Communicating identity: how the symbolic meaning of goods creates different market types

Abstract

This paper argues that the different symbolic meanings of goods give rise to three institutionally different market types. We start from the realization that consumption has symbolic meaning, which individuals use to communicate and construct their identity to their social networks. We argue that firm behavior (including size, pricing and marketing strategies) must be congruent with the symbolic meaning of goods. We distinguish between two stylized meanings of goods, status and taste, which we derive from the socio-anthropological literature on consumption. We argue that these different meanings, articulated by consumers to communicate their identity, give rise to three ideal-typical market types. We present the institutional differences between these market types as well as the implications for firm behavior and demonstrate how firm behavior and marketing strategies differs significantly from markets in which the symbolic meaning of goods is relatively unimportant. We use the recent transformation of the beer market by the craft-beer producers, to illustrate our theory.

KEYWORDS:

• Symbolic meaning of goods
• quality signals
• market segmentation
• judgment devices

JEL:

• D11
• D83
• D91
• L15
• Z13

1. Introduction

This paper argues that differences in the symbolic meaning of goods give rise to different institutional market types. Within these market types, firm behavior and product characteristics and the associated price and marketing strategies differ, both in character and in meaning. To understand the heterogeneity of firm strategies pursued within these different market types, a consideration of the symbolic meaning of goods is required. To that end, this paper distinguishes between functional, status and taste goods whose symbolic meanings have an important impact on the feasible strategies, firms can pursue.

Consumption goods have symbolic meaning next to the more practical or functional purpose which they serve. Organic vegetables satisfy our hunger, but they also symbolize environmental awareness. The clothes we wear keep us warm or make us feel comfortable, but they also convey something about our sense of style, social position or even political preferences. As Gabriel and Lang have proposed, we can think of consumers as communicators (2006). If consumers buy goods to convey symbolic meanings to the groups and communities of which they are part, or seek to be part, they will naturally take into consideration the symbolic meaning of goods in their purchasing decisions. Frequently, these considerations might trump more functional considerations. More importantly for firm behavior is the fact that firms will seek to reinforce the symbolic meaning that consumers seek to convey to their peers. This will have an impact on marketing and pricing strategies, types of product differentiation, and firm behavior generally. The clearest contrast can be found in markets for taste goods, goods which symbolize uniqueness and authenticity, where firms will seek to reinforce the symbolic meaning of authenticity of the good by remaining small and by consciously avoiding high-end marketing strategies.

We believe our theory has particular relevance for explaining some of the strategies pursued by firms in what is sometimes labeled the modern craft-industry or the maker movement (Hatch, 2013; Luckman, 2015) which ranges from craft-jewelry to craft-beer and from craft-barbers to bakers, we find many small firms competing with each other, with unique typically highly differentiated goods. Firms in these industries typically emphasize their local origins, the authenticity of their products and they typically operate at relatively small scale. Given that many of them operate in the creative industries which is characterized by ‘experience goods’ (Nelson, 1970), this strategy is something of an anomaly from the theory of the firm. In markets for experience goods, we would expect information asymmetries and the logic of costly signaling to lead to relatively bigger firms, since these are credibly able to assure potential buyers of the quality of their goods on the basis of reducing uncertainty through costly signaling.¹ However, various creative and craft industries are populated with small firms, but significant clustering (Cooke & Lazzeretti, 2008; Yum, 2018).

Previous attempts to explain different institutional market types have focused on cost-based arguments (Salais & Storper, 1992) or the uncertainty resulting from product differentiation (Karpik, 2010). There are clear cost-based arguments for differences in firm concentration between industries, production in the creative industries is, for example, more often project-based. But we argue in this article that (perceived) smallness is at least partly the result of the symbolic meaning of the goods. We suggest that many of these firms remain small and rely on their marketing on the appeal of uniqueness and authenticity of their products. These firms do not communicate quality with major advertisement campaigns or luxury branding, but by building a credible authentic or unique image to consumers, for which (perceived) size and too much (mainstream) visibility can be a hindrance. In the theory, we present, firm behavior, advertising and pricing strategies, differ between the market types. Especially firms that sell products used by consumers to communicate their cultural taste, will differ significantly in their strategies and behavior.

