular branded product brings esteem on the owner apart from any functional utility”. Besides this definition, Vigneron and Johnson also developed a framework to define the different elements that must be present in ‘lasting’ luxury. Based on this framework, luxury attributes can be divided into two broad categories: Non-personal perceptions and personal perceptions. Within non-personal perceptions, the three elements present in luxury are conspicuousness (price or status linked to the brand), uniqueness (scarce or difficult to obtain) and quality (a more superior product than a non-luxury product). Within personal perceptions, the two elements present in luxury are hedonism (obtain personal fulfillment by purchasing a product) and the extended self (distinguish oneself or link luxury goods to own identity). It is important to note that in this model, all the sub-elements (i.e. conspicuousness, uniqueness, quality, hedonism and the extended self) are correlated (Vigneron and Johnson, 2004).

Vickers and Renand (2003) propose that luxury is characterized by three dimensions of performance: Functionalism, experientialism and symbolic interactionism. Functionalism refers to the utilitarian function of a product, while experientialism relates to how a customer senses it. Symbolic interactionism is related to the self-enhancement or sensory pleasure provided by a product and how that product allows the consumer to belong to a social group.

Heine and Pan (2011) define luxury as products with characteristics that go beyond the ordinary and necessary; including high price levels, quality and aesthetics; rarity, and a symbolic meaning. Liu et al (2014) consider that luxury products have five sets of values; conspicuous, unique, social, hedonic, and quality. Tynan et al (2010) list key identifiers of luxury which are: High-quality, expensive, non-essential, rare, exclusive, prestigious, authentic, provide a customer experience and are high in symbolic and emotional value. Furthermore, they state that luxury goods have a considerable utilitarian value which is expected for all luxury goods. However, the most important value for a consumer is the symbolic and experiential component of a luxury good. Beverland (2004) incorporates social values in his definition of luxury, stating that luxury brands need to have the following attributes: Value driven emergence, culture, marketing, history endorsement, and product integrity.

Moreover, other authors have incorporated many of the elements presented above into their own definitions of luxury. Based on a study aimed at identifying the key elements in a luxury fashion brand, Fionda and Moore (2009) conclude that a luxury fashion brand has nine elements: Clear brand identity, culture, environment and service, heritage, exclusivity, premium price, design signature, product integrity, and marketing communications. While these elements were aimed at describing luxury fashion brands, these characteristics can be applicable to all luxury-goods brands and not just to fashion brands.

Furthermore, according to Chevalier (2012), luxury can be defined in terms of perception, production, and social and individual behavior. Perception is influenced by the consumer (the consumer determines whether a good is luxury or not), while in production it is the manufacturer who decides which products constitute luxury. From a social perspective, a luxury good can be defined as an item that makes his/her owner stand out; and from an individual perspective, luxury can be defined in hedonistic terms, as something that provides individual satisfaction and pleasure (Ibid, 2012). This definition is aligned with Gardetti and Torres (2014, p. 2) who consider that luxury is about “seeing and being seen”.

Chevalier (2012, p. 3) also defines luxury in relation to branding. Thus, a luxury good is the one that “carries a brand that is well known, credible and respected”. A challenge in terms of this definition is that while it can be applied to most luxury-goods, it can also be applied to prestigious non-luxury goods (e.g. Apple products) and, thus, it can create confusion regarding what constitutes luxury.

In summary, there are multiple definitions of luxury. Table 1 below presents a summary of the different attributes presented in the definitions of luxury in this section.

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Table 1: Attributes in Definitions of Luxury

As presented in Table 1, the attributes included in definitions of luxury are diverse. However, it is possible to distill these attributes into two main categories: Physical and psychological attributes (see Figure 1).

In terms of physical attributes, luxury products have elements of excellence, quality, functionality/usage value and design that can be perceived in the actual product (See: Chevalier, 2012; De Barnier et al., 2012; Hoffmann and Coste-Maniôre, 2012; Kapferer, 2009; Vickers and Renand, 2003). For example, a Van Cleef & Arpels timepiece is produced with the best materials and the best technology and skills, factors that result in a product of excellence. This excellence is reflected in the actual quality of the product, which can normally last for generations. Despite its high price tag, a Van Cleef watch will have a functional value, which in this case, is to tell the time. Finally, a Van Cleef watch will also have an element of design; as it will not only be elegant and sophisticated, but it will also have distinctive elements characteristic of the Van Cleef brand.

With regard to the psychological attributes of luxury, luxury brands have their own identity, they are valued by people, they are exclusive and prestigious, they provide a hedonic or experiential feel to users, they have limited access, and can be considered extraordinary or occasional items, that are not precisely necessary. So going back to the previous example, a Van Cleef watch will give pleasure to its users. This pleasure starts from the time when someone sees the watch at a window of a Van Cleef boutique, to when it is purchased and, every time it is worn. Van Cleef boutiques are located in world-class cities and, therefore, if someone is, for example, in New England, then it will be necessary to travel to New York City (NYC) to be able to visit a store. Also, with a value of over $20,000 dollars, the purchase of a Van Cleef watch would be something occasional as well as unnecessary. In other words, if someone just wants a watch to know the time, it is not necessary to buy a Van Cleef watch as a Swatch watch valued under $100 dollars would suffice. Similarly, there can also be an aspirational element in a Van Cleef watch, as their high price limits access to that product.

As a note of caution, it is important to highlight that the attributes presented in Figure 1 below should be seen together as a group, and not individually; as from a standalone point of view, elements such as quality, design, functionality, or being valued by people could also be present in non-luxury products. Additionally, it should be noted that while these attributes are generally included in most luxury products, there can be cases where some attributes such as excellence or quality may not be present.

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Figure 1: Attributes Commonly Found in Luxury

An additional consideration in luxury is that, as shown in Figure 1, most luxury values rely on psychological aspects than on actual physical characteristics. Given the weight of those psychological aspects, which form part of the consumer mindset, the definition of luxury is going to be subjective, as the meaning of luxury for one person, is likely to be different for someone else. This may explain the lack of agreement as to what this concept actually means. Despite this subjectiveness, upper class and prestigious appear to be two predominant elements in the concept of luxury. Prestigious is included in the definition of luxury provided by Tynan et al (2010) while Heine and Phan (2011) consider that upper classes have a role in the aesthetics of luxury goods. In other words, luxury goods reflect the taste of the upper classes. To elaborate on what is meant by upper classes, Piff et al (2012) state that upper social classes are the ones that rank higher than others in society with respect to financial means, occupation, or prestige. Other authors like Hansen and Wänke, (2011), Nueno and Quelch (1998) or Walley and Li (2014) discuss how there is a link between upper class and luxury; while Godey et al (2013) link it to prestige. Okonkwo (2009, p. 303) considers that luxury’s reason for existence is different from other sectors, as its function is “rooted in the social classes of the past civilizations and societies when royals, nobles and aristocrats used ostentatious consumption to stamp their superiority and maintain their distance from the lesser privileged”. So it can be said that it is about upper class. Moreover, from a consumer perspective, consumers usually associate with luxury brands that are sold in prestigious locations at high prices (Kapferer, 2014). For example, owning expensive items that can only be owned by the wealthiest individuals in a society can confer social status (Walley et al., 2013).

2.1.1.1 Working Definition of Luxury

As discussed in the previous section, luxury is subjective, as it has different meanings to different people. However, despite this subjectiveness, luxury can be associated with an upper class and prestige perception (Liu et al., 2016). It should be noted most of the definitions of luxury span from 1994 to 2014. However, emerging research looking at the definitional elements of luxury argues that traditional values of luxury such as exclusivity or uniqueness are no longer commonplace within the industry, given that luxury brands are becoming more accessible (Cristini et al., 2017).

Kapferer and Laurent (2016, p. 338) state that each consumer has a different perception of luxury, which is “heterogeneous across consumers”. They exemplify that for a watch, the ‘frontier of luxury’ could fluctuate from $100 dollars to over $3,000 dollars. This means that the concept of luxury is asymmetric and does not need to fulfill all the conditions related to luxury (e.g. excellence, creativity or exclusivity) to be considered luxury (Cristini et al., 2017).

Given these developments, to study luxury, it is necessary to have an inclusive working definition of the concept which reflects the key characteristics of the industry, the increasingly broadness of the concept in terms of what can be considered luxury, and the association of luxury with upper class and prestige in terms of consumer perception. As a result, from all the definitions discussed in the previous section, Chevalier’s definition of luxury is favored due to its simplicity and inclusiveness. Chevalier (2012, p. 3) defines luxury as something that “carries a brand that is well known, credible and respected”. This definition can capture the physical and psychological attributes of luxury and the fact that luxury brands need to be well known, credible and respected. Moreover, it can capture the consumers’ perception that a luxury product can have a wide price range. A luxury watch can range, for example, from $100 dollars to over $3,000. This implies that for a certain type of consumer, a Swatch watch would be at the lower frontier of what can be called luxury, while for a wealthier individual that frontier could start at Tag Heuer watch valued $3,000.

A caveat to Chevalier’s definition is that it can also be applied to certain non-luxury brands as long as they are well known, credible and respected. Another limitation is that it does not specify whether it is applicable to luxury products or services. Therefore, a working definition of luxury based on Chevalier’s definition is proposed for this research, which addresses these limitations. As a result, for this thesis, luxury will be defined as:

“A well-known, credible or respected product or service that consumers can associate with upper class or prestige”.

This working definition is in line with Walley and Li’s view (2014, p. 3) who consider that “what represents luxury to one person may not represent luxury to another”. Furthermore, this approach is also consistent with Cristini et al (2017) who consider that the concept of luxury is asymmetric, and for luxury to exist, it is not necessary that all definitional characteristics of luxury are present.

2.1.2 Luxury – A Business Model of Its Own

As discussed in the section above, the concept of luxury has very specific characteristics such as exclusivity, social status conferral, experientiality, or excellence, which are not seen in non-luxury products. Because of these specific characteristics, it is necessary for the luxury industry to create its own business models, marketing approaches, corporate values, financial measures and targets so that they can incorporate these particular aspects of the industry. To better understand how luxury management differs from non-luxury, Kapferer (2009) proposes a number of anti-laws of marketing. This term refers to strategies that in non-luxury could be considered counterintuitive, but within luxury it is something brands need to do in order to succeed.

Table 2 outlines Kapferer’s anti-laws of marketing, which provide an overview of the specific characteristics of the luxury industry and how it differentiates from non-luxury.

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Table 2: Kapferer's Anti-Laws of Marketing

Kapferer (2009)

Table 2 above, elaborates on the elements commonly found in luxury (see Figure 1 earlier in this chapter), but translates them into an industry context. For example, the anti-law “Does your product have enough flaws?” reinforces the excellence and the hedonic values of luxury, plus its usage value (which is lower in importance than other intangible attributes). It is important to highlight that since luxury is all about excellence, this anti-law does not imply that customers are expecting flaws in luxury products; but instead, they may be willing to compromise in the utilitarian attributes of the products they buy, as long as the hedonic component is higher. “Don’t pander to your customer’s wishes” relates to brand identity; “Keep non-enthusiasts out” refers to how luxury needs to be valued by people; “Make it difficult for clients to buy” can be associated with limited supply and scarcity; “Luxury sets the price, price does not set luxury” captures the non-essential nature of luxury; “Don’t respond to raising demand” refers to scarcity and exclusivity. In sum, all the attributes of luxury included in Figure 1, are reflected in the anti-laws of marketing, something that illustrates how, within luxury, product values are aligned with company values.

In addition, there are other elements arising from the anti-laws of marketing that are not directly linked to the attributes of luxury, but instead are reflective of strategies that luxury brands need to pursue. For example, the anti-law “Communicate to those whom you are not targeting” clearly stresses the importance that marketing has within luxury to drive awareness. “Don’t relocate your factories” introduces the importance of COO, and how associating a luxury product to a certain country can drive desirability. Also, this anti-law highlights the importance of R&D/Design, as investing in materials, production and design processes are key to be able to produce excellent products. This anti-law also creates a link to CSR, where relocation of factories to countries with poor working conditions constitutes a key ethical issue. Additionally, “Don’t pander to your customer’s wishes” highlights the term consistency, which is further complemented with “Make it difficult to buy” by creating logistical restrictions to purchase products. These two elements can be reinterpreted as controlling the distribution of luxury goods. If a brand is responsible for the distribution of its products in its own outlets, then it would be easier for a brand to sell its products in a consistent way across its store outlets.

Furthermore, an element associated with consistency and controlled distribution is counterfeiting. Counterfeiting is a phenomenon linked to luxury goods. According to Wilcox et al (2009), luxury is an industry with high consumer demand for counterfeit goods, something that can be related to the price, and the social and cultural context of a counterfeit brand. Kapferer and Michaut (2014) state that counterfeiting is a considerable issue within luxury as it violates the intellectual property of a brand, and can decrease the perception of exclusivity that a luxury brand has. For example, one person may be attracted to a Chanel handbag due to the fact that it is an exclusive item and it is worn by A-list celebrities. However, if a person cannot afford to pay $5,000 dollars for an authentic Chanel bag, and wants to participate in the exclusivity and social standing provided by that bag, then that person would have an incentive to buy a counterfeit Chanel bag, which could be available in the market for $100 dollars. So when hundreds of thousands of individuals buy counterfeit Chanel bags, the brand and the design itself can become ubiquitous and, thus, could affect the exclusivity image of the brand. This is similar to what happened in the UK with Burberry in the 1990’s when the brand was favored by lower social classes, something that created ubiquity and decreased their sales figures (Power and Hauge, 2008).

Based on the above discussion, it is possible to conclude that to create luxury, three main steps are needed, as shown in Figure 2. The figure shows how the pursuit of luxury strategies by brands will result in a product with certain physical and psychological attributes that will then be considered luxury.

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Figure 2: The Luxury Creation Process

In other words, the pursuit of strategies such as COO, marketing, or controlled distribution; will create products with attributes such as excellence, quality, design, hedonic value, prestigious and upper class perception, and brand awareness. All these elements, together, will create luxury.

To recap, based on the literature reviewed above, unlike non-luxury, the luxury industry incorporates physical attributes such as product excellence and R&D/Design. Those attributes, together with elements such as COO, marketing, and controlled distribution, help drive the psychological elements of luxury such as exclusiveness, prestige, scarcity, or upper class perception.

2.1.3 Complexity of the Luxury Industry

As discussed earlier in the section 2.1.1, which addresses the attributes commonly found in luxury, there are significant differences among the elements that constitute luxury. In addition to these definitional differences, there are also differences at the industry-level. The understanding of these differences is important, as it helps understand that the luxury industry is not homogeneous, and that the luxury strategies undertaken by luxury brands may need to be adapted, depending on those differences. These differences make luxury a complex industry, despite its relatively small size as compared to non-luxury. In terms of complexity, it is important to highlight that this characteristic is not exclusive to luxury, as complexity also occurs in non-luxury. However, it is striking to find in such a niche industry so many differences, including differences by category and type of product; by degree of luxury; and how it is perceived by consumers and luxury managers. These differences are discussed in the sections below.

