Question

An article in the Wall Street Journal reported that customers who shopped at Neiman Marcus and other high-end retailers were becoming more resistant to paying high prices for clothing and accessories: High-end [retailers] which raised prices incessantly over the past decade, are learning the hard way that even wealthy customers are hunting for better deals and selection, whether online or at shops run by individual brands. ... Neiman's Chief Executive Karen Katz \(\ldots\) reduced snob appeal by allowing Neiman shoppers to use Visa and MasterCard. Previously, the stores only accepted American Express or Neiman credit cards. a. What does the article mean by "snob appeal"? Is there an economic explanation for it? Briefly explain. b. Why might losing snob appeal be a problem for highend retailers like Neiman Marcus?

Short answer

The term 'snob appeal' signifies the status or exclusivity element tied to a product or service. The economic explanation for it can be associated with the theory of conspicuous consumption, where consumers gain satisfaction not just from the product/service but also from the associated status. Losing 'snob appeal' can potentially damage high-end retailers like Neiman Marcus as it can dilute their brand image and status, leading to diminished sales and profitability, as customers might not be qualified to pay premium prices anymore.

Step-by-step solution

Understanding Snob Appeal

The term 'snob appeal' is used to describe a situation in which a product, or in this case a shopping experience, is appealing because it is considered exclusive or high status. This appeal is often associated with luxury brands and is usually related to factors such as high price, exclusive distribution, or unique design.

Economic Explanation for Snob Appeal

From an economic perspective, snob appeal can be explained by the concept of 'conspicuous consumption' proposed by Thorstein Veblen. This theory posits that people will spend more on luxury goods because they want to demonstrate their wealth and social status. Essentially, the utility derived from owning and using high-end, exclusive products is not only from the product itself but also from the status associated with owning it.

The implications of Losing Snob Appeal

Losing snob appeal can be a problem for high-end retailers like Neiman Marcus. If shoppers perceive that the exclusivity or high-status aspect of shopping at Neiman Marcus has lessened, they may be less willing to pay premium prices for products, looking for cheaper alternatives instead. This perception can dilute the retailer's brand image and status, potentially leading to decreased sales and profitability.

Key concepts

Conspicuous Consumption

Conspicuous consumption is a term coined by economist Thorstein Veblen to explain the phenomenon where individuals purchase expensive items not solely for their utility, but to display wealth and social status. This form of consumption is most evident in the buying patterns of high-end products and services.

The desire for conspicuous consumption often leads individuals to favor brands and products that are easily recognized as luxurious or elite. Ostentatious spending is not just about personal satisfaction; it serves as a symbol of financial success to others.

• **Status Symbol**: Conspicuous goods often function as status symbols. Owning them sends a message about one's social ranking.
• **Social Influence**: Seeing others enjoying such products can pressure or inspire similar purchases.

This visualization of success plays an important role in societies where personal wealth translates to honor and respect. When companies leverage conspicuous consumption themes, they focus on creating products that stand out for their extravagance and exclusivity.

Luxury Brands

Luxury brands represent a category of goods that offer more than just basic functionality. These are brands positioned at the high end of the market and are synonymous with premium pricing, exceptional quality, and an image of exclusivity.

Owning products from luxury brands is generally viewed as a gateway to the luxurious lifestyle that consumers aspire to. These brands often invest heavily in creating a specific brand aura that epitomizes prestige and elegance.

• **Brand Exclusivity**: Maintaining a sense of exclusivity is vital. This often means limited-edition items or products that aren't accessible to everyone.
• **Craftsmanship and Quality**: The promise of superior quality and craftsmanship is a staple of luxury brand items.
• **Heritage and Legacy**: Many luxury brands have a storied history that adds to their allure and appeal.

These attributes contribute to the high consumer demand for these brands and enable them to command premium prices far beyond the sum of the materials and labor involved.

Economic Utility

The concept of economic utility pertains to the level of satisfaction or fulfillment a consumer gains from purchasing and using a product or service. It is a central tenet in economic theories that define consumer behavior and decision-making.

In the context of luxury goods and high-end retailers, economic utility encompasses more than just the practical utility of the product. It includes the prestige and status benefits associated with owning such items.

• **Functional Utility**: The basic level of utility derived from the actual use of the product.
• **Status Utility**: Relates to the social prestige and recognition received from owning certain high-status items.

When consumers purchase luxury items, they often derive utility not only from the product's features and functions but also from the way it supplements their desired image. This multifaceted form of utility means emotional and symbolic benefits can sometimes outweigh practical needs.

High-End Retailers

High-end retailers cater to consumers looking for luxury shopping experiences. These retailers often sell products from luxury brands, known for their exclusivity and high value.

Stores like Neiman Marcus aim to provide not just products but an environment of indulgence, appealing to those interested in upscale retail experiences. High-end retailers thrive on a reputation that assures consumers of authenticity, quality, and prestige.

• **Exclusive Shopping Experience**: The ambiance and service offered are as important as the products themselves.
• **Curated Selection**: High-end retailers often boast a carefully curated selection of products, ensuring they meet stringent quality and exclusivity criteria.
• **Brand Partnerships**: These retailers establish strong relationships with luxury brands to maintain an upscale image.

However, to maintain their market position, high-end retailers must continuously adapt to consumer preferences while safeguarding their exclusive brand image. As highlighted in the Wall Street Journal, retailers sometimes adjust their strategies, like widening payment options, to attract more consumers without compromising their understated exclusivity.