The paper will proceed as follows. The second section analyzes consumption as a symbolic act, and how it relates to the (desired) identity of individuals. Section 3 develops three ideal-typical types of symbolic meanings of goods. The fourth section utilizes these three types of goods to outline three ideal-typical types of institutional market types: functional, status and taste. We explore the implications of the identified types for firm behavior and strategy. In the fifth section, we illustrate the empirical usefulness of our distinctions with a case-study of the transformation of beer market after the rise of craft beers.

2. The symbolic aspects of consumption

Since the seminal work of Thorstein Veblen, economists and sociologists have been aware of the importance of ‘conspicuous consumption’ and the non-functional uses to which goods are put (Veblen, 1899). Anthropologists have recognized that consumers buy goods, besides functionality, for their symbolic meaning (Douglas & Isherwood, 1979). Others have extended that work to demonstrate how social status is acquired through the acquisition and use of goods and how culture and consumption always intertwine (Appadurai, 1986; Campbell, 1995; Gudeman, 2001). Consumers rely on these symbolic meanings to communicate and construct their own identity as recognized by Bénabou and Tirole (2006). In economics, consumption is understood as the satisfaction of preferences, which can include a preference for social status or cultural distinction. Nonetheless, most applied theories work from the implicit assumption that consumption is primarily functional, and they equate the moment of purchase with the act of consumption. This even though from fashion to cars, and from going out to the books on our shelves consumption clearly is a process that extends in time, and that frequently involves others. The one approach that has highlighted this more active process of consumption can be found in the work of Gary Becker (Michael & Becker, 1973; Stigler & Becker, 1977), who also had an eye for the social dimensions of consumption. He, for instance, analyzed how a stable desire to be ‘in fashion’ could lead to shifting demand-curves for specific goods as these move in and out of fashion. In more recent work on identity economics, Akerlof and Kranton (2010), and in a modified version John Davis (2011), have connected consumption to the construction of individual identity. But overall, the integration of the consideration of identity and the way in which goods are used by consumers to construct and communicate their identity remains understudied.

The most extensive studies into the cultural and symbolic meaning of goods have taken place outside of economics. Ever since Veblen’s seminal work, it has been well recognized that consumption has important symbolic functions. People's tastes – the products they buy, attitudes they profess, and preferences they hold – all act as signals of identity. Tastes, communicated through consumption, can act as markers of social groups and signal a user's other preferences (Solomon, 1983) or signs of their uniqueness (Fromkin & Snyder, 1980). Goods carry significance other than utility because people attribute meaning to their uses and so the symbolic meaning of goods is as diverse as the cultures and communities, humans are part of. Even mass-produced commodities seemingly without symbolic meaning have often become cultural markers (Miller, 1995). Money (2007) has, for example, shown the importance that families give to items of mass-consumption in the decoration of their households, such as clocks or vases. As Douglas and Isherwood argued:

Social life is a matter of alignments, for and against, and for signaling alignments goods are like flags. We ought to know how goods work as communicators, or rather, since the goods are not active agents, only signals, we ought to know how they are used. (1979, p. xviii)

Within this framework, the underlying characteristics of goods become less important than the meanings people attribute to goods, and the way they use them in consumption practices (de Certeau, 1984).

How to precisely conceptualize the symbolic meaning of goods and consumption and its relation to the identity of the consumer is a conceptual question beyond the scope of this paper. But it is worth emphasizing that there are at least two distinct ways of thinking about the issue. Gabriel and Lang describe that difference as that between ‘consumers as communicators’ and ‘consumers as identity-seekers’. In the vision that is closest to the mainstream economic conceptual language consumers use goods to communicate the underlying properties of themselves. Like in the theory of signaling the problem is one of asymmetric information: you know more about your own identity/qualities than your peers. Convincing others that you indeed possess these qualities is a costly process, as is, for example, highlighted in the literature on schooling as signaling (Spence, 2002).