2.1.3.1 Differences by Category and Type of Product

Luxury products can be categorized according to how they are used or the service category they fall into, in the case of intangible products. According to Kapferer (2009), within the luxury industry, companies can be categorized into four main groups:

a) Luxury products

- Luxury products with a profitable core trade
- Luxury products with a too-restricted core trade

b) Perfume

c) Luxury services

d) Luxury high-tech

Examples of luxury products with a profitable core trade could be Dior sunglasses, which could be considered ‘gateway’ products, as they introduce new consumers to the brand (Ahuvia et al., 2013), because they are relatively easy to find and can be afforded by a large number of customers. In terms of luxury products with a too-restricted core trade we could have Chopard’s haute jewelry line where a pair of diamond earrings could easily cost $50,000 dollars. With regard to perfume, there are dozens of brands available, ranging from Chanel or Hermès to Hugo Boss or Diesel. It is important to note that in the case of brands such as Diesel, which is not necessary considered luxury, the price of a bottle of perfume could be similar to the one of a luxury brand such as Dior; so that is why this category is a segment in its own. With regard to luxury services, we can have haute cuisine such as Alain Ducasse’s Louis XV in Monte-Carlo; or hotels like the Armani Hotel in Dubai or the Conrad in Maldives. Finally, on luxury high-tech, we have brands like Vertu that produce cellphones.

Nueno and Quelch (1998) categorize luxury using a similar approach to Kapferer (2009). They classify luxury brands into three categories, based on brand awareness, and their accessibility:

a) Limited awareness brands with narrow product lines and an exclusive niche (Van Cleef & Arpels and Chopard)
b) Well-known brands inaccessible to a broad market because of their high price (Rolls-Royce or Hermès clothing)
c) Well-known brands with high-quality but with more accessible items that are available to a larger spectrum of customers (Dior sunglasses or Chanel perfume)

Two considerations in Nueno and Quelch’s classification are that two categories, affordable indulgencies and non-luxury premium brands are excluded from luxury. Therefore, under this categorization a brand like Häagen-Dazs or a wallet from Coach would not be considered luxury.

Moreover, authors such as Bruce et al (2004) and Chevalier and Mazzalovo (2012) do not classify luxury based on price points or awareness; but categorize it based on the functionality it provides. The categories proposed by these authors include: Fashion, (couture, ready-to-wear and accessories); perfumes and cosmetics; wines and spirits; watches and jewelry (Bruce et al., 2004); luxury automobiles, hotels, tourism, private banking, home furnishing and airlines (Chevalier and Mazzalovo, 2012).

Luxury can also be classified based on product discriminators such as price, quality, or its manufacturing process. For example, Vigneron and Johnson (2004, p. 488) state that “not all luxury brands are equally luxurious”. Additionally, Vigneron and Johnson state that there is a difference between upper and lower luxury brands, and among product lines within the same brand. Based on the rationale that all brands are not equally luxurious, a Cartier watch would not be considered as luxurious as a Patek Philippe watch. Patek Philippe watches are significantly more expensive and can be used for generations. Patek Philippe offers lifetime specialized customer care and restoration services for all Patek Philippe watches (Urde and Greyser, 2015) In contrast, in haute joaillerie (high jewelry), Cartier may rank higher than Tiffany & Co, as it is a brand with a strong association with royalty, has worked on high-level commissions for several royal houses; and has held royal warrants because of its long tradition with haute joaillerie.

A further classification of luxury brands is based on the strategies pursued by brands. According to Chevalier (2012), luxury can be divided into four major categories: Authentic, intermediary, eccentric and sensible luxury. Table 3 outlines the main elements each of these categories.

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Table 3: Chevalier’s Luxury Categories

Source: Chevalier (2012)

In brief, as discussed above, luxury brands can be categorized based on the strategies they pursue; on their functionality; on the use or service they provide; and on their brand awareness and price. Table 4 summarizes the main elements proposed under these categories.

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Table 4: Different Classifications of Luxury Brands

To summarize, as discussed throughout this section, there are different approaches to classifying luxury brands. Some of these approaches differ considerably but some overlap, making it difficult to classify luxury brands into a specific group. For example, a brand like Dior has a wide assortment of offerings, ranging from make-up, perfume, to haute-couture or timepieces. Thus, based on the previously listed elements, it would be fairly impossible to classify Dior within one of those single categories. Based on Chevalier and Mazzalovo’s (2012) approach, Dior could be classified within fashion; perfumes and cosmetics; watches and jewelry. Then, based on Kapferer’s (2009) approach, Dior would be classified within luxury products and perfume. Moreover, following Chevalier, Dior products could be positioned between authentic and intermediary luxury. Finally, if Nueno and Quelch are followed, Dior would fall within two different categories; accessible well-known brands; and inaccessible well-known brands. Due to its size, and to the fact that some categories within a brand are more profitable than others, Dior and similar luxury brands are aware that different strategies are necessary to manage each category. For example, Dior ready-to-wear line can feed their perfume line. A person may not be able to afford a Dior coat seen in the runway, but instead, can easily afford a small bottle of J’Adore. In the end, as long as brand offerings maintain a luxury edge and do not become ubiquitous, having a diverse offering can contribute to the financial health of luxury brands.

In sum, each type of luxury category has a different implication in terms of business models and brand management approaches (Kapferer, 2009). However, it is not clear from the literature if luxury categories actually matter to the industry or consumers, or if the industry uses different approaches to categorize luxury brands.

2.1.3.2 Company and Consumer Perception of Luxury Brands

In addition to the categories discussed in the previous section, luxury can also be categorized based on how it is perceived by others. For the most part, it appears that perceptions of luxury can differ between brand management and consumers.

Chevalier illustrates the difference between consumer and company perception within luxury by providing examples of two firms, Hugo Boss and Zara. The management of Hugo Boss perceive their brand as a “very sophisticated way of manufacturing and selling slightly upscale fashion products” (Chevalier, 2012, p. 4). Instead, Zara, is considered by its managers luxury due to its prime retail locations and the fact that it delivers new designs every two weeks (Ibid, 2012). Zara’s management perceptions can contrast with consumer perceptions of the brand. Zara’s products are likely to be considered non-luxury by most consumers, while Hugo Boss can be perceived as luxury (Truong et al., 2009). This may be because Zara’s products have non-exclusive features and have lower quality, while Hugo Boss has higher quality and a more affluent customer base.

These differences in the perception of luxury are also acknowledged by Vigneron and Johnson (2004) who state that luxury can be perceived differently, depending on the people involved and the context when it is assessed. Likewise, in their research, Amatulli and Guido (2012) identify differences in the perception of luxury and state that these differences are relative; as they can take various forms depending on the people involved (mood or experience); or on social contexts. In other words, what luxury is for some may not be luxury for others.

A potential explanation as to why luxury brands are perceived differently may be given by the rationale of consumers to purchase luxury brands. According to Amatulli and Guido (2012), external luxury is associated with the interest to show-off or demonstrate status to others (elements of external luxury include ostentation, materialism and superfluousness). With regard to internal luxury, Amatulli and Guido argue that this type of luxury is related to the pleasure or hedonic feeling provided by buying or consuming a luxury good (elements of internal luxury include individual lifestyle, emotions/hedonism, and culture).

Finally, an additional difference to consider within luxury perceptions, is that they are likely to vary from country to country (Aiello et al., 2009). According to De Pierro Bruno and Barki (2014), in France, luxury is more intimate and valued due to its heritage. In Italy, luxury is inspired by art, beauty and fashion. In Japan, luxury is more about social status recognition. The implication of both the internal and external perception of luxury and these geographical differences, is that, luxury brands need to take these factors into account to be able to cater to different types of customers with their offerings. However, based on the existing literature, it is not clear whether, in the view of luxury managers, these differences are considered to be important within the industry and/or if they are addressed strategically by brands.

In conclusion, there are various elements arising from this literature review on luxury. While there are different views on which elements define luxury, luxury is made up of both physical and psychological attributes; but consumers and the industry rely more on psychological attributes than on physical ones. Another outcome is that because of characteristics such as exclusivity, conferral of social of status, experiential nature or excellence, luxury needs its own business models to be able to incorporate and leverage those factors. A further consideration is that luxury is not homogenous, and there are brand differences based on types of products or services offered by a brand; the level of accessibility a brand has, or the price, quality, or availability of luxury products. Finally, there are also differences between consumers on how they perceive a brand. Still, due to the lack of agreement in each of the characteristics outlined above, it is still not clear whether these different attributes of luxury, or categorizations, impact luxury brands. Moreover, it is also not known if within the physical and psychological attributes of luxury there are attributes that are more relevant for the industry than others. Lastly, it is also not known whether potential consumer perceptions of the categorization of luxury brands may have an effect within the industry.

Thus, based on the review of the literature on luxury, three main uncertainties emerge: There is no agreement on the definition of luxury; there are different categories of luxury; and luxury can vary by country/culture. These uncertainties are presented in Table 5.

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Table 5: Key Uncertainties and Gaps in Literature Regarding Luxury

With regard to the concept of luxury and despite the lack of agreement as to its meaning, this thesis proposes a working definition of luxury as: “a well-known, credible or respected product or service that consumers can associate with upper class or prestige”. See section 2.1.1.1 earlier in this chapter for further discussion on this adopted definition.

In addition to the prior, there is an aspect that appears to be relevant within luxury, which is not addressed in the literature discussing the main attributes of luxury, luxury business strategy or industry categorization. This aspect is CSR. There is emerging literature on luxury addressing concerns about the environmental and social performance of the luxury industry (Janssen et al., 2013). This is an interesting consideration, as in non-luxury, brands have been pursuing CSR strategies and activities as a way to generate benefits for their brands (Liu et al., 2014). The pursuit of CSR in non-luxury can be associated with the fact that CSR issues have been scrutinized by consumers and stakeholders (D’Souza, 2015). It is important to note that this scrutiny has also expanded to luxury. Luxury brands can be seen almost everywhere; in stores, advertisements, and in people using these products. Thus, because of its high visibility, and the potential concerns about the impact of its activities, the luxury industry has become a target of NGOs and stakeholders interested in the environment and a better world (Kapferer and Michaut, 2015).

Based on this perceived level of CSR scrutiny seen in luxury, and that CSR could result in brand benefits; CSR is a topic that deserves further attention from a research point of view. In other words, there is a need to understand the potential implications of CSR in luxury. Therefore, the following section of this thesis will address this topic.

2.2 CSR and Luxury

As discussed earlier in this chapter; it is important to explore the topic of CSR in luxury, as it can have implications for luxury brands. As stated above, there is increasing attention to CSR within luxury, and the notion that CSR implementation could result in benefits to luxury brands. This section provides an understanding of what CSR is. To explore this concept, an introduction to ethical concepts in business is provided, followed by how CSR is seen in luxury, and the status of knowledge on how CSR can affect luxury brands.

2.2.1 Introduction to Business Ethical Concepts

First, it is important to mention that there are various concepts associated with business ethics. CSR is one of these concepts, but there are others such as stakeholder theory and corporate citizenship; and all of them share attributes among themselves. Therefore, to be able to understand business ethics, and CSR, it is also necessary to be aware of these other ethical concepts. The sections below discuss these three concepts.

2.2.1.1 Stakeholder Theory

Stakeholder theory is based on the social contract concept, which relates to the reciprocal set of implicit responsibilities borne by business and society (Melo and Galan, 2011).

According to Clarkson (1995, p. 513) organizations “manage their relationships with their stakeholders and not with society”. Hence, it is possible to assess and analyze the performance of an organization by looking at how it manages its organizational responsibilities and its stakeholders. Moreover, Clarkson highlights the importance of preserving the participation of all stakeholders in an organization (e.g. employees, customers or shareholders) as a balance among all these groups is essential for a firm’s survival.

Maignan and Ferrell (2000) elaborate further on the organization’s responsibilities to stakeholders. They make a distinction between primary and secondary stakeholders. Primary stakeholders include shareholders/investors, employees, customers, suppliers and public stakeholders (all levels of government). Secondary stakeholders consist of non-core groups (e.g. media and non-governmental organizations) that are not involved in everyday transactions with the organization.

Carrigan et al (2013) take a more practical approach to stakeholder theory and suggest that exploring positive and negative value chains can help analyze business impacts and at the same time uncover business practices in need of improvement. More specifically, they argue that business activities result in both positive and negative impacts. Examples of positive value chains include policies that result in increased employee motivation, or better relations with the community. Examples of negative value chains include the harm associated with business operations, such as environmental damage, or human rights deficiencies.

To recap, the authors cited above consider that firms have social responsibilities but they do not position this concept as a separate construct. However, other authors consider this as part of CSR. Taghian et al (2015) state that to make sure management actions are effective; companies need to understand stakeholders’ interests and respond accordingly. Stakeholders can be internal (unions and employees) and external (media, the government). By working closely with stakeholders before designing and implementing strategies, managers may be able to pursue more effective CSR efforts. The authors make a case that by working with stakeholders, companies will be perceived more positively from a reputational point of view, which in turn, will have a positive impact on firm’s performance. For example, Godart and Seong (2014) state that the luxury industry together with stakeholders such as the government and consumers could develop best practice codes aimed at achieving CSR enforcement. A similar view is shared by Russo and Perrini (2010) who see CSR as a more comprehensive version of stakeholder theory. In their view, stakeholder theory is more about good firm practices and management; while CSR is more about establishing strategic efforts to implement socially responsible and ethical policies such as reporting, which will make firms accountable to stakeholders.

In summary, the literature suggests that stakeholder theory is part of CSR, as the responsibilities of a firm are likely to fall within the social, environmental or economic domains of CSR (see section on CSR below). Therefore, the study of CSR rather than stakeholder theory is more appropriate for this thesis, as the former is more comprehensive.

2.2.1.2 Corporate Citizenship

In addition to stakeholder theory, corporate citizenship has also received prominent attention in the literature to define the social role of business.

Matten et al (2003) state that corporate citizenship is normally used to refer to voluntary actions such as community involvement and charitable giving pursued by firms. In addition, corporate citizenship is also seen as a more comprehensive concept which centers around the role of a firm in managing rights from stakeholders, employees, customers, shareholders and external entities not directly linked with an organization (Matten and Crane, 2005).

According to Valor (2005), corporate citizenship is a term proposed by practitioners to link social accountability with business operations, and draws on stakeholder literature. Interestingly, Valor states that corporate citizenship has even been used to refer to social and environmental practices undertaken by a firm. Thus, as it will be discussed later in this chapter, there is an overlap with CSR. In fact, in an empirical study, Evans and Davis (2011) found that corporate citizenship perceptions could influence CSR perceptions. These results suggest that CSR is a more overarching concept, and that corporate citizenship is embedded in CSR through its social dimension (see section on CSR below).

Moreover, the literature on corporate citizenship raises questions about the adequacy of corporate citizenship for business. For example, Bhanji and Oxley (2013) consider that company investments in public goods (goods that create public benefits) may be viewed with suspicion and, therefore, it is better for companies to work with other stakeholders such as NGOs and the government in these type of undertakings. A similar view is shared by Valor who considers that “CSR presents more advantages to advancing the social control of companies and should be considered a superior theory vis-à-vis achieving social control of companies” (Valor, 2005, p. 205). This suggests that the study of CSR may be able to provide a more holistic view of ethical practices.

