Building the dream online: Does participation in luxury brand's social media affect brand experience, brand affect, brand trust, and brand loyalty? Marketing Master's thesis Ainomaria Parikka 2015 Department of Marketing Aalto University School of Business Powered by TCPDF (www.tcpdf.org) Aalto University, P.O. BOX 11000, 00076 AALTO www.aalto.fi   Abstract of master’s thesis   Author Ainomaria Parikka Title of thesis Building the Dream Online: Does Participation in Luxury Brand’s Social Media Affect Brand Experience, Brand Affect, Brand Trust, and Brand Loyalty? Degree Master of Science in Economics and Business Administration Degree programme Marketing Thesis advisor(s) Sami Kajalo, Tomas Falk Year of approval 2015 Number of pages 92 Language English Abstract The global market for luxury goods has witnessed a phenomenal growth over the past decades. Along with the increasing demand that stems from increased purchasing power, emerging markets, and new wider consumer groups, traditional luxury brands have faced a fierce competition caused by new forms of luxury such as masstige and luxurious fashion. Likewise, the rapid growth of social networks and social media has fundamentally transformed the business environment, and the whole society. Digital networks have facilitated companies and consumers to build online consumption communities, which supports the recent shift of marketing focus on relationships and co-creation of value. Consequently, luxury brands have started to use social media for advertising and relationship marketing. Due to the dynamic and interactive digital environment the importance of brand stories has become even more apparent. While brand communities and online communities are widely studied, luxury brands and social media based brand communities (SMBBCs) have not received yet much academic attention. This study takes the approach of SMBBCs to investigate the influence of consumers’ participation in luxury brand’s social media on brand experience, and on key dependent variables in consumer behavior research: brand affect, brand trust, and brand loyalty. The purpose of this study is to examine the effectiveness of social media, and to contribute to the research on social media brand communities and brand-consumer relationships, as well as luxury brands. The study proposes a theoretical framework that combines two empirically developed constructs: brand experience, and brand affect/trust-brand loyalty constructs, and tests the model within a social media based luxury brand community context. The data were collected as an online survey from various social media, which resulted in 333 valid responses from consumers who follow a luxury brand’s social media. The study is quantitative by nature, and uses structural equation modeling (SEM) as the main method of analysis. To further examine the influence of participation on the focal construct, brand experience, analysis of variance (ANOVA) was also conducted. The results support the reasoning that participation in luxury brand’s social media affect consumer behavior. Social media following influences brand experience that accumulates in the long run, but participation affects also rapidly consumers new to the brand. Further, active participation and passive participation appear to have equal influence on brand experience. The findings reveal the chain of effects from brand related stimuli to brand affect, brand trust, and brand loyalty, and confirm the importance of affect in building brand loyalty. Keywords luxury brands, luksusbrändit, social media, sosiaalinen media, brand communities, brändiyhteisöt, brand experience, brändikokemus, brand loyalty, brändiuskollisuus, structural equation modeling, rakenneyhtälömallintaminen Table  of  contents   1   Introduction  ______________________________________________________  3   1.1   Luxury  industry  and  digitalization  ______________________________________________________  3   1.2   Social  media  and  business  transformation  _____________________________________________  4   1.3   Research  problem  and  objectives  _______________________________________________________  6   1.4   Key  concepts  ______________________________________________________________________________  8   2   Social  media  and  brand  communities  __________________________________  9   2.1   Social  networks  and  social  media  _____________________________________________________  10   2.2   Brand  community  ______________________________________________________________________  12   2.2.1   Definition  of  brand  community  ____________________________________________________  12   2.2.2   Virtual  and  online  brand  community  _____________________________________________  15   2.2.3   Social  media  based  brand  communities  (SMBBCs)  _______________________________  17   2.3   Communication  in  online  brand  community  _________________________________________  19   2.4   Participation  in  online  brand  community  ____________________________________________  21   2.5   Luxury  brands  and  social  media  ______________________________________________________  25   3   Luxury  brand-­‐consumer  relationship  _________________________________  28   3.1   The  concept  of  luxury  __________________________________________________________________  28   3.2   Luxury  consumption  ___________________________________________________________________  31   3.3   Luxury  brand-­‐consumer  relationship  ________________________________________________  36   3.4   Brand  experience  _______________________________________________________________________  38   3.5   Key  variables  in  consumer-­‐brand  relationship  ______________________________________  42   3.5.1   Brand  affect  ________________________________________________________________________  42   3.5.2   Brand  trust  _________________________________________________________________________  44   3.5.3   Brand  loyalty  _______________________________________________________________________  46   3.6   Research  framework  ___________________________________________________________________  49   4   Methodology  ____________________________________________________  51   4.1   Survey  development  ___________________________________________________________________  51   4.2   Data  collection  and  description  of  data  _______________________________________________  54   5   Data  analysis  and  findings  __________________________________________  58   5.1   Measurement  model  evaluation  _______________________________________________________  58   5.2   Structural  model  estimation  ___________________________________________________________  62   5.3   Comparison  with  a  competing  model  _________________________________________________  64   5.4   Additional  findings  _____________________________________________________________________  66   6   Conclusions  ______________________________________________________  69   6.1   Discussion  _______________________________________________________________________________  69   6.2   Managerial  implications  _______________________________________________________________  73   6.3   Limitations  and  future  research  _______________________________________________________  74   7   References  ______________________________________________________  78     List  of  Appendices   APPENDIX  1.  Survey  questionnaire    _________________________________________________________  89   APPENDIX  2.  Factor  analysis  of  participation  variables    ___________________________________  90   APPENDIX  3.  Correlation  matrix    ____________________________________________________________  91   APPENDIX  4.  ANOVA  source  tables,  interaction  effects    ___________________________________  92   List  of  Tables   Table  1.  Summary  of  research  examples  ____________________________________________________  22   Table  2.  Utilitarian  and  hedonic  consumer  behavior  characteristics  _____________________  32 Table  3.  Summary  of  hypotheses  ____________________________________________________________  50   Table  4.  Followers  on  LV’s  social  media  _____________________________________________________  54   Table  5.  Sample  demographics  _______________________________________________________________  56   Table  6.  Respondents  membership  on  LV’s  social  media  __________________________________  57   Table  7.  CFA  construct  measures,  validity  assessment  ____________________________________  60   Table  8.  CFA  construct  measures,  validity  assessment  (second-­‐order  construct)  ______    60   Table  9.  CFA  scale  means,  sd,  reliability  indices,  correlation  matrix  _____________________    61   Table  10.  Path  coefficients  ___________________________________________________________________  64   Table  11.  Path  coefficients,  competing  model  _____________________________________________    66   Table  12.  One-­‐way  ANOVA,  membership  duration  and  brand  experience  ______________    67   Table  13.  T-­‐test,  membership  duration  and  brand  experience  ___________________________    68   Table  14.  Chi-­‐square,  product  ownership  and  membership  duration  ___________________    68     List  of  Figures   Figure  1.  Research  framework  ________________________________________________________________    7   Figure  2.  Consumer-­‐centric  communication  model  _______________________________________    20   Figure  3.  Luxury,  fashion  and  premium  ____________________________________________________    30   Figure  4.  Prestige-­‐seeking  consumer  behavior  ____________________________________________    34   Figure  5.  Luxury-­‐consumer  relationship  ___________________________________________________    37   Figure  6.  Research  framework  ______________________________________________________________    50   Figure  7.  Structural  equation  model  ________________________________________________________    63   Figure  8.  Competing  SEM  ____________________________________________________________________    65   2 1 Introduction   The first chapter introduces the topic and context of this research. The study discusses luxury brand-consumer relationships, and scrutinizes them from a social media based brand community perspective. After presenting the background for the focal themes, a more detailed research problem and framework for the study are provided. The chapter concludes with brief definitions of the key concepts in the research. 