How Societal Disparity Impacts the Luxury Goods Market

The Power Distance Index, created by Geert Hofstede, is designed to measure “. . . the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally.” Essentially, it measures inequality in a community and can be used to analyze consumer behavior based on the consumers’ place in the hierarchy of an organization or community. The higher the PDI, the more a community relies on a hierarchy. The lower the PDI, the greater equality between the rich and the poor. 

How does a high PDI impact consumer behavior?

The market for luxury goods is particularly impacted in countries with a high PDI. With the greater disparity in social status, the drive to purchase luxury brands, like Louis Vuitton or Rolex, sky-rockets because consumers are trying to maintain or level up their social status. Luxury goods=high social status. 

The direct impact of “luxury goods=high social status” is the encouragement of the counterfeit market. Almost all high-end designer brands are subject to knock-offs. Some say that counterfeit luxury purses are a pure violation of intellectual property law. However, some say that the counterfeit market actually helps luxury companies. During a lecture at Fordham Law School’s Fashion Law Bootcamp in May 2019, some speakers spoke about how luxury brands derive benefit from the counterfeit market because the designs that sell well on the street are likely the same designs that will start trending in the authentic market. Luxury brands are gaining valuable market research from a fraudulent industry, born from consumer behavior in a high PDI community. 

Pictured above is a typical scene in a market in Ho Chi Minh, Vietnam. Here, a woman is selling counterfeit luxury handbags. Despite knowing where the central hubs of counterfeit trading are located, luxury brands do not interfere, in part, because of the colossal amount of resources it would take to combat the counterfeit industry. 

How does a low PDI impact consumer behavior?

The inverse is true of countries with a lower PDI. Consumers in a country with a low PDI do not feel the need to buy their social status with luxury goods because the disparity between classes is so low. Consumer behavior then becomes a more intricate conversation because there is not such a huge societal gap motivating their purchases. 

Thank you for reading!

Have you ever bought anything (or NOT bought something) to impact your own societal status? Let us know in the comments!

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