It is important to highlight that CSR is not free from criticism. Bair and Palpacuer (2015, p. S9) refer to how CSR is an ongoing process and is in constant improvement as:

Corporations and their critics iteratively develop, evaluate, criticize and revise CSR policies and practices… this governance is never a fait accompli because a variety of non-firm actors are continually developing new arguments and tactics to contest and/or transform it.

Still, despite these criticisms, for this research, it seems more appropriate to focus on CSR than in stakeholder theory or corporate citizenship, as CSR encompasses most ethical practices. The following sections address why CSR is relevant within luxury.

2.2.1.3 CSR

Despite the fact that CSR is viewed by many authors as a comprehensive construct to refer to ethical practices, there is no single definition of CSR, and for instance, there are opposing views in the literature as to whether CSR has similarities with other ethical concepts. According to Idowu (2009, p. 14), CSR “overlaps with other concepts such as corporate citizenship, sustainable business, environmental responsibility, the triple bottom line, social and environmental accountability, business ethics, and corporate accountability”. Conversely, other authors such as Silberhorn and Warren (2007) consider that CSR has evolved to become a collection of most of these terms. Moreover, CSR has strategic and process-related aspects which fall under corporate social responsiveness. According to Matten and Crane (2005), CSR’s outcomes fall within corporate social performance, while stakeholder theory addresses organizational responsibilities to society. Van Marrewijk (2003) argues that CSR refers to voluntary company activities that include social and environmental concerns in business operations and in how they interact with stakeholders.

These divergences in the literature on the definitional nature of CSR seem to be a consequence of how the concept of CSR has evolved over time. Over more than six decades, various models have been developed with the objective of integrating the various notions of CSR (e.g. social performance, responsiveness or social issues) (Sotorrío and Sánchez, 2008).

There are references to CSR in the literature before the 1950s. However, it is in the 1950’s with the publication of Bowen’s book “Social Responsibilities of the Businessman” that defines the beginning of the ‘modern era’ of CSR. From 1970-1990 an important number of developments occurred in the field of CSR.

The 1970’s saw further development in the number of contributions to define CSR. In that decade, aspects such as corporate social responsiveness and corporate social performance were incorporated into the concept. Then, during the 1980’s, a number of new CSR definitions emerged as an attempt to measure CSR and find alternative thematic frameworks. Later, during the 1990’s, CSR transitioned to new themes including stakeholder theory, business ethics, corporate social performance and corporate citizenship (Carroll, 1999).

To exemplify how the concept of CSR has been evolving over time, Joyner and Payne (2002) identify definitions of CSR formulated by authors that, in their view, are considered foundational authors of CSR. Table 6 below presents a summary of those foundational definitions of CSR which span from 1938 to 1984 and range from a simple analysis of environmental, social or economic aspects of a firm; to the obligations of businesses to satisfy stakeholders.

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Table 6: Historical Perspective of CSR

Source: Table Created with Data from Joyner and Payne (2002)

It is noteworthy to add that in addition to the perspectives of CSR presented in Table 6 above, the model proposed by Carroll, is one of the most influential and widely cited models on CSR in the literature. Figure 3 illustrates how the CSR model evolved over time.

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Figure 3: Evolution of Carroll’s CSR Model Over Time

Source: Figure Created with Data from Carroll (1979, 1998, 1999)

As shown in Figure 3, Carroll’s initial model proposes that organizations have four main responsibilities: Discretionary responsibilities, ethical responsibilities, legal responsibilities and economic responsibilities. These responsibilities are presented in order of importance (from least important to most important). The discretionary responsibilities of the firm have the lowest magnitude, while the economic obligations have the highest magnitude. The model also considers six social issues (not shown in Figure 3): Consumerism, Environment, Discrimination, Product Safety, Occupational Safety and Shareholders; and four elements related to the philosophy of social responsiveness: Reaction, Defense, Accommodation and Proaction (Carroll, 1979).

In 1983, four years after proposing his original model, Carroll made some modifications, replacing the discretionary responsibilities in the model and substituting them with voluntary or philanthropic responsibilities (Carroll, 1999). Carroll’s model was modified further in 1998. The updated model assumes that corporate citizenship has four faces and that good corporate citizens are expected to be: Profitable, ethical, compliant with the law, and give back through philanthropic activities. With regard to ethics, Carroll makes a distinction between knowing and doing ethics. An organization does not only need to develop ethical concepts and practices but needs to apply those concepts in its operations and dealings. In terms of compliance with the law, compliance constitutes “the minimum level of acceptable conduct. Thus, the upright corporate citizen must go beyond compliance with the law” (Carroll, 1998, p. 5). This suggests how the ethical component of CSR has been a key part of CSR since it was proposed. Moreover, the economic component has evolved into profitability. The economic goal of a firm is to be profitable; but as part of achieving this profitability, companies need to be ethical, they need to comply with laws and regulations, address environmental, social or economic issues, and contribute to the communities they operate in.

Other authors define CSR as a concept to address social problems. Orlitzky (2015) refers to how CSR is often associated with actions undertaken by companies to achieve a social good. Under this view of CSR, Orlitzky considers that companies are the actual agents of change instead of the government or NGOs. CSR can be seen as an activity were global corporations fill an institutional gap left by the lack of participation of the state in issues such as the environment or social welfare (Brennan, 2014).

It is important to mention that while there are differences in how CSR is defined, there are key elements shared across the different definitions of CSR. Dahlsrud (2008) conducted an analysis of 37 definitions of CSR. The analysis identifies five dimensions associated with this concept: Environmental (natural environment), Social (society-business link), Economic (CSR in respect of business operation and financial aspects), Stakeholder (stakeholder groups), and Voluntariness (actions not prescribed by law). Dahlsrud’s research is useful to understand how CSR is perceived differently by different organizations. While there are distinct perceptions of CSR and the various components of this concept in CSR definitions, Dahlsrud suggests that the five dimensions of CSR are normally used to define the concept (although not systematically). Thus, all five dimensions are relevant to understand and define CSR. This view is shared by Torres et al (2012) who consider that all the components of CSR are important for global brands.

In addition to academic definitions, there are a few organizational definitions worth outlining, as they complement the ones discussed in the academic literature:

- Companies taking responsibility for their impact on society (European Commission, 2016)
- Corporate responsibility involves the search for an effective "fit" between businesses and the societies in which they operate. The notion of "fit" recognizes the mutual dependence of business and society -- a business sector cannot prosper if the society in which it operates is failing and a failing business sector inevitably detracts from general well-being. "Corporate responsibility" refers to the actions taken by businesses to nurture and enhance this symbiotic relationship (Organisation for Economic Co-operation and Development, 2016a)
- Take account of how business operations may impact on people, the environment and society (Government of the Netherlands, 2013)
- The voluntary activities undertaken by a company to operate in an economic, social and environmentally sustainable manner (Government of Canada, 2016)
- The work companies do that has a positive impact on society, the environment or the economy (Swedish Institute, 2016)
- The continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large (World Business Council for Sustainable Development, 2016)

These definitions reinforce the voluntary nature of CSR, and how it is important for businesses to have a positive impact on society and the environment, but by keeping in mind that there should be a fit between these practices and a company. This reflects that CSR can shape the bottom line performance of a company (Lee, 2008). This view of CSR, which is aligned with the profit driven interpretation of CSR proposed by van Marrewijk (2003), considers the implementation of social, ethical and environmental considerations into a company, as long as this has a possible impact on the financial viability of a company, either, in monetary terms, or in intangible benefits (e.g. reduced risk or improved reputation).

In addition to how CSR definitions differ, there are also differences in terms of how CSR is implemented. Halme and Laurilla (2009) state that there are three types of CSR approaches; Philanthropic, Integrative, and Innovative:

1. Philanthropic CSR mainly refers to the conduct of activities outside a firm’s core area of business such as, for example, Prada making a donation to Save the Children.

2. Integrative CSR occurs within the core of a company and includes the adoption of environmental or social standards. For example, if Armani decides that it will only use recycled paper in their offices and will use electricity from renewable sources.

3. Innovative CSR refers to the creation of new business lines or brand extensions aimed at achieving social and environmental benefits. For example, if Dolce & Gabbana launches a low-cost line made in Africa, which will only be sold locally in deprived communities, and the profits will be reinvested in the communities where the clothes are made.

Furthermore, Argandoña and Hoivik (2009) argue that CSR emanates from moral and social responsibilities, and that there are various positions a firm can take to implement CSR (see Table 7).

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Table 7: Responsibilities of the Firm

Source: Argandoña and Hoivik (2009)

Based on these ethical/moral responsibilities, it is possible to define CSR internally and externally. Internally, CSR is defined as a: “Set of moral duties towards other social actors and towards society that the firm assumes”. From an external perspective, CSR can be defined as: “The set of moral duties that the other agents and society attribute to the firm” (Argandoña and Hoivik, 2009, p. 225).

This is a core distinction, as there is a clear difference between what a firm chooses to do, and what a firm is expected to do. In other words, CSR is not just about what a firm decides to do in terms of social responsibility, but the level of CSR implementation can be contingent with what other social actors expect from the firm. Another key consideration arising from this categorization is that companies can take a leader role in CSR (responsibility as a duty) but can also have a more passive role towards it (responsibility as responsiveness).

Visser (2012, pp. 14–15) proposes a ‘new’ approach called CSR 2.0, which is based on four principles: value creation, good governance, societal contribution and environmental integrity. These four principles are presented below:

- Value creation. To contribute to the economic context is which a company operates by looking beyond the “enrichment of shareholders and executives”. Actions under a value creation process include investments in infrastructure, job creation and human capital. The strategic goal of value creation is to achieve economic development
- Good governance. This principle seeks to achieve institutional effectiveness by increasing transparency. Under this view, if there is no transparency, the other goals that CSR is trying to achieve will be undermined. Examples of transparency include CSR performance reporting in social media, or public databases
- Societal contribution. This principle seeks to orientate a company towards stakeholders. For example, engaging in philanthropy, or having fair labor practices, supporting community participation and being involved in supply chain integrity
- Environmental integrity. The goal is to maintain and improve ecosystems by supporting the ecosystem protection, the use of renewable resources and zero waste

In his paper, Visser questions the ability of current approaches to CSR to tackle the world’s social and environmental problems. His own proposals under CSR 2.0, however, include elements such as societal or environmental which are already present in other authors’ approaches to CSR (See Carroll et al., 2012; Crane, 2014). Moreover, it should be noted that while ambitious and a step in the right direction, these principles and their corresponding goals are unlikely to solve the world’s problems if they are not tackled together by companies and stakeholders. CSR is a shared responsibility (Hartman et al., 1999) and to bring real change, it is necessary that the industry, the government, the civil society, and consumers work together to achieve common goals.

Criticisms of CSR

While much of the literature in the area of CSR discusses the contribution companies can make to society, CSR is not without criticism. This subsection provides a discussion of the following criticisms of CSR: unsuitability to address complex social and environmental issues; the imposition of stakeholder interests on others; the pursuit of CSR policies and practices and limited business accountability; and business rhetoric on giving back.

With regard to the unsuitability of CSR to address key issues, Orlitzky (2015) states that CSR is considered by some researchers to be a meaningless concept, as it is simplistic and it does not reflect complex social and environmental phenomena. Along the same lines, Milne and Gray (2013, p. 5) argue that companies often ignore “major social issues that arise from corporate activity such as lobbying, advertising, increased consumption, distributions of wealth”. Thus, while a company may make reductions in carbon dioxide emissions on corporate transport or sources its raw materials using socially responsible practices, questioned is if this is enough to direct address major problems such as environmental degradation or earth overcrowding issues. Barkemeyer (2009) supports this perspective by stating that even companies with stronger CSR practices tend to focus their CSR efforts in programs benefiting their home markets. For instance, most CSR initiatives undertaken by companies take place in advanced economic and larger emerging markets. This means that countries in deprived regions such as sub-Saharan Africa are normally neglected in CSR efforts. Due to this limitation, it can be argued that CSR is not making an impact towards improvements globally (Barkemeyer, 2009).

Moreover, from a pure free market approach, CSR could be perceived as welfare redistribution, because funds from one group such as investors, flow unwillingly to others (e.g. stakeholders) in order to fund initiatives that will benefit that group (Orlitzky, 2015). Banerjee (2014) highlights that an important constraint of CSR is that social initiatives undertaken by firms need to be assessed based on the economic benefits they provide to firms. Because of this, CSR can be perceived as a concept that does not seek to address the negative effects of business on society. Instead, CSR could be considered by its critics as a public relations effort to convince others that businesses can be profitable and do good (Brennan, 2014).

A further limitation of CSR is that there can be disparities between the values of a company and the values of society (Thorne et al., 2014) in terms of how CSR is pursued. For instance, NGOs may be interested that a major jewelry brand uses Fairtrade gold for all their gold products. However, that company may want to cut costs on its supply chain and may decide to source cheaper gold without a Fairtrade certification.

Other critics of CSR challenge the business advantages of CSR, or its ‘business case’. Lee (2008) argues that business-driven CSR is biased with respect to how companies select their CSR practices, as not all CSR actions have the same potential profitability or market impact. According to Lee, companies can neglect urgent social issues such as fighting poverty and instead, they focus on less costly social causes. Thus, the fact that CSR practices are discretionary can dilute the social purpose of CSR (Ibid, 2008). Barnett (2016) discusses views in the literature arguing that companies do not normally profit from CSR practices responding to the needs of society. Instead, CSR practices addressing the demands of primary stakeholders can be more profitable for a firm.

Another criticism of CSR is the limited accountability of businesses in terms of social responsibility. Banerjee (2014) states that increased NGO and public pressure on corporations has not been translated into legal requirements to force companies to change irresponsible practices. Thus, the absence of CSR monitoring and enforcement results in a system with deficient accountability (Ibid, 2014). Hess (2014) complements this view by stating that the lack of mandatory CSR standards can result in firms arbitrarily selecting what to pursue and report, so that they can prioritize standards and activities that will result in positive impressions of the company.

Lastly, with regard to how companies engage with CSR, it is commonplace among businesses to state that companies need to give back. According to Littler (2008), the business rhetoric that companies must give back is based on the assumption that they take something away. Consequently, for companies using this rhetoric, CSR actions are pursued with the intention to offset some of the negative practices they conduct as part of their regular operations.

Based on the views outlined in this section, it is evident that CSR is not free from criticism, and its adoption by companies will, arguably, not eliminate the key environmental and social problems we face today. However, CSR is a step in the right direction to tackle some of these problems. From a CSR perspective, there are critical interdependencies among the employees, customers, investors, communities and other stakeholders of a firm (Hess, 2014). Thus, based on this interdependence, firms need to work together with all these actors in order to make their CSR programs more meaningful and make a more positive social, environmental and economic impact.

Working Definition of CSR

To summarize, as discussed in the previous sections, there is considerable variability in the multiple components of CSR, together with a lack of integration among them (Argandoña and Hoivik, 2009). Still, from all the ethical concepts outlined earlier in this chapter, CSR is the most common term used in the academic literature (Galbreath, 2010) to refer to ethical actions undertaken by firms.

Given the diversity in CSR definitions and the debate surrounding them, some authors have decided to depart from an attempt to define CSR and instead, have decided to focus on analyzing and discussing its characteristics as a concept. For instance, in a recent book looking at CSR from a global perspective, Crane (2013, pp. 8–9) stated the following:

In this book we will not seek to simply follow one of these [CSR] definitions, nor will we provide a new improved one that will simply add to the complex jungle of CSR definitions. In the contested world of CSR, it is virtually impossible to provide a definitive answer to the question of what CSR ‘really’ is.

