• Renee Richardson Gosline, an assistant professor at the MIT Sloan School of Management

    Photo: Patrick Gillooly

    Full Screen
  • The makers of luxury goods, such as these, are increasingly worried about the threat of counterfeiting.

    Photo: Patrick Gillooly

    Full Screen

The real thing?

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


Luxury goods are supposed to be expensive because of their quality: A sip of fine wine or the comforting feel of designer clothing should justify the price.
 
Yet ever since the sociologist Thorstein Veblen developed the idea of “conspicuous consumption” about a hundred years ago, it has been widely accepted that consumers own luxury goods for a second reason as well: to mark their own social status by distinguishing themselves from other groups of people.
 
How much does each of these rationales contribute to the value of high-end products? In a new working paper, “Rethinking Brand Contamination,” Renee Richardson Gosline, an assistant professor at the MIT Sloan School of Management, uses the phenomenon of counterfeit luxury goods to shed new light on this issue. Consumers, Gosline observes, struggle to distinguish the intrinsic qualities of real luxury goods from fakes; instead, they rely heavily on social cues to make those judgments. Indeed, when some consumers are shown pictures of people wearing luxury apparel, they are twice as confident in their ability to judge those products, and willing to pay twice as much for the apparel, as when those consumers are shown pictures of the goods alone.

Gosline’s research contains a subtle insight for businesses. The spread of counterfeit goods would seem damaging to the luxury-goods industry, especially if consumers have difficulty distinguishing real products from fakes on the merits of the products alone; in those circumstances, people would have an incentive to buy cheaper counterfeit goods.

And yet, these very same consumers remain highly confident in their ability to tell real goods from fakes, as long as they can pass judgment on the people using those products, too. Because people regard themselves as being so socially discerning, and so good at spotting fakes in social settings, they are still willing to pay high prices for authentic luxury goods. To the extent that consumers are habitually rendering a verdict on other people, not just merchandise, they provide luxury firms with some insulation from the threat posed by counterfeiting.

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

This study comes as luxury-goods companies seek stability amid a shaky economy and the ongoing problem of counterfeiting. The global recession has hurt the industry, with sales of luxury products expected to be down 8 percent worldwide in 2009, according to the consultancy Bain & Co. Counterfeiting appears to be a significant global business; an often-cited estimate by the International Chamber of Commerce puts counterfeit goods at 5 to 7 percent of global sales, although such matters are difficult to measure.
 
Is it faux real?
 
To examine how people assess luxury brands, Gosline conducted a survey, showing consumers two dozen photos of high-end handbags, some authentic, some counterfeit. Half the pictures showed a handbag sitting by itself on a shelf, while the other half showed the bag being held by a person in public. Before the slideshow, consumers who owned authentic luxury apparel rated their confidence in telling a real item from a fake one to be 6.2 out of 7, on average, and said they would pay $786 for a true luxury bag.
 
Yet when shown a mixture of real and fake handbags on shelves, the owners of real goods found the exercise far more difficult. Their stated confidence level dropped in half, to 3.1 out of 7, and, after being asked to offer a price for each bag, they were willing to pay just $403 for the products on average. “When there is no contextual information, it’s terrible for the brand,” says Gosline. “People’s confidence in their ability to discern the real from the fake plummets, as does their willingness to pay.”
 
But when Gosline showed the same consumers pictures of the bags in use, their confidence level was 6.1 out of 7, and they were willing to pay an average of $783 for the bags. Why? Based on their comments, the people in the survey group were deciding if the person in the photo matched their preconceived notion of who is likely to own such products. “Basically these consumers look at the person, the setting, and determine the authenticity by seeing if the person’s image corresponds with the image they have of the brand,” Gosline explains.
 
In a sense, consumers are not so much rendering a verdict on the bags as deciding if the people measure up. By demonstrating this habit, colleagues say, Gosline’s research is highly innovative. “I think this question of luxury goods and counterfeiting has been neglected by companies and ignored by scholars, but she’s gotten consumers to really talk about these issues,” says Rohit Deshpande, a professor of marketing at Harvard Business School. “And by taking a consumer lens to the issue, she’s reached some non-obvious conclusions.”
 