1.1 Luxury  industry  and  digitalization   ”The luxury brand is a universe, not a promise. The luxury brand is experiential first and foremost. Its language is mostly non-verbal: it is primarily visual, then related to the other senses. More than words themselves, its way of doing things, what it refers to, its aesthetics, its modes of expression will weave the emotional relationship with its audience.” (Kapferer & Bastien, 2012) The global market for luxury goods has witnessed a phenomenal rate of growth over the past twenty to thirty years (Dubois & Duquesne, 1993; Hennigs et al., 2012; Nueno & Quelch, 1998; Tynan et al., 2010; Vickers & Renand, 2003). What started as a small local family business is now a global multi-billion industry focused on retail and growth (Kapferer, 2014). When considering the amount of luxury firms, the industry is comparably small (Ko & Megehee, 2012), yet a substantial share of consumer product sales originates from luxury (Jin, 2012). What is even more important, is the tremendous influence of luxury industry on marketing practices in other fields of business (Ko & Megehee, 2012). The rapidly growing demand for luxury brands stems from the consumers’ increased purchasing power in western countries, and the new affordable luxury markets (Nueno & Quelch, 1998; Truong et al., 2008), and it is fueled particularly by the new emerging markets in e.g. Asia (Joy et al., 2014; Kapferer, 2014; Kim & Ko, 2012; Tynan et al., 2010; Vigneron & Johnson, 1999; Nueno & Quelch, 1998), but also by the oil producing countries (Anido Freire, 2014). Various industries have also started to tap into luxury strategies to push premium products up-market into new luxury segments (Truong et al., 2008). What is notable is that luxury is no longer a privilege 3 of the elite, but increasingly available to the masses, and consumed by young and well-off people (Kastanakis & Balabanis, 2014). Hence, it becomes important to consider that luxury industry as a macroeconomic sector comprises of various companies, many of which actually are fashion or premium, not luxury (Kapferer, 2014). However, better understanding of luxury consumption is needed (Jin, 2012; Joy et al., 2014; Kastanakis & Balabanis, 2014), yet little is known about the meaning of luxury and luxury consumption, as research on luxury brands is continuously scarce (Vickers & Renand, 2003; Kapferer & Bastien 2012; Okonkwo 2009; Joy at al. 2014). Despite the economical importance of luxury industry in addition to the extensive use of social media by luxury brands, existing research is relatively limited especially concerning luxury brands’ digital strategies. Although luxury industry is characterized by innovation, avant-gardism and creativity, incompatibility with modern digital technology has been a dominant perception until recently. (Okonkwo, 2009) An emerging body of research exists on online opportunities and risks for luxury brands (Dall’Olmo Riley & Lacroix, 2003; Jin, 2012; Kim & Ko, 2012; Kim & Ko, 2010; Ng, 2014), but little is known about how luxury codes of communication are transferred into digital environments (Heine & Berghaus, 2014; Maman Larraufie & Kourdoughli, 2014). The increased competition within the luxury sector along with the decline in demand in the traditional markets have compelled luxury brands to engage in social media activities, as customer relationships are regarded one of the key factors to success (Kim & Ko, 2010; Kim & Ko, 2012). The emerging markets and particularly the growth of social networks imply that the digital luxury markets will grow exponentially. To conclude, the increased use of social media by luxury brands calls for empirical research to scrutinize the effects of social media on customer relationships, purchase intention, and brand loyalty. (Kim & Ko, 2012) 1.2 Social  media  and  business  transformation   Western societies are moving towards a society of networks, in which people, organizations and societies are increasingly connected globally (Raab & Kenis, 2009). Internet has revolutionized the speed and scope of information distribution, thus 4 facilitating the development of virtual communities of consumption (de Valck et al., 2009). Social networks and social media have fundamentally changed the ways individuals communicate, consume and create, and transformed the ways companies interact with the marketplace and society, thus representing one of the most considerable impacts of information technology on business (Aral et al., 2013; de Valck et al., 2009). Social media have been especially integral to recent advances in inferring consumer preferences and targeted marketing techniques. (Aral et al. 2013) The infinite outcomes of social media attract cross-functional and cross-disciplinary research, including economics, marketing, computer science, sociology and strategy (Aral et al., 2013; Boyd & Ellison, 2008; Sundararajan et al., 2013). Digital networks engender economic and social transformations, which are estimated to become even more extensive than the considerable changes caused by the adoption of information technology in business in the past decades (Sundararajan et al., 2013). From marketing research perspective, the field has evidenced a shift from market- based transaction approach to relationship marketing (Berry, 1995; Kozinets et al., 2010; McAlexander et al., 2002; Webster, 1992), that can truly be nurtured in traditional brand communities (Algesheimer et al., 2005; McAlexander et al., 2002; Muniz & O’Quinn, 2001), as well as in virtual online consumer communities (Casaló et al., 2008; de Valck et al., 2009; Kozinets et al., 2010), that place many-to-many communication and consumer networks to a major role (Hoffman & Novak, 1996). The commercial potential of online communities was widely disseminated in the popular management literature already in the 1990s, which resulted in increasing interest of firms to establish their own online communities (Wiertz & de Ruyter, 2007). The growth of online social networks has been phenomenal: the popular social media applications such as Facebook and Twitter, currently reach hundreds of millions of active users (Zaglia, 2013). Consequently, many current marketing efforts utilize digital or social networks to attract or retain customers (Sundararajan et al., 2013), and an increasing number of companies are hosting online communities for strengthening the brand, and for attaining customer information and feedback (Casaló et al., 2008; Kozinets, 1999; Wiertz & de Ruyter, 2007). As brand communities increasingly exist online and cater on social media, the need to explore the unforeseen challenges and opportunities of social networks becomes of major importance (Zaglia, 2013). 