Following Crane (2013), it is not within the scope of this thesis to enter in the debate of which CSR definition(s) is/are more appropriate for luxury. As in any industry, it is fundamental that CSR policies and practices pursued by companies keep a balance between their business mission and their environmental, economic and social efforts. Taking into account the definitions of CSR discussed earlier in this chapter, the following definitional elements of CSR were considered by the researcher to be aligned with the company level perspective of this research. The last names in the parentheses refer to the definitions of CSR where these elements are present:

- Refers to ethical practices undertaken by firms (Argandoña and Hoivik, 2009; Galbreath, 2010)
- Positive economic, social and environmental impact (Carroll, 1999; Dahlsrud, 2008)
- Balance between CSR pursuits and business focus (Government of Canada, 2016; Lee, 2008; Organisation for Economic Co-operation and Development, 2016a; van Marrewijk, 2003; World Business Council for Sustainable Development, 2016)

Based on these elements the following working definition of CSR will be used to refer to ethical actions taken by luxury firms in this thesis:

Voluntary or mandatory policies and practices undertaken by companies, that seek to make a positive social, environmental and/or economic impact

This definition of CSR is suitable for this research due to its inclusive nature. As stated in section 4.1.2, within luxury, CSR activities vary significantly (from ‘getting started’ to ‘more comprehensive’ CSR implementation). Thus, any policies or practices that seek to create a positive economic, social or economic impact would be part of CSR. By including the wording ‘positive impact’, actions classed as greenwashing (see section 2.2.3) will not necessarily be considered CSR, as they are misleading and do not seek to create a positive impact. With regard to the motivation behind why these policies or practices are undertaken by companies, this definition allows for both, mandatory and voluntary practices. Traditional definitions of CSR have stressed the voluntary nature of this concept (see section 2.2.1.3). However, recent regulatory developments such as Directive 2014/95/EU on Disclosure of Non-Financial and Diversity Information and the UK’s Modern Day Slavery Act mean that all aspects of CSR are no longer voluntary (see section 6.1.4). For example, under the EU Directive, all companies over 500 employees will need to have at least minimal CSR standards, track their progress and report on them accordingly.

In addition to CSR, the term sustainable is also used throughout this thesis.

Wheland and Fink (2016) define sustainable practices as those that do not harm people or the planet; and seek to improve environmental, social and governance performance in areas where a company has a social or environmental impact. Accordingly, a company engaged in this type of practices will be making a contribution towards being more sustainable.

2.2.2 CSR in Luxury

As discussed earlier in this chapter, the luxury industry has special attributes that differentiates it from other industries. In terms of CSR, the luxury industry has been considered to lag behind other sectors (Bendell and Kleanthous, 2008). However, CSR seems to be becoming more relevant in today’s luxury marketplace and, therefore, it is essential to understand it (Towers et al., 2013). Pessanha Gomes and Yarime (2014) argue that the luxury sector was a late adopter of CSR, and that CSR adoption within luxury started as a response to stakeholder pressures, notably actions initiated by People for the Ethical Treatment of Animals (PETA), Global Witness, Greenpeace, and other organizations. According to Moraes et al (2015), in addition to stakeholder pressure, government regulation and trade standards have also contributed to more responsible practices within the luxury industry. Thus, the luxury industry has started to implement CSR with the sole objective of preserving brand image and company reputation.

Despite the increased relevance of CSR within luxury, the luxury industry still faces criticisms for not being ethical (Davies et al., 2012). Opponents of CSR within luxury may support Milton Friedman’s view that the purpose of businesses is to create wealth (Garriga and Melé, 2014). Based on this view, it can be argued that luxury does not fulfill a social mission, other than providing prestige, self-pleasure, and social status to luxury consumers. Nevertheless, even if luxury companies take a free market and wealth creation view to justify their lack of engagement with CSR, CSR cannot longer be ignored. In fact, even Friedman recognizes the importance of integrating ethical aspects in business and responding to some social demands, as long as organizations are profitable (Garriga and Melé, 2014).

Moreover, it can also be argued that only a relatively small percentage of the population has access to luxury, and that core luxury consumers constitute just a small percentage of the population who are willing to pay high margins. These characteristics make luxury a lower-impact industry, as compared to non-luxury; given that the luxury industry as a whole has limited production output, and many of its products do not require large-scale industrial processes that can result in significant environmental or social impacts. Another consideration is that luxury brands sell ‘non-essential’ products; and given their high price and superior quality, consumers tend to keep them for a longer time, something that reduces their environmental footprint.

It is important to note that there is currently limited research analyzing the question of CSR in luxury. While CSR in non-luxury has been studied more extensively, the findings of the studies cited earlier in this section are not generally applicable to luxury, given the significant differences between the luxury and the non-luxury industries (Davies et al., 2012). Thus, due to the specific characteristics of the luxury industry, in order to understand the role of CSR within luxury, it is necessary to study it from a luxury perspective.

2.2.2.1 Compatibility of CSR and Luxury

Despite the apparent relevance of CSR in luxury, it is important to highlight that there are opposing views in the literature in terms of the compatibility between CSR and luxury.

Godart and Seong (2014) consider that from a moral perspective, luxury can be associated with both positive and negative connotations. On a positive side, they argue that luxury could be perceived as a source of pleasure and economic contribution; while from a negative side it could be considered morally inappropriate. This moral inappropriateness could be associated with the view that luxury is often perceived as an excess (Kovesi, 2015). It is interesting to note that these opposed views about luxury are not new, as there is evidence that the morality of luxury has been questioned historically over the centuries (Godart and Seong, 2014). For example, in the Roman Republic luxury was seen as negative, as it was associated with ruin and decadence (Zanda, 2013). During the mid-1700s, in Pre-Revolutionary France, wealthy communities faced restrictions to avoid displaying jewelry and clothing due to the negative connotations that doing this could have in society (Berkovitz, 2001).

In terms of the unethical connotations associated with luxury, Kapferer and Michaut (2015) highlight that there are views considering the luxury industry as unsustainable. Examples of criticisms against the industry cited by Kapferer and Michaut include a wide spectrum of issues; namely their supply chains (knowing the source of raw materials such as gold, diamonds, or rare earths); animal rights (use of skin from endangered species or force feeding to produce foie gras); worker rights (unfair working conditions, hiring of illegal immigrants); or environmental issues (depletion of water resources and pollution by the hospitality industry, use of mercury in leather manufacturing). Along the same lines, Carrigan et al (2013) highlight additional negative views towards luxury within a CSR context. The authors conducted an extensive review of the literature and identified that ethical issues can occur during the entire lifecycle of luxury goods, from cradle to grave. Examples of these issues can occur during the production, consumption and post-consumption, as presented in Table 8.

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Table 8: Negative Perceptions Associated with Luxury

Source: Carrigan et al (2013)

In sum, while there is definitively negative behavior in relation to ethical concerns that can be associated with luxury, it is possible to argue that many of the negative connotations mentioned in the literature could be linked to any industry, and not just luxury. For example, it is common to see Caucasian models in many types of ads, ranging from cheese to dishwasher detergent; the existence of dollar shops makes available thousands of low quality goods that can only be used a few times before they fall apart; household waste can include high amounts of food and clothing that ends in landfills. In contrast, it needs to be noted that luxury has a number of attributes that can counterbalance its negative connotations. For example, due to its higher quality, timeless design, and know-how of craftsmen and artisans involved in the production process of luxury, luxury products can last and can be used longer, without having to be replaced. Also, because of their higher price, they are less likely to be treated as disposable goods once consumers want to replace them. In fact, they can be donated to charity shops or sold online, so that their usage life may be considerably longer than for non-luxury products.

Another consideration is the compatibility between luxury and ethical consumers. McEachern et al (2010) define as conscious consumers those who make sensible consumer choices by making ethical choices. For the sake of clarity, being ‘sensible’ in this thesis will refer to make consumer choices taking into consideration ethical alternatives (Szmigin et al., 2009). For example, a consumer looking for a pair of sunglasses will be ‘sensible’ or ‘conscious’ by selecting a pair of bio-based Gucci sunglasses over a pair of standard Prada sunglasses, as the former are made with sustainable natural materials. According to McEachern et al (2010), this type of consumer is interested the quality and authenticity features of products. This characterization of conscious consumer is relevant to luxury, first, because it incorporates two key attributes of luxury, quality and authenticity (See Table 1 earlier in this chapter). Moreover, McEachern et al’s characterization of conscious consumer provides a balanced view between anti-consumerism and conspicuous consumption. In other words, within a luxury context, this approach suggests that there is nothing wrong with buying a Louis Vuitton bag, a Cartier watch, or a Dior leather coat, as long as consumers are ‘sensible’ while making purchasing decisions. For example, if customers are aware that Dior is involved in controversies related to leather suppliers, they may decide to buy a coat from another brand with strong policies towards animal rights and welfare. Thus, it is possible to question the arguments against the compatibility between CSR and luxury.

2.2.2.2 Consumer Perspectives

It is important to mention that from a consumer point of view, there is still low interest in CSR in luxury (Kapferer and Michaut, 2014). A study conducted among French consumers, found that consumers of luxury goods give CSR a low priority in their purchasing decisions, especially in the case of less enduring luxury products (Janssen et al., 2013). Another study showed how luxury consumers in Portugal are engaged in practices such as non-conspicuous consumption and recycled materials purchasing, but still, for those consumers, sustainability is not a discriminator in their purchasing decisions (De Pierro Bruno and Barki, 2014). A further study analyzing the UK chocolate confectionery industry found that CSR features are becoming more relevant for some consumers in their purchasing decisions, but CSR is still not the most relevant factor in those decisions (McEachern, 2015).

In a different study conducted in France, Achabou and Dekhili (2013) found that luxury consumers care about attributes such as brand quality and brand reputation, but the environmental commitment of luxury brands is not a factor those consumers consider in their luxury purchases. Similarly, the findings of this study suggest that for menswear, customers would be reluctant to purchase shirts manufactured with recycled materials. The findings of this study support the view that CSR demand within luxury is still in its infancy. However, the fact that in this study consumers were not interested in buying shirts made of recycled materials should be taken with caution, as the market for high-quality textiles made of recycled materials is virtually non-existent; and other environmentally friendly solutions such as organic textiles could be more appealing from a quality perspective, and from an environmental point of view. For example, to produce recycled cotton, it would be necessary to have a reliable collection system in place with a continuous supply of high-quality recycling materials, so that these textiles could be recycled and then used to produce high-quality luxury products. Since the entire point of doing so would be to produce a more environmentally friendly product, recycling cotton does not make business sense; especially when luxury brands have access to organic textiles which are widely available and are not detrimental for the environment.

Despite the limited demand for CSR in luxury, if luxury brands would adopt CSR values, it is possible that consumer perceptions could change and then consumers could see CSR as a value within luxury (Kapferer and Michaut, 2014). According to Davies et al (2012), luxury goods have a potential for growth in the field of CSR. In the view of the authors, a luxury product can have three different views, and within each of them, it is possible to leverage CSR:

a) Economic. This view considers that luxury-goods have two values, an utilitarian and an exclusive value premium. In this view, ethical premiums are paid by the consumer
b) Psychological. This is the primarily value of a luxury good. Consumption of luxury goods is based on a combination between social and individual factors
c) Marketing. This view includes the economic and psychological view of a luxury product and aims to maintain the perception and motivation for luxury

Under the economic view, CSR can grow if the incorporation of CSR attributes into the brand and the product increase the exclusive perceptions of those goods. According to Guercini and Ranfagni (2013), CSR can increase the exclusivity of luxury brands. For example, if Louis Vuitton produces a $4,000 dollar bag solely made with certified environmentally friendly materials, and this bag gets high awareness within consumer circles; luxury consumers may be willing to pay that high price, as the bag would be considered more exclusive.

Under the psychological aspect, consumers may be interested in that bag because it is made with environmentally friendly materials, and they personally have high regard for the environment and other CSR values. Also, if they do not necessarily care about CSR, but they are within a social circle that cares about these values; then they may decide to buy luxury products with CSR attributes as it would allow them to fit in. Finally, under the marketing perspective, luxury brands should be able to market the CSR attributes of their products to both types of clients, the ones interested in CSR because of its exclusive value premium; and the ones consuming these products because of the social or individual value they confer.

Moreover, consumer interest in CSR may also be driven by whether consumers are interested in the internal or external components of luxury (this concept was introduced in the section ‘Company and Consumer Perception of Luxury Brands’ above), which seems equivalent to the psychological factor proposed by Davies et al. For example, if someone is purchasing an Hermès bag with the sole intention of showing it off during an upcoming social function (external luxury), then that consumer may not be interested in the ethical components of the brand; unless the brand is associated with unethical behavior, or the brand is perceived negatively by the people attending that function. However, if a consumer interested in ethical/responsible values purchases a luxury product (internal luxury), then it may be more likely that the purchase made takes into consideration the ethical features of a brand or product.

While in the previous examples it is assumed that customers could be willing to pay more for getting certain benefits associated with CSR, there could also be a case where luxury companies implement widespread CSR practices, irrespective of whether their customers see a reason to pay a price premium. For example, if Chanel decides to source only organic cotton for the products they normally manufacture with standard cotton, this is likely to lead to increased product costs, which in turn can increase the price of those articles. In this case, there are opposed views in the literature on whether consumers would pay a premium for products with CSR attributes. Riley et al (2004) state that price is not a primary issue for consumers of luxury goods as is usually the rule in non-luxury. Thus, if a Chanel customer buys a bag made with organic cotton, but that customer does not care about whether it is organic; she would still not question the additional price premium charged by Chanel for using an organic fabric. An additional consideration is that, as stated by Campbell et al (2015), sometimes non-luxury customers consider CSR-related price premiums to be fair, as occurs with Fairtrade products. In their view, these price premiums do not have an impact in consumer demand.

Furthermore, there is evidence in the literature supporting the view that CSR features such as Fair Trade labels can increase the luxury perception of products (Schmidt et al., 2016). It is important to note that in the view of other authors, consumers are not yet willing to pay a price premium for CSR (De Pierro Bruno and Barki, 2014; Kapferer and Michaut, 2015). A potential reason why consumers may be hesitant to pay price premiums for CSR in luxury is provided by Janssen et al (2013), who consider that CSR practices may be more appropriate for more lasting products such as jewelry, as consumers could see CSR practices more favorably. Following Janssen et al (2013), this has to do with the fact that consumer perceptions regarding CSR can change by type of product. If a product is more ephemeral, then its CSR perception could be lower than if it is perceived as scarce and long-lasting. For example, consumers would have a lower CSR perception of a t-shirt (even if it is made of organic cotton) than of a diamond ring. A t-shirt may only be worn for a year or two, while a diamond ring can last generations.

An additional consideration as to why CSR is not widely demanded in luxury could be that, despite CSR not being a new concept, there is low consumer awareness of CSR (Gordon et al., 2011) paired with a lack of consumer understanding of this concept (Kapferer and Michaut, 2015). This is a similar finding to De Pierro Bruno and Barki (2014) who state that consumers are more aware of the environmental side of CSR, but not of the social aspect. Still, for the most part, luxury and CSR practices are compatible (Godart and Seong, 2014), as ethical attributes or socially responsible policies can be implemented across luxury’s three different areas - economic, psychological and marketing.

