Do social media marketing activities enhance customer equity? An empirical study of luxury fashion brand

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Abstract

In light of a growing interest in the use of social media marketing (SMM) among luxury fashion brands, this study set out to identify attributes of SMM activities and examine the relationships among those perceived activities, value equity, relationship equity, brand equity, customer equity, and purchase intention through a structural equation model. Five constructs of perceived SSM activities of luxury fashion brands are entertainment, interaction, trendiness, customization, and word of mouth. Their effects on value equity, relationship equity, and brand equity are significantly positive. For the relationship between customer equity drivers and customer equity, brand equity has significant negative effect on customer equity while value equity and relationship equity show no significant effect. As for purchase intention, value equity and relationship equity had significant positive effects, while relationship equity had no significant influence. Finally, the relationship between purchase intention and customer equity has significance. The findings of this study can enable luxury brands to forecast the future purchasing behavior of their customers more accurately and provide a guide to managing their assets and marketing activities as well.

Introduction

The luxury market has attained maturity, along with the gradual expansion of the scope of its market and a rapid growth in the number of customers. Luxury market is a high value-added industry basing on high brand assets. Due to the increased demand for luxury in emerging markets such as China, India, and the Middle East, opportunities abound to expand the business more than ever. In the past, luxury fashion brands could rely on strong brand assets and secure regular customers. However, the recent entrance of numerous fashion brands into the luxury market, followed by heated competition, signals unforeseen changes in the market.

A decrease in sales related to a global economic downturn drives luxury businesses to change. Now they can no longer depend solely on their brand symbol but must focus on brand legacy, quality, esthetic value, and trustworthy customer relationships in order to succeed. A key element to luxury industry becomes providing values to customers in every way possible.

As a means to constitute customer assets through effective communication with consumers, luxury brands have tilted their eyes toward social media. Marketing communication using social media such as Twitter, Facebook, and YouTube has already been evaluated as business take-off tools for luxury fashion brands. Traditional designer houses such as Louis Vuitton provide live broadcasting fashion shows on their blogs. Ralph Lauren, Chanel, Donna Karan, and Gucci have worked with Apple to create iPhone applications.

Many luxury houses create their own Twitter accounts or post themselves on Facebook. Brands and customers are communicating with each other without any restriction in time, place, and medium so that old-fashioned one-way communication is changed to interactive two-way direct communication. In this way, brands and customers are working together to create new products, services, business models, and values. Meanwhile, brands can gain exposure and strengthen relationships with customers. Social media marketing (SMM) is a two-way communication seeking empathy with young users, and even enforcing the familiar emotions associated with existing luxury brands to a higher age group. In addition, social media activities of brands provide an opportunity to reduce misunderstanding and prejudice toward brands, and to elevate brand value by creating a platform to exchange ideas and information among people online.

With the increased use of SMM by luxury brands, it has become highly necessary to quantitatively analyze the effects of the social media. Thus, the purpose of this study is to identify the constructs of perceived SMM activities of luxury fashion brands, and to evaluate the influence of those activities on customer equity and purchase intention. As the luxury business environment is undergoing a rapid change, this research will redefine the properties of luxury brands that affect their performance so as to guide businesses to manage and elevate them. This research will propose a strategy to enhance brands' performance by defining specific factors relating to customer equity and purchase intention. Moreover, the findings will enable luxury brands to forecast customer purchasing behavior and manage their customer equity and social media activity as well.

Section snippets

SMM activities and their effects on firm performance

Social media are online applications, platforms and media which aim to facilitate interactions, collaborations and the sharing of content (Richter & Koch, 2007). They take a variety of forms, including weblogs, social blogs, microblogging, wikis, podcasts, pictures, video, rating and social bookmarking. As their use increases exponentially, not only existing social networkers but even business firms and governmental organizations are joining and using them as communication tools. Unlike

Customer equity and its drivers

The value a customer brings to a firm is not limited to the profit from each transaction but is the total profit the customer may provide over the duration of the relationship with the firm (Kumar & George, 2007). Thus, customers are seen as the intangible assets a firm should wisely acquire, maintain, and maximize just like other financial assets (Blattberg et al., 2001). Customer equity, usually defined as the discounted sum of customer lifetime values, has been considered the most

Purchase intention

Purchase intention is a combination of consumers' interest in and possibility of buying a product. As a result of many studies, it strongly relates to attitude and preference toward a brand or a product (Kim, Kim and Johnson, 2010, Kim and Ko, 2010a, Kim and Lee, 2009, Lloyd and Luk, 2010) so that measuring purchase intention assumes consumers' future behavior based on their attitudes. Purchase intention is an attitudinal variable for measuring customers' future contributions to a brand,

Design of hypotheses

Initially, the purpose of marketing is to form a communication by which a firm is able to inform customers of its products and services and create interest in its offering. Marketing is a multidimensional process made up of various strategies; however, a primary goal of any marketing strategy is to increase sales and profitability. According to Srivastava et al. (1998) marketing is an investment that improves customer equity drivers. As a brand's engagement in social media performs as a

Preliminary test

A preliminary test was completed to select a sample luxury brand. Fifteen graduate students majoring in fashion marketing were asked to list three luxury fashion brands that came to mind when thinking of luxury. Louis Vuitton was mentioned most often. According to Digital IQ Ranking developed by Scott Galloway, NYU Stern (L2 Think Tank, 2010), Louis Vuitton was ranked number one among luxury fashion brands. Gucci, Burberry, and Dolce & Gabbana followed after. Digital IQ of luxury brands were

Demographic analysis

Among a total of 362 luxury consumers, most of the respondents were female (79.3%), 58% were in their twenties, and 22.9% were in their thirties (consumers in their forties and fifties took up almost 9% each). With regard to education, 44.2% had a graduate degree, 38.1% had a college degree, and 17.7% were currently in college. Overall, the sample showed very high status in education. Regarding average household income levels, 23.3% of incomes were between 12 million and 15 million KRW, whereas

Conclusions and implications

The study presents here examines the effects of the social media marketing activities of luxury fashion brands on customer equity and purchase intention. SMM activities perceived by consumers were significantly efficacious to luxury fashion brands' future profits. The findings of the study support the following conclusions.

First, SMM marketing activities of luxury fashion brands comprise five constructs; entertainment, interaction, trendiness, customization, and word of mouth. The brands' SMM

Limitations and future research

The limitations and future research directions are as follows. First, as an initial effort to evaluate effect of social media marketing, a visual stimulus used to measure attributes of social media marketing activities face difficulties in controlling possible error. Due to a reason mentioned above, limitation follows in generalizing the result of the study. Future study should develop effective instrument to measure social media marketing more appropriately.

Second, the study questions prior

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    The authors gratefully acknowledge the reading and revision suggestions by C. Anthony Di Benedetto and Rajan Nataraajan to an earlier draft. The authors alone are responsible for all limitations and errors that may relate to the study and the paper.

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