Fashion police

Gosline’s research seemingly highlights a bind for luxury firms: Quality is not enough. Then again, by showing how much  value people place on luxury goods due to a desire to consume conspicuously, Gosline’s work also shows how deeply the whole idea of luxury apparel still appeals to shoppers.

That means businesses have room to attract new, status-seeking clients. Gosline suggests the advent of social media may help firms study consumer tastes. Some consumers become aggressive online “policemen” attempting to separate what they perceive to be fashionable and real from what is not. As Gosline notes, there exists a Facebook page called “Darling, I can tell by the rest of your outfit your Louis Vuitton is fake,” featuring pictures of people deemed to be sporting inauthentic goods. “It’s like a public shaming ritual,” Gosline says. Burberry, maker of upscale coats and other products, introduced its own social networking web site in November, to help clients interact with each other and, perhaps, lure new consumers aboard.

Gosline’s future work will explore the persistence of brand cachet among middle-class consumers. For instance, in another working paper she just finished this fall, “The Real Value of Fakes,” Gosline interviewed hundreds of consumers who knowingly bought fake luxury apparel, many at “purse parties” where such goods are sold. Gosline found that within two years, 46 percent of these buyers subsequently purchased the authentic version of the same product — even though other people could not necessarily tell the difference. Such behavior is another twist on Veblen’s thesis: For some status-seeking people, at least, the social power of luxury goods means that consumption must not just be conspicuous, but real.