Likewise, despite the low level of interest in CSR and the lack of understanding of this concept, consumers are starting to look into ethical practices. In the view of Carrigan et al (2013) consumers are becoming more ‘considered’ in their consumption patterns and more sensitive towards social and environmental causes. Furthermore, research shows that luxury consumers are also interested in learning more about CSR practices undertaken by luxury brands, as they believe that luxury brands have environmental and social responsibilities they need to fulfill (De Pierro Bruno and Barki, 2014).

Macchion et al (2015a) even argue that CSR efforts undertaken by luxury firms are being driven by consumer expectations. A note of caution about this argument is that consumer expectations do not necessarily equal consumer demand. In other words, consumers may expect that firms have a level of CSR standards and implementation (Green and Peloza, 2014), but that does not mean that they are actively looking at whether or not the brands they purchase actually have CSR practices in place (Du et al., 2010).

As outlined above, there are variations in the level of CSR awareness and interest among consumers. However, it is important to highlight that these variations also occur within the definition of ethical or socially responsible consumption. Ethical consumption can encompass a broad spectrum of activities ranging from purchasing fair trade or environmentally friendly products to avoiding or even boycotting certain brands (Carrigan et al., 2004; Szmigin et al., 2009). Thus, being ethical (or socially responsible) can mean different things to different people, as there is no agreement among consumers on what elements constitute a responsible company (Carrigan et al., 2004).

In addition to these definitional differences among ethical or socially responsible consumers, another fact to consider is that basically all human actions are likely to have an environmental or social impact. To put it simply, “the environmental impact of products cannot be zero” (D’Souza et al., 2011, p. 52). Therefore, it is important not to set unrealistic goals in terms of socially responsible consumption. Everything we do is likely to have an impact, however, it can be possible to reduce some of that impact through meaningful CSR policies and practices.

From a consumer perspective, as put by McDonald et al (2012), there are no green consumers but, instead, there are consumers who try to green their consumption. For the sake of clarity, green consumption is defined as: “Consumer behavior that is predominantly driven by consumers’ environmental concerns and their attempts to reduce, reuse, and recycle consumer goods and produce” (Moraes et al., 2012, p. 104). This approach contrasts with the more inclusive concept of ethical consumption, which includes societal and animal welfare, environmental issues, corporate responsibility, development, Fairtrade issues, and global and systemic risks (Ibid, 2012). This suggests that there are different levels of socially responsible behavior among consumers, ranging from ‘ordinary’ consumers not interested in CSR at all, to consumers seeking to green their consumption and then to ethical consumers. The cited research in this section does not make a distinction among these consumers, but they are likely to have different expectations in terms of CSR.

Irrespective of these differences, it appears that, in general, consumers are increasingly showing non-apathetic attitudes towards CSR and are starting to look into CSR initiatives, and are becoming more sensitive towards environmental and social causes. These attitudes may mean that there is a real possibility for CSR in luxury. Luxury brands are considered aspirational in nature, and as such, they are well positioned to influence social change; thus the pursuit of CSR by luxury brands could result in wider CSR adoption (Muratovski, 2014). Also, due to an increased familiarity with CSR, luxury consumers may start demanding more social responsibility from luxury brands. Therefore, luxury firms need to be prepared to respond to this increased demand in CSR.

2.2.2.3 Company Perspectives

While the previous section discussed the existing views of consumers on CSR, there is also a need to understand what actions are being taken by luxury brands within this area.

As discussed in the section on CSR in luxury earlier in this chapter, there are doubts in the literature regarding the sustainability of the luxury industry. In their Deeper Luxury report, Bendell and Kleanthous (2008) highlighted how the industry lagged behind other leading brands from other industries in terms of CSR. Furthermore, Bendell and Kleanthous stated how CSR was not a focal point within luxury from a strategic perspective. This raises the question as to how much luxury brands are doing in terms of CSR; and how much CSR information they are actually disclosing. These issues are discussed below.

Disclosed CSR Efforts

Despite existing negative views on the unsustainability of the luxury industry (Carrigan et al., 2013; Godart and Seong, 2014; Kovesi, 2015), there are emerging sources in the literature questioning the view that the luxury industry is not socially responsible. For example, Cherny-Scanlon (2014) highlights how luxury brands such as Burberry, Cartier, Gucci and LVMH (Moët Hennessy Louis Vuitton) have joined forces to create the Luxury Working Group, which has set minimum standards to source raw materials including leather, fur and exotic skins. According to the author, CSR efforts have even expanded into more comprehensive projects. For example, Loro Piana and Zegna worked together to obtain legal permission to farm and trade vicuña by ensuring the sustainability of the process. This project not only resulted in the reintroduction of vicuña-made products in the world, but supported the conservation of this endangered species by increasing the vicuña population from about 6,000 to over 190,000 (Cherny-Scanion, 2014).

Moreover, some brands such as France-based Martin Margiela have incorporated the use of linings from recycled materials into their products (Finn and Fraser, 2014). The brand has taken an extra step in the use of these types of textiles by even encoding the use of recycled materials within its brand DNA (Menkes, 2015). In other words, for Martin Margiela the use of recycled materials has been incorporated throughout the story of the brand and it is now one of the values of the brand.

Along the same lines, Pessanha Gomes and Yarime (2014) found a high degree of CSR implementation across leading luxury groups. After analyzing a number of luxury brands, the authors found that some of the most renowned names in luxury including Kering and LVMH had high CSR scores. More interestingly, these groups were not just complying with CSR standards, but were even pursuing innovative strategies within the area of sustainability. Examples of CSR pursuits included eco-design, communication of CSR issues to consumers and integrated CSR policies across their organizations. In addition, groups such Compagnie Financière Richemont (Richemont), Hermès and Tiffany & Co. were found to have moderate CSR scores as their CSR activities were focused on preserving their brand reputation. Examples of these activities include maintaining an ethical image to avoid being criticized, managing environmental impacts, engaging in philanthropic activities and controlling risk in their supply chain by setting codes of conduct. This study shows that CSR implementation in luxury is more widespread than it was originally considered to be as it is something that can lead to a competitive advantage to luxury brands (ibid, 2014).

In brief, it seems that the current status of sustainability in luxury differs somewhat from what was reported in World Wide Fund for Nature (WWF)-UK’s report on luxury back in 2008. While this well-known report may still be in the minds of consumers, stakeholders and the luxury industry; it is worth mentioning that CSR implementation within luxury has improved. For example, PPR (Pinault-Printemps-Redoute), now Kering, was rated badly in terms of CSR (grade D out a maximum of C+). In the report, the highest ratings (C+) were awarded to L'Oréal, Hermès, and LVHM. Eight years later after the publication of that report, things have changed, and now, based on CSR rankings from CSRHub (2015), luxury groups such as L'Oréal and Kering are now leaders in CSR. Moreover, the CSR rankings of Kering, L'Oréal and LVMH are now significantly higher than the average across all industries.

In a study focused on Italian luxury companies, Macchion et al (2015a) found that over 50 percent of the firms who were part of the study undertook a number of CSR efforts in the environmental domain of CSR. Projects cited by the authors ranged from the inclusion of organic materials in collections, to getting an ISO 14001 certification (which was obtained by creating well-defined environmental protocols and devising plans to reduce emissions). Other luxury companies launched new green brands and collaborated with suppliers to create greener processes.

Similarly, in a study conducted by Carcano (2013, p. 41), she found that the three largest luxury conglomerates in the world; LVMH, PPR, and Richemont, had “a deep connection with sustainability in their core values and company culture”. As part of the study, the author reviewed sustainability reports of these groups and looked at CSR scores provided by CSRHub, a company specializing in assessing the level of CSR implementation across leading industries. Carcano’s paper highlights how these luxury groups are deeply involved in CSR undertakings.

The findings from the previous study are complemented by Carrigan et al (2013), who indicate that various luxury companies have launched environmentally-friendly brands and that they also have made acquisitions of socially responsible brands. An example cited by Carrigan et al is Edun, a brand producing some of its clothing lines in Africa, with African materials. Kapferer and Michaut (2015) made a comment in the same direction, referring to how more socially responsible brands such as Stella McCartney (the brand has a policy not to use real leather in its products), are able to drive brand desirability and prestige; confirming that it is possible to have, both luxury and sustainable policies and practices. With regard to the combination of luxury and sustainability, Karthik et al (2015) refers to the term ‘eco-chic’, by mentioning that there are luxury consumers interested in luxurious clothes that are eco-friendly like sustainable cashmere.

In a recent edition of Departures Magazine, an American Express publication for Platinum and Centurion cardmembers, an article highlighted how sustainable chic or environmental sensitivity was now a global trend. The article showcased various luxury brands, and grouped them into affordable ethics (Eileen Fischer or Filippa K); discreet luxury brands with the highest ethical standards (Loro Piana, Ermenegildo Zegna or Brunello Cucinelli); brands using artisanal fabrics (Vivienne Westwood, Renli Su); timepieces manufacturers (Chopard, IWC or Blancpain); and leading sustainable brands/groups (Stella McCartney and Bottega Veneta (Kering) and Edun (LVMH). The highlighted CSR practices within those groups ranged from using recycled leather and brass in bags, setting up a profit system for Mongolian cashmere goat farmers to avoid overgrazing, or using lotus-fiber fabrics from Myanmar; to using fair-mined gold and certified exotic skins, supporting a wildlife foundation, and having carbon-neutral headquarters (Groom, 2015).

Based on the articles outlined above, the luxury industry seems to have made progress in terms of CSR implementation. However, as these articles indicate, the scale of CSR efforts varies incredibly among luxury brands, as efforts can range from low impact practices such as the use of recycled leather in a bag collection or donating money to philanthropic causes, to holistic CSR implementation within a luxury conglomerate.

Undisclosed CSR Efforts

Taking into account the evidence provided by the literature discussed above, it is possible to conclude that there is at least a level of CSR implementation within luxury. Something to note is that, in general, these views of CSR implementation are derived from reports, websites, and public information released by luxury brands pursuing those efforts. Thus, a remaining question to consider is what happens with CSR efforts undertaken by luxury brands that are not disclosed?

The public perception of CSR implementation is contingent with the fact that CSR implementation is actually communicated. Thus, if a luxury brand conducts CSR efforts but it does not communicate them, then consumers and stakeholders are likely to assume that the given brand is not socially responsible. This particular situation occurring in luxury is highlighted by Kapferer and Michaut (2014). Kapferer and Michaut argue that luxury brands tend to avoid disclosing information about their CSR practices. This is specially the case with family owned and/or not publicly listed companies, as they do not have a legal requirement to disclose financial or business-related information. In their paper, the authors state how many luxury firms have as a strategy to remain silent about their CSR efforts, even if brands are not necessarily engaged in poor environmental, or social practices. A potential explanation of this phenomenon is that it is not clear for luxury brands how consumers may react to CSR practices (McEachern, 2015); and that, for instance, CSR disclosure has been associated with lower brand evaluations (Torelli et al., 2012). As stated by Kapferer and Michaut (2015), luxury is about creating a dream and, therefore, communicating ethical concerns to consumers could put a cloud on that dream.

Communicating CSR Through Green and Social Marketing

As discussed in the previous subsection, not all CSR efforts undertaken by luxury brands are communicated publicly (Carcano, 2013; Kapferer and Michaut, 2015; Macchion et al., 2015a). While some luxury brands may have concerns regarding the disclosure of CSR information, it is important to highlight that consumer perceptions can be changed. According to Torelli et al (2012), consumer perceptions towards CSR can change, and actually, CSR efforts undertaken by a brand can be seen more favorably when the brand is associated with conservation efforts.

As mentioned by Godart and Seong (2014), luxury brands can undertake actions to change consumer perceptions. Examples of some of these actions discussed by Godart and Seong include promoting the purchase of sustainable fashion as socially acceptable; working with the rest of the industry to develop sustainable luxury products; and making changes to their brand DNA, so that it can fully support CSR.

Gordon et al (2011) state that marketing has been focused on selling goods, increasing consumption and company revenue and, therefore, its potential to drive CSR awareness has been overlooked. The authors refer to two marketing approaches to communicate CSR: Green marketing and social marketing. Green marketing is related to the development of products and services where sustainability efforts take a key role. Social marketing refers to encouraging sustainable behavior not only among consumers, but among businesses and decision makers.

From a more practical perspective, green and social marketing can be pursued through two strategies: Upstream and downstream. Upstream approaches focus on promoting CSR through changing consumer behavior by giving incentives, promulgating legislation/regulation, or by working on R&D/Design for the environment (Gordon et al., 2011). Downstream approaches focus on providing information to consumers when consumer practices are vulnerable to change (Carrigan et al., 2011).

Despite the need to implement both upstream and downstream efforts in order to achieve real change in terms of CSR (Carrigan et al., 2011), most CSR actions within luxury appear to be focused on downstream approaches, and in many cases, they involve addressing scandals that have already occurred, or preventing future ones. For example, the release of the movie Blood Diamond, which influenced consumers to avoid purchasing diamonds from unknown sources, resulted in the implementation of basic responsible sourcing measures by the jewelry industry (Godart and Seong, 2014). Therefore, many jewelry brands now convey to consumers how gemstones like diamonds are sourced through schemes such as the Kimberley Process (See: Kimberley Process, 2016) which is aimed at stopping trade of conflict diamonds.

Still, it is important to note that despite the proliferation of CSR initiatives within jewelry, the industry still faces challenges to full CSR implementation (Carrigan et al., 2015). These examples are certainly not an isolated case. According to Janssen et al (2013), luxury brands such as Prada, Gucci and Dolce and Gabbana have been involved in scandals because of unfair employee treatment. As a result, other luxury brands like Armani and Chanel have implemented CSR practices to avoid experiencing similar scandals at their brands in the future and, thus, can insulate their brands against potential conflicts with stakeholders. This example is particularly interesting, considering that Armani and Chanel are privately held and, therefore, do not have any legal obligation to disclose their results or practices. Nevertheless, these reactive approaches to CSR are far from being considered downstream actions, as they are not intended to change consumer behavior towards CSR, but instead, they are only pursued to avoid associating luxury brands to negative practices.

In terms of upstream approaches, given the relatively small size of the industry in comparison to non-luxury, the idea of undertaking upstream approaches seeking to modify consumer behavior towards CSR is more challenging. The luxury industry, as a whole, has a combined revenue lower than Wal-Mart (Bain & Company, 2015; Wal-Mart Stores, Inc., 2016). Because of the fragmentation, within luxury, it is possible to find several categories, ranging from cosmetics and food, to cars and private jets. This suggests that from a revenue perspective, the luxury industry has limited influence as compared to other industries. Carrigan et al (2013) consider that to improve CSR within luxury, it is necessary that industry groups work together with regulators to craft regulatory policies that can be validated by the industry. An example of upstream collaboration between the industry and regulators is the US Department of Energy (DOE)’s Appliance and Equipment Standards Program. Pursuant to Congress legislation, DOE is required to implement energy efficiency standards for covered consumer products and industrial equipment. These standards are aimed at reducing energy use. Since the standards have a significant impact on regulated industries, DOE has created an advisory committee with representatives from the industry to negotiate DOE rulemakings (US Department of Energy, 2016). For example, if DOE envisions the creation of a more stringent energy-saving standard for ceramic cooktops and ovens (the standards would also apply to luxury brands operating in this product category), then DOE would make its intention public, allowing the public and the advisory committee to provide input on the proposed regulation, to try to reach agreement. For instance, a standard could be introduced so that the oven turns off automatically 10 minutes before the end of the cooking time in order to use the heat already in the oven. Such practice, at first, could create confusion among consumers, but later, it would be able to result in a change of behavior, and as consequence, in lower energy consumption while cooking. From an industry perspective, this program would decrease energy use without unreasonably increasing the regulatory burden to manufacturers; and ensuring that the proposed regulations are technically feasible and appropriate from an economic point of view.

