The availability of high-quality, low-price counterfeits in many luxury markets threatens the role of luxury goods as a status symbol. If those counterfeits look and feel the same as the authentic counterparts, as many professional authenticators observe, and they are available at a fraction of the price of authentic goods, why would self-interested consumers purchase authentic luxury goods? Then, the future of luxury goods is called into question. In this paper, we propose that the presence of high-quality, low-price counterfeits can, surprisingly, motivate the wealthy consumers to pursue what we term as the "maximalist luxury" strategy. In the presence of these counterfeits, the wealthy can resort to signaling their status by purchasing the maximum number of luxury goods available and put their copious consumption on display, while in the absence of such counterfeits, the wealthy consumers only need to purchase the minimum number of luxury goods to stand out. This new signaling mechanism then highlights the importance of product line decisions by a luxury brand in combating counterfeits and provides a number of managerial insights about how to maintain the role of luxury goods as a status symbol through pricing, adjusting the product line, and limiting its products' functionality. | INTRODUCTIONLuxury goods companies have long waged a battle against counterfeit goods. Today, owing to sales over $460 billion per year (Deloitte, 2018;Mau, 2018) and a dramatic improvement in quality, the battle with counterfeiters is tougher than ever. Today's counterfeits are not the same as yesterday's knockoffs which had inferior quality, but as some industry observers put it, they are nearly identical to the real thing, except for their low prices (Zerbo, 2018). These high-quality, low-price counterfeits go by various names such as "super fakes," "triple-a fakes," or "line-for-lines." Some expert authenticators even lament that it is "borderline impossible to figure out" these counterfeits from the authentic products (Mau, 2018). Combating counterfeits has hopelessly become a game of Whac-a-Mole (Zerbo, 2018), making it clear that luxury brands need more effective strategies. In this paper, we will investigate how the availability of highquality, low-price counterfeits may change consumer buying behaviors and call for different management strategies for a luxury brand.Past research has suggested that consumers pay exorbitant prices for luxury goods despite their low-priced equivalents are readily available. This is because luxury consumers desire to stand out and signal their success, sophistication, power, and, of course, wealth, through lavish spending that others cannot afford to mimic (Bagwell & Bernheim, 1996;Veblen, 1899). What a luxury brand needs to do is to focus on branding and charge premium prices to help those customers achieve the coveted separation. However, the availability of high-quality, low-price counterfeits casts some doubts on the validity of this long-held thesis and presents a luxury brand with many new
Many firms today manage their existing customers differentially based on profit potential, providing fewer incentives to less profitable customers and firing unprofitable customers. Although researchers and industry experts advocate this practice, results have been mixed. We examine this practice explicitly accounting for competition and find that some conventional prescriptions may not always hold. We analyze a setting where customers differ in their cost to serve. We find that when a firm can discriminate among its customers but the rival cannot, customer base composition influences the rival's poaching behavior. Consequently, even though a low-cost customer is more profitable when viewed in isolation, a high-cost customer may be strategically more valuable by discouraging poaching. Therefore, contrary to conventional advice, it can be profitable for a firm to retain unprofitable customers. Moreover, some customers may become more valuable to retain and receive better incentives when they are less profitable. We further show that, in competitive settings, traditional customer lifetime value metrics may lead to poor retention decisions because they do not account for the competitive externality that actions toward some customers impose on the cash flows from other customers. Our results suggest that firms may need to evolve from a segmentation mindset, which views each customer in isolation, to a customer portfolio mindset, which recognizes that the value of different customers is interlinked. This paper was accepted by J. Miguel Villas-Boas, marketing.
Many …rms today quantify the value of individual customers and serve them di¤erentially; providing better priviliges, discounts or other inducements to high value customers. We refer to this practice as Customer Value-based Management (CVM). Previous research in this area and popular press recommend numerous prescriptions that are research-based and intuitively sound. However, …rms that have adopted CVM have often met with mixed results. For example, only a third of leading U.S. retail banks indicate that they have gained a competitive advantage from CVM. One possible factor that might account for the di¤erence between actual outcomes and anticipated results could be that real …rms implement CVM in a competitive environment. Our objective is to study CVM explicitly in a competitive setting. Our results suggest that while some recommendations and prescriptions from past research continue to hold in a competitive environment, some others do not. For example, …ring low-value customers decreases …rm pro…ts, and even improving their value may prove counter-productive. Also as the cost of CVM technology decreases, …rms adopting CVM in a competitive environment do not necessarily bene…t. Many …rms today quantify the value of individual customers and serve them di¤eren-tially; providing better privileges, discounts or other inducements to high value customers.We refer to this practice as Customer Value-based Management (CVM). Previous research in this area and popular press o¤er numerous prescriptions that are research-based and intuitively sound. However, …rms that have adopted CVM have often met with mixed results.For example, only a third of leading U.S. retail banks indicate that they have gained a competitive advantage from CVM. One possible factor that might account for the di¤erence between actual outcomes and anticipated results could be that real …rms implement CVM in a competitive environment. Our objective is to study CVM explicitly in a competitive setting. Our results suggest that while some recommendations and prescriptions from past research continue to hold in a competitive environment, some others do not. For example, …ring low-value customers decreases …rm pro…ts, and even improving their value may prove counter-productive. Also as the cost of CVM technology decreases, …rms adopting CVM in a competitive environment do not necessarily bene…t.
This paper develops a theoretical model to study how the revenue model and technology of a social media platform affect its content-moderation strategy.
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