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Chapter 10: Problem 6

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

Expert verified
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

01

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.
02

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.
03

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.

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