With regard to regulation, it is necessary to highlight that while it can be helpful to drive CSR implementation, it does not necessary mean that it is free from faults. Carrigan et al (2016) state that there are many instances where business interests play a role. These interests can influence the regulatory/legislative agenda, and can have an impact on the intended purpose of these actions. Moreover, from time to time, government agencies promulgate regulations that generate social benefits, but their social cost is much higher than the benefits they provide. In those cases, regulatory action is not appropriate, as it just creates an unnecessary economic burden on affected entities. For example, a regulation requiring luxury brands in Europe to only use organic leather in their products could backfire as the demand for organic leather could exceed the offer of such material. This regulation could also have an impact on small businesses producing leather, as due to cost constraints, small suppliers may not have access organic certifications for their leather. Luxury consumers could also be affected as they would have to pay higher prices for such products. Similarly, luxury brands could also lose out as they may need to absorb increases in raw materials, which in turn could affect revenue and, potentially, employment levels within their companies. Thus, there is a delicate balance between the benefits and costs of regulatory action and, therefore, these benefits and costs should be understood before such action is pursued. Still, in cases where regulatory action is not appropriate, luxury trade associations, brands and stakeholders could work together to enforce voluntary CSR standards aimed at promoting CSR practices among consumers.

In summary, the literature suggests that CSR perceptions can be shaped with the right CSR implementation and communication strategy. However, the development of integrated upstream and downstream practices is complex and its application is difficult within a luxury context. Still, despite this difficulty, there are luxury products such as hybrid or electric cars or fair trade products which provide satisfaction to consumers, and at the same time, result in benefits to society (Dibb and Carrigan, 2013).

Opportunities for CSR Improvement

Despite the positive progress made by the luxury industry in terms of CSR, it must be remembered that luxury, as a whole, still has a long way to go before it can be considered a sustainable industry. As an illustration, well-known luxury groups such as Armani, Prada and Ralph Lauren have low CSR scores, as their CSR efforts are mainly focused on philanthropic actions; and their company policies in social and environmental areas are mainly centered on law compliance (Pessanha Gomes and Yarime, 2014). This suggests that these companies have the lowest possible social and environmental standards to avoid violating the law.

Another area where CSR performance across the entire luxury industry is unsatisfactory is the supply chain. About eighty percent of luxury brands do not measure CSR within their supply chain (Cherny-Scanion, 2014). This is a serious issue, considering that some of the raw materials used in luxury such as exotic woods, precious stones and metals are sourced from developing or emerging countries with less stringent environmental and social standards than in the western world. For example, mining gold in Peru or sourcing Mahogany from old-growth forests from Brazil is certainly not a social issue from the perspective that these are not countries at war and with social conflicts. Still, from an environmental perspective, extracting gold without the appropriate environmental standards, or conducting illegal logging activities in primary forests can have severe effects on the local environment.

Additionally, there is a real need for the entire luxury industry to implement more comprehensive sustainability strategies (Carcano, 2013) and, thus, move from a philanthropic or integrative type of CSR to a more comprehensive approach such as innovative CSR (Pessanha Gomes and Yarime, 2014). As stated by Carrigan (2013), CSR in luxury cannot continue to be overlooked and luxury brands need to do more to implement it across the industry.

Challenges to Becoming More Socially Responsible

An additional consideration to take into account regarding the adoption of CSR in luxury is that the luxury industry is not free of challenges to becoming more sustainable. As discussed above, some of these challenges may come from uninterested luxury customers or from luxury customers unwilling to pay a premium for responsible goods. Even so, these challenges could be addressed by creating CSR awareness among luxury consumers.

However, it is important to take into account that the luxury industry faces additional challenges to becoming more sustainable. Some of these challenges can occur in the supply chain, or production process. According to Bonacchi et al (2012), if a supplier engages in unsustainable practices that could have a serious effect on a brand; then that brand would need to immediately terminate its relationship with that supplier. For example, animal rights group PETA reported animal right violations during the production of crocodile leather for Hermès famous Birkin bag. Because of this report, Jane Birkin, the celebrity whom the bags are named after, asked Hermès to disassociate her name to the bag. Hermès responded quickly with an investigation highlighting how these isolated violations to animal rights had been addressed with the supplier. As a result, Birkin indicated that she was satisfied with the resolution to this issue (Chrisafis, 2015). It is important to stress that in this case, Hermès was able to address the issue without having to terminate its relationship with a key supplier, as terminating that relationship could have had an impact on the production process of its bags, potentially resulting in financial impact to Hermès and its supplier, due to lost revenue.

Furthermore, in a study exploring local garment manufacturing in San Francisco, California; Ulasewics (2014) found that companies experienced multiple difficulties in establishing socially responsible practices. Examples of these challenges included: Difficulty finding atelier staff with the right level of expertise; issues finding suppliers offering excellent quality; higher cost of sourcing from local suppliers who offer high-quality at a fair price; difficult to engage with an unsupportive local government; higher taxes. Besides that many of these potential challenges are more likely to be faced by smaller brands than by brands owned by a large luxury conglomerate. Ulasewics highlights how there are underlying challenges to sustainable production that could prevent luxury companies from becoming more socially responsible. An additional consideration is that these challenges are not exclusive to luxury, and could also occur in other industries. In reality, implementing CSR is generally difficult, as managers needs to incorporate social, economic and environmental concerns into their regular decision-making process (Neergaard and Pedersen, 2012).

2.2.3 How Can CSR Impact Brands?

As discussed in the previous sections of this chapter, CSR is important within luxury, because it has the power to change perceptions of a brand and, therefore, affect brand reputation (either positively or negatively). According to Betts (1994, p. 18) brands can help “establish a distinct identity for a product in relation to how the product is perceived by the consumer”. However, establishing a brand identity is not the only function of brands. In the view of Keller and Lehmann (2006), brands are valuable as they can allow customers to choose a product and associate a brand with trust and quality. Moreover, brands can be used to evaluate marketing efforts, and can also be assets from a financial perspective (ibid, 2006). Thus, considering that brands are assets, assets have value (Sinclair and Lane Keller, 2014), and CSR has an effect on brands; CSR may influence the value of a brand.

Based on the previous discussion on luxury and CSR, it is clear that key players within the luxury industry are embracing the idea of CSR and have already taken steps to make it a core component within their organizations. For instance, the three largest luxury conglomerates do not lag behind other industries in terms of CSR. In particular, for conglomerates like LVMH, CSR is one of the factors used across their entire brand portfolio to increase brand value (Cavender and Kincade, 2014). Similarly, Kapferer and Michaut (2015) stress how because of the high visibility of the luxury industry, luxury brands are impacted by CSR. The adoption of CSR in luxury suggests that the industry recognizes the importance of CSR. However, this recognition is not widespread, and not all luxury brands appear to be looking at CSR, despite the benefits or avoided costs associated with it.

There are key business advantages for business resulting from the implementation of CSR. Gordon et al (2011) considers that CSR can contribute to differentiation. Melo and Galan (2011) maintain that it is possible for firms to increase their reputation or image status through CSR, which, in turn, may lead to financial gains. Drews (2010) supports this view by stating that CSR provides a number of monetary and non-monetary benefits to businesses. These benefits, which can be either, quantitative or qualitative, are summarized in Table 9 below.

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Table 9: Business Benefits of CSR

Source: Drews (2010)

These monetary and non–monetary benefits are highly relevant to the luxury industry, and especially brand value and reputation are especially important. With regard to reputation, authors like Hoffmann and Coste-Maniôre (2012) consider that reputation is a core asset within the industry. As a matter of fact, the adoption of CSR could be perceived as a way to reduce risk (Kapferer and Michaut, 2015). According to Bonacchi et al (2012), stakeholders such as NGOs or trade unions can put at risk the reputation of luxury firms. Because of this, the priorities of these groups need to be taken seriously by luxury brands. As discussed earlier in this chapter, there are consumers who are not necessarily interested in CSR, or even try to avoid CSR (Gardetti and Torres, 2014; Singh et al., 2008). However; most consumers, even those who do not care about or avoid CSR, are likely to change their brand perceptions if they find out that a brand they use appears in the news because of irresponsible practices (Kapferer and Michaut, 2015). Hence, there may be a real risk for luxury brands not having appropriate CSR practices, as these practices could lead to negative brand perceptions. Maximizing brand value is often considered the most important financial strategy of a luxury-goods firm (Kapferer, 2009). Thus, having a luxury brand associated with negative perceptions is something that could hinder this strategy.

Torres et al (2012) studied the relationship between CSR and brand value in global brands, and their findings concluded that there is a positive relationship between these two factors. Likewise, their research shows that CSR initiatives can influence global brand value. Examples of these actions include working with stakeholders such as the local community, customers and suppliers (Torres et al., 2012). Additionally, other authors looking at the relationship between CSR attributes and brand value concluded that brands with higher CSR attributes enjoy greater brand value (Wang, 2010).

It is important to highlight that the findings from Drews (2010), Melo and Galan (2011), Torres et al (2012) and Wang (2010) referenced above are not focused on the luxury industry. However, they are included in this literature review as there is a lack of literature addressing the issue of CSR and brand value in luxury. Still, there are certain elements that make these studies relevant to luxury, considering that the data used in them include global brands, and many key luxury brands are global (Kapferer, 2009).

Based on these studies, due to the importance of CSR for global brands, it is critical for global managers (in this case, luxury-brand managers) to have an in-depth understanding of CSR. A global brand’s image is contingent on how it is evaluated against global standards in environmental and social areas; and global brands’ practices in other industries (Wang, 2010). That is to say, these results suggest that the image of a luxury brand could be affected if the brand is associated with negative CSR practices.

While CSR is recognized as a creator of brand value (Liu et al., 2014), and can pose significant advantages to firms; it is important to note that in certain cases, it could also impact a brand negatively and in fact, be detrimental to brand value. There is evidence in the literature that when a luxury brand associated with self-enhancement pursues a CSR strategy, a decrease in brand value can occur, which then can result in brand dilution (Loken and John, 1993 cited by; Torelli et al., 2012). This evidence does not suggest that luxury brands should neglect CSR, but instead, they need to be cautious in terms of the CSR actions they pursue and how they communicate them. A potential explanation of this negative link between CSR and brand value could be greenwashing. Greenwashing is a practice of misleading and making deceptive claims in terms of the environmental credentials of a firm (Nyilasy et al., 2013); and can result in criticism and scrutiny from consumers (McEachern, 2015). A luxury brand would be incurring greenwashing if they launch a product line made of organic textiles and highlight how environmentally friendly the brand is because of this initiative. However, in the rest of their operations the brand is engaged in poor environmental practices, namely the use and release of chemicals into the environment, lax air emission controls, or energy and water waste during their production process.

According to Kapferer and Michaut-Denizeau (2014), greenwashing is considered a prevalent issue that can backfire on brands. That is to say, if consumers are receiving CSR information from luxury brands, but they do not trust it, then that information is not going to benefit a brand, but could affect it negatively.

Moreover, as discussed earlier in this chapter, there are also issues surrounding CSR in luxury such as low consumer interest in CSR or a lack of understanding of CSR. These issues are not surprising, as CSR can also be complex for the luxury industry, giving the multiple meanings that CSR has. However, these issues could be addressed with company-lead efforts aimed at increasing consumer awareness of CSR. CSR awareness could be created by including CSR attributes in luxury products. For example, Louis Vuitton could decide to produce a green bag. The bag could be made of organic cotton from Sri Lanka, and dyed in an environmentally friendly way. Then, the carbon emissions from its production and distribution process could be offset, as well as the water used in the product (water footprinting). In this product, the dream promoted by Louis Vuitton could be the respect for the environment. Its price would not be a primary question, even if the product is likely to be more expensive than a luxury bag without these environmental features. In terms of its distribution, it would be restricted (only in available in Louis Vuitton outlets). Also, with regard to communication, it would exist to recharge the dream and would not be focused on selling (selling is a natural step resulting from creating a dream). Finally, the item would be considered rare based on its non-intensive production (Kapferer, 2009). In any event, it could be possible to question the potential effect of this green approach in Louis Vuitton as compared to the rest of LVMH portfolio. In other words, what can happen if other brands within LVMH would not be perceived as green as Louis Vuitton? In this case, since CSR needs to be incorporated holistically, it would be necessary that all LVMH companies have comprehensive CSR and policies and practices in place, so that there is not a spillover effect from some LVMH brands being greener than others. It is important to note that based on the existing literature, it is not clear whether the luxury industry is willing to take such a comprehensive approach to CSR, as there is conflicting evidence regarding consumer interest and demand in this type of undertaking.

An additional consideration is that depending on how CSR is approached, the impact of CSR is likely to change. From the three types of CSR introduced by Halme and Laurilla (2009), see section 2.2.1.3, the most important benefits are likely to occur through innovative CSR (larger business core and social benefits); while integrative CSR can provide moderate benefits (improvements to social and environmental aspect of operations); and philanthropic CSR the least benefits (image improvement and reputation). Halme and Laurilla’s assessment is not based on empirical data and it is not focused on luxury; but makes a solid case for CSR implementation due to the business benefits it creates. For this reason, a brand like Cartier is likely to obtain a larger benefit by implementing a comprehensive CSR program across the company, than, by supporting an exhibit at the Denver Art Museum. Furthermore, following Halme and Laurilla (2009), the benefits from CSR could be more significant, for example, if Cartier would launch a new product aimed at contributing to the implementation of comprehensive social and environmental programs in the communities where it sources its precious stones. A note of caution is that such program would only be successful if it is perceived as authentic by others and that it was not created with the sole objective of increasing revenue for the brand. Thus, to make this work, Cartier would not only need to create an effective campaign to communicate this program, but would also need to establish the actual improvement of social and environmental conditions in those communities as a core component of the program. Additionally, actual program goals would be required, and they would need to be measurable and demonstrable, so that there is evidence of how the program is improving conditions at those communities.

A final thought is that despite the apparent hesitancy within luxury surrounding the concept of CSR, it must be remembered that luxury and CSR share common characteristics. Luxury is founded in the principles of craftsmanship high-quality; and a long-term vision (Godart and Seong, 2014). These values are aligned with CSR, as having high-quality craftsmen requires a level of technical expertise which grants good working conditions (ibid, 2014). Similarly, luxury’s long-term vision makes it crucial for luxury companies to implement CSR policies in their organizations, as it is likely that a high-level of CSR compliance may be commonplace in the future.