Topics: Economics, Business and management, Luxury goods, Marketing

Comments

Found Gosline's research tremendously interesting. In my experience though, apart from conspicuous consumption - which is usually associated with the nouveau riche - the human trait that underlies brand decisions more broadly is snobbery. While conspicuous consumption (of purses for example) is based simply on visual cues about enhanced social capital, true snobbery is based on 'taste', i.e., cultivation of the senses. A product that perhaps epitomizes this is wine. Wine snobs claim to be able to tell 'good' wine from 'bad' (usually linked to price of course)...but I have often experimented with re-filling very expensive wine bottles with inexpensive wine (of an entirely different grape and vintage) and offering it to supposed wine connoisseurs...and found it extremely rare that the person could tell the difference! Would be great to see Gosline extend her research into products consumed by 1) the supposed connoisseurs and 2) bourgeois bohemians who are into un-conspicuous consumption of very expensive utilitarian goods (such as $500 Marmot jackets). <b><i>Edulbehram, thanks for your interesting comment. I also thought of wine while reading Professor Gosline’s papers, for the reasons you mention. There are additional great examples of wine connoisseurs being fooled: The “Judgment of Paris” blind tasting of 1976 involved French wine professionals unexpectedly giving their highest marks to California wines; some wine counterfeiters have thrived for years; and so on. Clearly there are real limits to the abilities of even serious connoisseurs. In any case, when working on the piece, I discussed this type of distinction (and wine) with Professor Gosline, who I think is quite attuned to the existence of these multiple types of consumption. Her future research will probably relate more to your second example — expensive yet inconspicuous (to outsiders) consumption of luxury goods, which is nonetheless visible to members of certain social groups. Her research is very much informed by sociology and will likely continue to analyze just who is sending these subtle signals concerning taste, and how they do it. --Peter Dizikes</i></b>
soon as I saw the article I posted a comment in Italian. the message seeks to show how different ways we have to express ourselves and how the same applies in the case of the emotions that move us to buy the products. the problem of value is crucial in the current economic crisis, because the bubbles are formed by a" weak measure" of value......... There are some areas of study of luxury that are interesting for further consideration: don't confuse the food-wine- , with clothing or apparel, there are several possible consequences from the use of "false" in this case! Today the economy have to measure the value of intangible assets with clear rules and tools to prevent speculation from other crises even in luxury - DUBAI - docet!. Luxury does not mean expensive, as the consumer /users does not mean luxury. social network is important but relative in luxury goods with great brands. <b><i>Editor's note: Only comments written in English are posted</b></i>
Interesting research and article. How did they measure that the consumers' main consideration was status rather than quality? For example, if a specific person wears something than might be an indication that the "something" is real - hence, a consumer will be more confident that good quality is guaranteed and hence be willing to pay full price. Would you buy expensive jewelry at a shabby store? Likely not, because you would wonder if it's fake (or worse, stolen). But you would buy it from a reputable jeweler (if you were shopping for jewelry). That's different form, say, buying Tiffany simply for the brand name. Also, on the comments about wine below - one can certainly make the difference between good wine and bad wine. (Oh, yes, it's a huge difference.) I think you are talking about the difference between good expensive wine and good inexpensive wine, which indeed might be difficult to distinguish. In the latter case, I agree that it makes little sense to buy the expensive one. But I don't think that people should be accused of snobbery simply because they care for quality. Luxury and good quality are not synonymous.:)
"Consumers...struggle to distinguish the intrinsic qualities of real luxury goods from fakes" largely because the difference is often minimal. A $2200 Prada bag costs about $100 to manufacture, with significant contracting done in China -- often at the same factory as the fakes. In order to justify the pricing premium of the authentic over the counterfeit -- or of the luxury brand over the mid-tier brand -- both the luxury marketers and consumers necessarily collude in invoking not only the superior quality of the product but also the superior aesthetic discernment of the consumer. It's no surprise that those consumers who buy into the luxury mystique should be so vociferous about policing and shaming consumers of counterfeit goods. I would be interested in studying the correlation between the aggressiveness of the denunciation and the income of the denouncer -- are those consumers who are the loudest in decrying counterfeit handbags also those who have the most to lose from erosion of the brand cachet from fakes, i.e. have spent a higher proportion of their income on authentic handbags?
Do people really spend $2200 on a bag? That's absurd. Unless it has a unique historic value, no bag is worth $2K. However, that's not the same as looking for authentic brands if they guarantee high quality. Anyway, speaking of China ... I decided to avoid buying anything made in China, because I don't trust that the working conditions there are appropriate - I wouldn't want to wear anything that was produced by child labor! I'm discovering that, especially for clothes, it's practically impossible to find anything that was not made in China. Unless one goes to brand name stores that is - in which case, at least I have a choice of which third world country the goods were produced. It seems to me that we have bigger problems to worry about than why someone buys a $2K bag. :)
In art, the name is virtually all. If a painting is thought to be by Dali, and is greatly loved, and someone says, it must be Miro - that's also OK. But if a third person says - No, no, no! It's by Capuletti. Everyone is crestfallen. Not by Dali, not by Miro! Then who is this Capuletti and why are we even looking at it. Quality is not the issue, just the author's seal of 'authenticity." You can multiply the examples. Value comes from the known creator. Brand names have it all . . . usually.
Depending on the brand, there's actually a significant difference in quality. And that issue aside, for those that buy and/or collect these bags it becomes a question of taste, just as with (as Maurizio mentioned before) a fine wine. I assure you a $2200 handbag looks different than one sold on the street. Take the price down further and your argument probably stands. Ie: a $400 Coach bag. But that's what makes a more expensive bag even more attractive to the consumer.
It is clear what benefit consumers get from luxury goods: to impress fools and stimulate servility. The producers of the goods obviously profit. It is not clear to me that society as a whole benefits from conspicuous consumption, and there are arguments that the waste involved does harm. (In some cases, as in that of shark's fin soup, the harm is evident.) Some producers demand new legal powers to suppress imitations, but unless there is a social benefit in their activity, there is no basis to suppose society benefits from being restricted in this way. Unless it is shown that imitations are harmful to society, and not solely to snobs and exploiters of snobbery, we should refuse to describe them using terms such as "fake" or "counterfeit" that presuppose it is wrong to imitate. Let's reserve those terms for goods that are deficient in some substantial way and fail to do the practical jobs they are supposed to be good for.
I never understood paying that kind of money for so called "luxury" items. Does buying the fakes which are so readily available if you know where to look make you a snob too? I dont know.
Back to the top