5 Research on social media and on brand communities has until recently adhered to separate streams (Zaglia, 2013). However, there are recent empirical studies that show the existence of brand communities embedded in social media platforms (Zaglia, 2013) as well as their quality and unique aspects (Habibi et al., 2014b). As social media based brand communities are becoming more prevalent and important, the need to gain more insights about them have increased (Laroche et al., 2012). In addition, more research is needed to overcome suspicions of the effectiveness of social media, by establishing the link between consumers’ participation in firm-hosted social media and company performance (Rishika et al., 2013) Social networks provide access to unlimited numbers of consumers, at high speed and low cost, in addition to convenience for companies (Zaglia, 2013). Online brand communities are useful for marketing in many ways: brands can provide information, interaction, and offer experiences to their customers. Consequently, the content of a brand’s social media is a combination of firm-generated information and entertainment, enhanced by customer generated content and value. By sharing their experiences online consumers co-create value (Schau et al., 2009), and co-create brand experiences (Prahalad & Ramaswamy, 2004) in online virtual brand communities. As the co-creating involves also brand stories, their importance as powerful framework becomes even more apparent in the dynamic and interactive environment (Hennig-Thurau et al., 2013). Consequently, capturing value from social media is a necessity for any contemporary brand strategy to become successful (Zaglia, 2013). 1.3 Research  problem  and  objectives   This study takes the brand community literature as the main theoretical angle to address the issue of social media effectiveness by combining the two social phenomena, which have mainly represented separate research streams. More specifically, this study links conceptually several streams of research by investigating the influence of participation in social media based luxury brand community on brand experience, and on key dependent variables in consumer behavior research: brand 6 affect, brand trust, and brand loyalty. The suggested brand community approach to company hosted social media is further combined with a third inherently social phenomenon, luxury brands. Hence, the approach facilitates the investigation of how luxury brands build the dream on social media, with a focus on brand experience, and its relationship to brand loyalty. The present study proposes a theoretical framework that tests the brand experience construct developed by Brakus et al. (2009) combining it with Chaudhuri and Holbrook’s (2001) brand trust – brand affect – brand loyalty model within a social media based luxury brand community context. Thus, this study builds on previous research on consumer relationship theory, while also contributing to the research on social media brand communities, and luxury brands by scrutinizing the role of social media in luxury brand – consumer relationship. To the author’s knowledge, the study is the first to empirically investigate the effects of luxury consumers’ actual social media participation on their relationship to the luxury brand. The research seeks to answer the question: ”Does participation in luxury brand’s social media affect brand experience, brand affect, brand trust, and brand loyalty?” PARTICIPATION IN SOCIAL MEDIA BASED LUXURY BRAND COMMUNITY Passive Brand Behavioral Participation Affect Loyalty Brand Experience Active Brand Attitudinal Participation Trust Loyalty STIMULI FOCAL CONSTRUCT MEDIATORS OUTCOME Figure 1. The research framework     7 1.4 Key  concepts   This section presents brief definitions of the key concepts of this study. Further definitions, as well as the research hypotheses within the conceptual framework are provided in the following chapters. Social media based brand community (SMBBC) refers to a special type of brand community embedded in social networking site or social media (Habibi et al., 2014a; Habibi et al., 2014b; Laroche et al., 2012; Zaglia, 2013). Brand community is traditionally conceptualized as a group consisting of people who share the same admire for a brand and a sense of belonging to the group. In addition, the members of a brand community negotiate meaning through shared rituals and traditions, and develop a sense of moral responsibility to the community and its members. Brand communities are consumption communities with a commercial marketplace orientation. (Muniz & O’Quinn, 2001) In this research, SMBBCs refer to company- hosted commercial online communities that can be commonly defined as “affiliative groups whose online interactions are based upon shared enthusiasm for, and knowledge of, a specific consumption activity or related group of activities” (Kozinets, 1999, p. 254). Brand experience is conceptualized as ”subjective, internal consumer responses (sensations, feelings, and cognitions) and behavioral responses evoked by brand related stimuli that are part of a brand’s design and identity, packaging, communications, and environments” (Brakus et al. 2009, p. 53). Brand loyalty can be described as ”a deeply held commitment to re-buy or re- patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational influences and marketing efforts having the potential to cause switching behavior” (Oliver, 1999, p. 34). 8