2.2.3.1 Need for Further Research on Brand Value in Luxury

As discussed earlier in this section, the existence or the absence of CSR is likely to have an impact on brand value in luxury. With regard to how CSR can affect brand value in luxury, as part of the literature review it was not possible to identify any empirical studies on the topic. However, there were two studies from non-luxury looking at how CSR can impact brand value.

Torres et al (2012) studied how brand value can be generated by CSR through stakeholders (customers, shareholders, employees, suppliers and community). To conduct their analysis, the researchers gathered sustainability scores for brands included in Interbrand’s Best Global Brands list. By analyzing the results and the information provided in this paper it was not possible to conclude if any luxury-goods firms were included in the sample. However, considering that about 10 percent of the firms in Interbrand’s list are luxury firms, it is possible that luxury firms were included in this study. The results of the study supported the hypothesis that CSR affects brand value. To conduct the actual study, Torres et al considered that, in addition to CSR, company size, and investments on R&D could also influence brand value.

Melo and Galan (2011) conducted a similar study to Torres et al on CSR and brand value. In their study, they analyzed companies included in Interbrand’s Best Global list. They gathered CSR rankings for those firms, and modeled them together with company size, risk, R&D and market value added (MVA). The results from their study showed that CSR had an impact on brand value, and that company size was more important for brand value than CSR.

These two studies make it clear that, while CSR can be a contributor to brand value, CSR is not the only factor affecting it. In others words, following Melo and Galan (2011) and Torres et al (2012), there are other factors such as R&D, or company size that can influence brand value. Therefore, to study brand value in luxury, and to be able to understand it, it is not possible to only focus on CSR, but it is necessary to look at other factors that, together with CSR, create brand value.

From the literature review on CSR and luxury, there are five main issues that arise: First, there is a lack of empirical research on CSR and brand value in luxury and on how it can impact brands; as most of the research within this area is based on non-luxury. Second, it appears that there are benefits associated with CSR implementation, particularly a potential increase in brand value. Third, the importance of CSR is recognized by key luxury firms. Key luxury groups have already implemented more comprehensive CSR practices, as evidenced by their CSR rankings in sources such as CSRHub. Fourth, consumers do not seem to understand CSR and do not seem to actively demand it. Still, there is evidence suggesting that consumers are open to knowing more about CSR and indeed, it is something that they may increasingly demand in the future. Fifth, there appears to be concerns within the luxury industry regarding the benefits of CSR disclosure, and whether CSR disclosure could affect firms negatively.

In brief, while the literature has been useful to gain an understanding of CSR and brand value, further questions remain:

- Does the evidence from the non-luxury industry supporting the view that CSR can influence brand value translate into luxury? As discussed at the beginning of this chapter, there are many differences between luxury and non-luxury and, therefore, what is true for non-luxury companies may not be true for luxury brands
- Is there a difference in terms of how CSR is implemented in luxury? Existing evidence suggests that CSR has only been looked by large luxury groups. However we do not know if smaller brands tend to pursue CSR actions
- How do luxury brands perceive CSR? The studies reviewed during the literature review were drawn mainly from CSR reports and publicly available information. Thus, they do not necessarily reflect the knowledge or interest that luxury managers have on the topic and their opinion on whether it creates brand value for the industry

All these relevant issues need to be explored so that it is possible to gain a better understanding as to how CSR can affect brand value. As stated throughout this section, CSR is not the only factor that can affect the value of a brand. Moreover, the construct of brand value itself is highly complex, and to be able to study it, first, is necessary to understand how it is defined, and what elements, in addition to CSR, can have an influence on it. The section below explores the construct of brand value and its determinants, so that it is possible to understand what contributes to brand value in luxury.

2.3 Brand Value in Luxury

Throughout this chapter the construct of brand value has been introduced and discussed. In the previous section, it was discussed how CSR could contribute to brand value. However, brand value is a complex construct, and cannot be studied in isolation from a CSR perspective., There are other elements, that in addition to CSR, create brand value in luxury. Therefore, it is necessary to understand what these elements are; the position or importance of CSR among these elements; and how these elements, together with CSR, contribute to create brand value. The following sections discuss what brand value is, how it is subdivided, and its main determinants.

2.3.1 What is Brand Value

Brand value has been widely studied in the literature. Existing studies on brand value address a number of research areas ranging from its dimensions, its determinants, to how it can be studied and measured (Ailawadi et al., 2003).

Brand value is considered a strategic asset for companies (Davcik et al., 2015), and, in fact, it is one of their most prized assets (Christodoulides et al., 2015). Therefore, it is highly important for brands, especially within luxury, as it constitutes a useful way to assess the long-term impact of marketing actions which cannot normally be measured with financial indicators. For example, financial indicators like short-term sales and profits are not able to capture the effect of actions pursued by a firm (Simon and Sullivan, 1993). In other words, if a company like Bulgari launches an exhibition in collaboration with the MAXXI Museum in Rome, it would be very difficult to quantify the economic benefit of this project to the Bulgari brand using standard financial measures. However, a construct like brand value is able to provide company managers, investors and stakeholders with a long-term metric to assess this type of action and, thus, use it to support their decision-making process.

2.3.1.1 Differences Between Brand Value and Brand Equity

First, it is important to state that brand value and brand equity commonly refer to how much a brand is worth. Both terms are often used interchangeably as there is no agreement on when each of these terms should be used.

According to Feldwick (1996, p. 2), the following three constructs are considered to be brand equity:

1. “The total value of a brand as a separable asset when it is sold or included on a balance sheet” (brand valuation or brand value)
2. “A measure of the strength of consumers’ attachment to a brand” (brand loyalty or brand strength)
3. “A description of the associations and beliefs the consumer has about the brand” (brand image or brand description)

Thus, according to Felwick, brand equity is a comprehensive construct encompassing not only the actual monetary valuation of a brand, but some of its attributes such as brand loyalty, strength and brand image.

Wood (2000) elaborates further on this topic by stating that the term brand equity first appeared in the marketing literature as an attempt to explain the relationship between consumers and brands. In this case, a financial term (equity) is used to support the belief that brands can have financial value (Knowles, 2008). Then, by explaining a relationship between brands and consumer, it is also been implied that brand equity is made up of two main components, a consumer component and a company/financial component.

To help understand the difference between the consumer and the company/financial components of brand equity, Knowles (2008, p. 24) compares these approaches to potential energy (marketing approach) and kinetic energy (financial approach) and refers to the case of Gucci. In the late 1990’s, cash flow levels (kinetic energy) at Gucci were reducing rapidly, mainly because the brand had widespread licensing agreements which resulted in quality problems in the licensed products. While from a financial perspective the brand was “being written off”, its marketing value (potential energy) was still high. Given that the problems at the brand were mainly management-related, the brand was able to recover once they addressed their licensing policy, poor quality, updated their product range and addressed their distribution issues (ibid, 2008). Thus, in this example, Knowles implies that marketing actions which are aimed at the consumer have the ability to affect the financials of a brand. Similarly, it suggests that company-based actions can have a financial effect on the brand. However, the way consumers influence brand value is not clearly discussed.

For Jones (2005), brand value and brand equity are two different constructs; brand value is related to the study of how value is created, while brand equity is related to measuring it. Nevertheless, Jones’ distinction seems to be unnecessary, as it is possible to use the term ‘brand value measurement’ instead of ‘brand equity’ to refer to how brand value is quantified and avoid confusion.

Raggio and Leone (2007, p. 380) agree with Jones in terms of the view that brand value and brand equity are two separate constructs. Still, they propose a definition to describe them: “Brand equity moderates the impact of marketing activities on consumer’s actions… and represents one of the many factors that contribute to brand value.” Brand value is defined as “the sale or replacement value of a brand, and which implies a company-based perspective”. Thus, according to Raggio and Leone, brand equity is what a brand means to the consumer and brand value is what a brand means to a firm. However, an aspect to consider is that in this definition, the sale and replacement value of a brand may vary considerably, which results in ambiguity. Using the Gucci example discussed above, the sale value of Gucci at the time when the brand was experiencing a significant crisis could be much lower than the cost of building the Gucci brand from scratch. This means that its brand value would fluctuate considerably, depending on how it is calculated (sale cost or replacement cost). Furthermore, Raggio and Leone’s definition attributes the sale value to a company-based action, which is not always the case. During an acquisition, third parties (e.g. the acquirer) are the ones setting up the price of the companies they acquire. Then it is up to the target company (company to be acquired) to accept or reject that price.

This characterization is similar to Blois (2004, p. 24) who suggests that a brand has two facets: “The value from the customer’s perspective; and the value to the owner”. Under this approach, while both perspectives are related to each other, it does not necessary mean that the customer and the owner perspective are aligned. Mulberry may believe that their brand has high brand value, and then attempt to sell a bag for $4,500.00 dollars. At that price point, customers can get bags at brands with higher brand value such as Louis Vuitton or Dior. Thus, if consumers believe that the brand does not have a high enough brand value, they would refuse to purchase at that price. This has to do with the fact that the higher brand value a brand has, the higher price consumers may be willing to pay for an item from that brand versus a comparative brand with a lower brand value. As a result, due to lower sales, Mulberry will realize that it is necessary to lower the price of their bags to an amount that will be reflective of the value that the brand has in consumers’ minds.

The difference between brand value and brand equity is illustrated by Raggio and Leone (2007) with a case from non-luxury. In 1994, Snapple was bought by Quaker Oats for $1.7 billion dollars. At the time of purchase, about 50 percent of Snapple’s sales were generated at small convenience stores and gas stations, while most sales of Quaker Oats were made at large supermarkets and drug stores. Given Quaker’s inability to grow Snapple’s sales at supermarkets and drug stores, Snapple was sold for only $300 million after just 3 years. According to Raggio and Leone (2007), during this time the brand value of Snapple decreased, while its brand equity was likely to stay at the same level or even increase, due to the offering of the product in supermarkets and drug stores. In this example, brand value is related to the valuation of the brand, while brand equity is related to the value that the brand has for consumers. In brief, as these examples show, the distinction between brand value and brand equity is not clear in the literature as it can relate to the valuation of a firm, or to how much it is worth it to the owner, but also to what a brand is worth for consumers.

2.3.1.2 How Brand Value/Equity Is Defined

Brand equity can be defined as “outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name” (Ailawadi et al., 2003, p. 1).

Ailawadi et al (2003) elaborate on these brand outcomes and state the limitations of each of them:

- Customer mind-set. Measures consider strengths and weaknesses in a brand. These measures may be useful to strengthen brand equity, but are not useful to measure brand performance (e.g. profitability or market share) (Keller, 1993)
- Product-market. These measures consider the firm’s marketing activities, but do not include its future potential (Kamakura and Russell, 1993 cited by; Stahl et al., 2012)
- Financial-market. Measurements usually consider both current and future brand potential. Future value relies on assumptions which may be subjective (Simon and Sullivan, 1993)

In this definition, Ailawadi et al depart from the previous categorization of brand equity, and use the term to refer to how consumers perceive a brand, but also to how non-consumers (e.g. the company or investors), perceive it.

These outcomes are also recognized by Keller and Lehmann (2006) who define brand equity as the value accrued by its impact on the customer, product market or financial market. As a result, brand equity is contingent with three key elements: How it is perceived by customers, the marketing actions undertaken by a brand and how it is valued in monetary terms. Thus, following Keller and Lehmann (2006), the brand equity of Dior would be made up of the perception of Dior’s current and potential customers towards the brand. Consequently, their brand equity depends on how often customers buy Dior, what they buy, how they display it and how they talk about it. These customer perceptions can be influenced, in part, depending on how Dior markets its products. In other words, perceptions depend on what Dior boutiques or points of sale look like, where they are located, how the products are offered or promoted to the consumer. Additionally, Dior, as a brand, has intangible value, which could be monetized based on the current and future sales associated with the Dior brand name. This value can fluctuate, depending on how the products offered by the brand are marketed; and how consumer perceptions of the brand influence current and future purchases of Dior products.

It should be highlighted that in these two definitions, unlike the definitions outlined in the previous section, a single term, brand equity, is used to refer to this concept, irrespective of being company- or consumer-related. Still, the recognition of these elements is not universal. For instance, as discussed above, Knowles (2008) only differentiates between two types of brand value, marketing/customer-based and financial/firm-based brand value. However, Davcik et al (2015, p. 5) do not differentiate between various types of brand value, but consider that brand value is a unified construct made of multiple elements including quality and consumer- and company-based intangibles in their definition:

The value of the brand that derives from high levels of brand loyalty, perceived quality, name awareness and strong brand associations, as well as assets such as trademarks, patents and distribution channels that are associated with the brand.

In summary, while there is no agreement in the literature in terms of what brand value and brand equity are (Christodoulides et al., 2015); most of the existing definitions share two common aspects: Actions related to the consumer and actions related to the firm. The implication of these considerations is that brand value is made up of two components; consumer- and company-based. Consumer-based brand value relates to consumer perceptions and actions; while company-based brand value relates to actions undertaken by a brand. Thus, in order to facilitate the understanding of this topic and to avoid confusion, the term brand value will be adopted in this thesis (instead of brand equity).

2.3.2 Consumer-Based Brand Value

Brand value is the reason why consumers can be attracted to or put off by a brand. At first, a brand may be identified with the product it manufactures, but over time, attachments and associations beyond that product can be developed. These attachments or associations are created by factors such as advertisements and usage experience (Keller and Lehmann, 2006).

Ambler and Barwise (1998, p. 370) define consumer-based brand value as “the marketing asset that exists in customers’ minds and is of continuing value to the brand owner because it influences future purchases by the buyer and the buyer’s network through word of mouth”. For example, if luxury consumers have a positive opinion of Lanvin and they desire their products, they are more likely to buy them. Similarly, these customers are more likely to talk about Lanvin to acquaintances and friends, which in turn, may drive interest into the brand. Ambler and Barwise’s definition does only refers to future purchases, despite the fact that current purchases are also likely to be dependent on customers’ perceptions of a brand. This definition also seems to exclude potential customers whose opinion of a brand will also depend on their own perceptions.

Srivastaya and Shocker (1991, pp. 91–124) define brand value as: “A set of associations and behaviors on the part of a brand’s customers, channel members and parent corporation that permits the brand to earn greater volume or greater margins than it could without the brand name and that gives a strong, sustainable and differential advantage”. In this definition, consumer brand value is created by consumers’ associations and behaviors related to a brand.

An illustration of this can be an unbranded Hermès bag. Even if the bag was produced by Hermès, and has the same quality and design as a branded Hermès bag; customers would not be willing to pay the same price for the unbranded bag just because it did not have a logo or label associated with the brand. An interesting consideration in this definition is that brand value is not limited to consumer perceptions and actions, but also to stakeholder views (channel members).

According to Knowles (2008, p. 22), consumer-brand value is perceived as a way of “developing approaches that more accurately characterized the nature and strength of a customer’s relationship with a brand”. This definition associates brand value with a brand relationship someone has with a brand, a concept not present in the other definitions outlined in this section. Furthermore, this definition ignores that not all consumers have a relationship with a brand, and still it can generate value. For example, aspirational customers may not be able to afford a Dior dress, but they may talk about the brand to their friends. Thus, aspirational customers will generate value for Dior should their friends purchase Dior products because of their recommendation.

In addition to these definitions, Aaker (1991) proposed a comprehensive model to explain consumer-based brand value. According to Christodoulides (2015), Aaker’s model of consumer-based brand value is the most commonly used in empirical analyses. Aaker (1991, p. 15) defines brand value as: “A set of assets and liabilities linked to a brand, its name and symbol, that add to or subtract from the value provided by a product or service to a firm and/or that firm’s customers”. Then, to complement his definition, Aaker proposes that brand equity (brand value) is based on five dimensions: Brand loyalty, brand awareness, perceived quality/leadership, brand associations/differentiation and market behavior (Aaker, 1996). Additionally, Aaker considers that brands provide value to consumers by enhancing customer’s interpretations, information processing, confidence in purchasing decisions, and satisfaction; which, in turns, provides value to the firm. Value to the firm is provided by enhancing marketing programs, brand loyalty, price margins, brand extensions, trade leverage and a firm’s competitive advantage (Aaker, 1996). An interesting consideration of this model is that it recognizes the correlation between consumer- and company-based brand value; as consumer actions translate into actual brand value. This correlation is seen in Srivastaya and Shocker, and in Davcik et al in the previous section. An illustration of the correlation between consumer- and company-based brand value was provided in the Dior example in the previous section. Accordingly, following Aaker, what Dior decides to produce, the level of quality it sets, the price points it defines, the way it promotes its products, and creates customer satisfaction, will result in consumer impact. This suggests that consumer actions conducted by Dior will result in consumer awareness, loyalty, perceptions in terms of quality and brand leadership, and purchase decisions. Therefore, depending on how positive or negative these consumer actions and perceptions are, the brand value of Dior could increase or decrease. While Aaker’s model is comprehensive in nature, it places significant weight on perceptions. Further, it fails to consider that to some extent, perceptions need to be based on an actual reality. For example, for someone to have a valuable perception of Dior, he/she may need to be familiar with the customer experience provided by the brand, or with the design features of Dior products. In other words, it is not possible to create positive consumer perceptions if the brand is not offering something on which these perceptions can be based. This means that there are additional elements creating brand value.

In addition to the elements proposed by Aaker, Keller (2003a, p. 596) considers that brand knowledge is a source of brand value, as it can create different consumer responses and affect the outcome of “brand-building marketing programs”.

He actually defines customer-based brand value as: “the differential effect of brand knowledge on consumer response to the marketing of the brand” (Keller, 1993, p. 8). He elaborates on this definition by indicating that customer-based brand value is related to how consumers react to the marketing mix of a brand as compared to the marketing mix of an unbranded product or service. Thus, consumer-brand value only occurs “when the consumer is familiar with the brand and holds some favorable, strong, and unique brand associations in memory” (Keller, 1993, p. 17). This definition, unlike the one provided by Knowles above, does not link brand value to a brand relationship, but to an association which can encompass potential and future customers.

Figure 4 below provides an overview of the different dimensions of brand knowledge and their components. Brand knowledge is defined in terms of brand awareness and brand image. Brand image relates to the brand associations that customers have in their memory; while brand awareness relates to brand recall and recognition (Keller, 1993).

Abbildung in dieser Leseprobe nicht enthalten

Figure 4: Keller’s Dimensions of Brand Knowledge

Source: Keller (1993)

Keller’s model of the dimensions of brand knowledge suggests that if consumers have knowledge of a brand, they will be able to recall and recognize that brand better. Similarly, due to brand knowledge, consumers will build in their minds an image of the brands they know. This image would be related to the particular links consumers have with a brand. Moreover, these links will be dependent on many aspects, including the type of benefits customers think they get from a product, how they use it, and the physical characteristics of it. In practical terms, knowing a brand like Gucci implies that customers are going to recognize it whenever they see the Gucci logo or their traditional red and green interlock. Likewise, customers could be more receptive to brand-related aspects such as the high price of Gucci products, their brown and golden boxes, or the experience provided by wearing their products.

In addition to the dimensions of brand knowledge discussed above, Keller (2003a) also mentions that there are four secondary sources where brand knowledge exists, especially in competitive markets:

a) People. Employees and endorsers
b) Places. COO and channels
c) Things. Events, causes, third party endorsements
d) Other Brands. Alliances, ingredients, company, extensions

In other words, marketers in competitive markets need to relate their brands with other people, places, things or other brands in order to achieve brand knowledge, as marketing programs themselves may not achieve this (Keller, 2003a). This is to say, that in the case of Gucci, brand knowledge could be increased by employees and brand ambassadors promoting the brand; by associating the brand with a country (Italy); by supporting the arts through its Gucci Museo in Florence, and by engaging in non-profit causes like the Global Citizen Festival in NYC.

An additional approach in terms of consumer-based brand value is the approach proposed by Keller and Lehmann (2006, p. 745) who consider that the value of a brand ultimately depends on “the words and actions of consumers”. More specifically, they state that consumer-based brand value can be captured in the following five components:

a) Awareness - Ranges from brand recognition to brand recall
b) Associations – Includes tangible and intangible attributes in a product or service
c) Attitude – Ranges from brand acceptability to attraction
d) Attachment – Can range from brand loyalty to brand addiction
e) Activity – Comprises purchasing/consumption frequency and customer involvement with the firm’s marketing program, the company itself, or customer’s worth of mouth

Keller and Lehmann’s model includes many similarities to Keller’s model discussed above. However, the main difference relies on the inclusion of customer activities. To put it simply, when a customer engages with a brand such as Cartier he/she will be creating value for the brand by conducting actions such as: Talking about Cartier with friends and acquaintances; participating in the events organized the brand; wearing Cartier products; and conducting repeated purchases at Cartier boutiques. As is the case with Aaker’s model, Keller and Lehmann also recognize the interrelation between consumer- and company-based brand value, as customer activities are likely to result in actual brand value for a firm.

In summary, this section provides a theoretical foundation to understand the concept of consumer-brand value. As discussed above, there are different approaches to consumer-brand value. However, what is evident from the literature review is that consumer-based brand value is not a simple construct and in fact is influenced by many factors, not only actions in control of a brand, but also the reactions of consumers to them. Finally, there is evidence in the literature regarding the correlation between consumer- and company-based brand value. This evidence makes a strong case to approach the study of brand value as a whole, rather than just considering each portion of brand value in isolation.

2.3.3 Company-Based Brand Value

As much as it occurs with consumer-based brand value, there are also different approaches to company-based brand value. These approaches can be divided into two categories: Financial and Accounting-based. A discussion of these approaches is provided in the sections below.

2.3.3.1 Financial Approaches

A strong brand serves many purposes to a firm including increasing the effectiveness of advertisements and promotions, secure distribution, protecting the product from competition, and aiding growth (Keller and Lehmann, 2006). Along these lines, Simon and Sullivan (1993, p. 29) define company-based brand value as “the incremental cash flows which accrue to branded products over and above the cash flows which would result from the sale of unbranded products”. Keller and Lehmann (2006, p. 745) define company-based brand value as the “additional value (i.e. discounted cash flow) that accrues to a firm because of the presence of the brand name that would not accrue to an equivalent unbranded product”. Furthermore, they state that from a financial perspective, brands are assets that can be purchased and sold and, thus, the financial value of a brand is the price it can bring in the financial market. Additionally, they argue that market prices incorporate future cash flows at discounted value. An everyday example of this could be the actual share price of a luxury company, such as Hermès. Following Keller and Lehmann (2006, p. 745), the actual price at which Hermès shares are sold in the stock markets would not only reflect the market conditions in the current economy, but a percentage of their price is likely to reflect the revenues that Hermès is likely to accrue in the future due to the cache associated with its prestigious brand name.

Knowles’s (2008, p. 23) definition of company-based brand value is similar to the one proposed by Keller and Lehmann. Knowles defines company-based brand value as “the incremental cash flow that accrues to the company as a result of owning a brand”. It is important to highlight that unlike what is argued by Aaker and Keller and Lehmann in terms that consumer-based brand value can lead to company brand value, Knowles believes that consumer preferences do not necessarily translate into revenue for a firm. Based on this view, the fact that someone talks about Cartier and wears Cartier does not necessarily result in more revenue to Cartier. However, this ignores that someone wearing and using Cartier may influence others to buy Cartier, and then generate revenue for the company. Lastly, something not present in the definitions of the financial approach to brand value is that the financial value of a brand depends on company-based actions. For instance, pricing decisions or product characteristics, which are all decided by a company, can influence brand sales, which in turn can impact the financials of a brand. Therefore, more clarity is needed in terms of what creates brand value.

2.3.3.2 Accounting Approaches

Another approach to define brand value can be from an accounting perspective, an approach that started to emerge in the late 1980s and 1990s with a wave of mergers and acquisitions. At that time, several firms were purchased at a price which was several times over their book value, and consequently, accountants developed new standards to quantify this difference. Originally, brand value was calculated as goodwill, or the difference between how much had been paid for a company and the book value of its assets. This meant that accountants did not recognize the consumer-based value of a brand. They only recognized the trademark, or the intellectual property on which a brand is created (Knowles, 2008).

The concept of valuating intangible marketing assets from an accounting perspective is under development. For instance, the International Valuation Standards Council (IVSC) published guidance GN 4 in 2010, which describes the recognized techniques to valuate intangible assets, including brands (IVSC, 2010). In addition, in order to provide further direction on these valuation approaches, IVSC published in 2012 Technical Information Paper (TIP) 3, Valuation of Intangible Assets, to complement GN 4 (IVSC, 2012). Three years later, these standards have not been widely adopted, and most reported intangible assets on balance sheets are still the result of business acquisitions (Tornero, 2015) . Similar efforts to create standards for brand valuation are also been developed in the United States by the Marketing Accountability Standards Board (Sinclair, 2011). This effort, known as Brand Investment and Valuation (BIV Project) will include incorporate general principles and standards to valuate brands (Marketing Accountability Standards Board, 2015).

Moreover, in practical terms, the reporting of intangible assets when a transaction such a takeover occurs, underestimates the value of a business. As an illustration, a brand like Armani owns a number of production facilities, stores, and equipment. Those assets are reported based on the actual value they have. However, if Armani would be sold, the price that a buyer would pay for the brand would be very different than the book value of the company. In fact, Armani would be sold at multiple times the price of those assets because of its ability to generate revenue solely because of the Armani name. As a side note, in non-luxury, brand value is also present, and in fact it is also significant. According to Interbrand (2015), Google has over $120 billion dollars in brand value, while Coca-Cola has a brand value of $78 billion and McDonald’s $39 billion. To put these figures into perspective, the highest ranked luxury brand listed in the report is BMW with $37 billion in brand value; while Louis Vuitton has a value of $22 billion. Thus, while brand value is important for many industries, within luxury it is absolutely essential, considering that luxury products have high margins, are highly undifferentiated, and most of their value come from the intangible value associated with the brand. This does not occur in non-luxury, where for example, it was possible to buy a cheeseburger from McDonald’s Dollar Menu for $1 dollar, while its real cost could be close to the $0.90 dollar range (McDonald’s long-standing Dollar Menu was faced out in January 2016). Instead, within luxury, a $1,000 dollar Gucci bag could be priced in the region of $2,000 because of the value carried by the Gucci brand. Thus, to be able to sell a $1,000 dollar bag in $2,000, Gucci needs to rely on its brand value (as the intangible portion of the bag could be close to 200 percent). For McDonald’s, brand value could influence whether a customer will buy a burger at their restaurants or at Burger King, KFC or Wendy’s. However, unlike Gucci (or any other luxury brand), the intangible portion of a McDonald’s burger is much lower (about 10 percent, based on the previous example). As a result, this characteristic makes brand value within luxury essential.

To summarize, there is a significant difference between the reported value of a brand (according to book value), and its actual value (taking into account its intangible assets, such as brand value). Thus, there is a real need for brands to adopt intangible asset reporting on a regular basis and not just when takeover transactions occur.

Finally, in terms of the implications of accounting-based brand value for this thesis, it is important to mention that due to the fact that the adoption of intangible asset reporting is still in its infancy (Knowles, 2008; Sinclair and Lane Keller, 2014). Moreover, the academic and trade literature on the topic is very limited. Therefore, this is an area that will not be looked at in this thesis. Instead, with respect to company-based brand value, only the financial-based approach will be explored.

2.3.4 Working Definition of Brand Value

As discussed in the previous sections, there are considerable differences between consumer- and company-based approaches to brand value. It is evident that there is no agreement in the literature on what brand value is and how it can be measured. However, both consumer-based and company-based approaches are the most prevailing approaches in the literature. Consumer-based brand value is centered on how consumers and brands interact; while company-based brand value is related to how performance is measured (Davcik et al., 2015).

To sum up, the key characteristics of consumer- and company-based brand value are presented in Table 10 below.

illustration not visible in this excerpt

Table 10: Main Characteristics of Company-Based and Consumer-Based Brand Value

Source: Madden et al (2006) and Sattler et al (2002)

As presented in Table 10 above, both consumer- and company-based brand value complement each other. On one side, companies need to measure business performance to make sure they experience growth and keep competitive. On the other, companies need customers to generate revenue. Without customers, companies would not have a reason to exist. In brief, the actions conducted by consumers have an impact on brand performance, and accordingly, brand value needs to be studied as a unified construct which considers both the company and the consumer side (Davcik et al., 2015).

Significant definitions of consumer and company-based brand value outlined earlier in this chapter fail to provide a holistic picture of this construct (see Jones, 2005; Keller, 1993; Knowles, 2008; Raggio and Leone, 2007). Moreover, these definitions provide competing views as to how and which actors create brand value (e.g. consumers or shareholders), and also how similar actors create value. With regard to consumer-based brand value, consumers can create value by reacting to marketing actions (Keller, 1993); while for others value can be created by the intensity of a brand relationship (Knowles, 2008). Similarly, shareholders can create value by favoring a brand over another while making investment decisions. In terms of company-based brand value, value can be estimated depending on the price at which a company brand is sold (Raggio and Leone, 2007), but also on the future cash flows associated with a brand name (Keller and Lehmann, 2006). Due to these divergences, it is necessary to propose a working definition of brand value for the purposes of this thesis. To arise at a working definition of brand value, a review of the definitions presented in section 2.3 was conducted. From this review, broader definitions were selected, to allow more flexibility as to which elements create brand value. Any definitions based on the accounting approach or looking at the value of a company brand (based on a sale price or future cash flows) were excluded. The reason behind this exclusion is that the scope of this thesis does not include the quantification (in monetary terms) of the value of a brand. Using these criteria, the following definitional components were selected:

- “Outcomes that accrue to a product with its brand name” (Ailawadi et al., 2003, p. 1)
- Valued accrued by its impact on the customer (Keller and Lehmann, 2006)
- The asset that exists in customer’s minds (Ambler and Banvise, 1998)
- “Set of assets and liabilities linked to a brand” (Aaker, 1991, p. 15)
- The value of a brand is dependent on “the words and actions of consumers” (Keller and Lehmann, 2006, p. 745)
- Brand value needs to be studies as a unified construct which considers the company and consumer side (Davcik et al., 2015)

Based on the elements outlined above, the following working definition of brand value is proposed for this thesis:

Positive or negative outcomes that accrue to a product or service due to its brand name. These outcomes are the result of company actions and consumer actions and perceptions related to a brand

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