In the work of Erving Goffman (1959) and Michel de Certeau, on the other hand, no underlying (fixed) identity or qualities are assumed, but instead human beings are said to ‘perform’ themselves in different social settings in contexts. From this perspective, individuals do not communicate about their underlying or desired self, but rather actively construct themselves through their actions and consumption patterns (Elliott & Wattanasuwan, 1998). If we apply that ‘performance’ perspective to firm behavior, we can say that firms construct and perform the symbolic meaning of the goods they have on offer. In their theory of virtue signals, Bénabou and Tirole (implicitly) combine elements of both perspectives through their assumption that individuals themselves have imperfect information about their ‘underlying self’.

We believe that this second constructivist account is more in line with the recognition of the importance of ‘endogenous preferences’ (Bowles, 1998) as well as the institutional and contingent nature of the symbolic meaning of goods, which varies across time and space. In a perspective based around exogenous preferences and well-established preference functions, which characterizes much of mainstream economics, it would make more sense to assume that it is the individual preferences which give rise to the symbolic meaning of goods and consequently influence firm behavior. Working from the perspective of endogenous preferences complicates the causal direction of our theory. We cannot assume that symbolic meanings are primary and unidirectionally give rise to different market types but have to allow for the possibility that markets change existing symbolic meanings or give rise to new types of symbolic meanings. We will return to this point in the discussion of our case-study of the rise of craft-beer.

Akerlof and Kranton (2010) have highlighted the importance of identity considerations in economic behavior, but did so in what is essentially a circular manner: certain goods are valued because they provide additional ‘identity-utility’. In economics a more promising avenue is presented by the self-signaling model by Bénabou and Tirole (2006). Their model suggests that prosocial behavior is motivated by the desire to signal virtue as part of the identity of the individual.² The authors connect this insight to pricing: if monetary incentives are introduced for prosocial behavior, the opportunity for the individual to signal ‘virtue’ is lost, because the signal is now tainted. It becomes unclear to others whether the act was performed for prosocial motives or for money. Bénabou and Tirole have not explicitly extended that type of analysis to consumption behavior but the potential is clearly available, consumption can equally signal virtue or other desired elements of a person’s identity. And that potential can be undermined by the marketing or pricing strategies of firms. For example, if an individual wants to signal the prosocial behavior of being environmentally aware, they can do so by buying ‘green’ products at a premium and sending a credible signal. When that price premium would disappear, the signal would lose most of its value, it would no longer be clear whether the product was bought because it was cheap, or because it was ‘green’. We thus quickly see that the identity-related purposes of the consumer might impact the pricing strategies of producers.

If a consumer wants to convey their uniqueness as a sign of refined taste, big brands or mass-advertised goods are not as appropriate ingredients of distinction, since these are easily accessible to various social strata (Karpik, 2010). To signal uniqueness, the consumer will be more attracted by small-scale production, local appellation, boutique brands and firms that, for various reasons, intentionally remain small and somewhat outside of the ‘mainstream’. The fact that the product is not widely known or popular becomes itself a valuable property. It allows a consumer to distinguish themselves from others, and to display their unique or refined taste. Firms can reinforce this symbolic meaning by their advertising narratives or as in some extreme cases by what is called anti-advertising, ironic messages telling consumer to not buy the product (De Luce, 2019). But it is likely to also influence other elements of firm behavior, to the extent that these can be observed by consumers: location choice (i.e. in the artistic district, or off main-street), production techniques (i.e. hand-made), choice of inputs (i.e. regional or sustainable ingredients), as well as their HR-policy (i.e. living wages). By doing so, they help to construct the symbolic meaning of the good.

Conceptually, it is possible to consider all the choices that firms make as ‘signals’ to consumers and to even extend the notion of signaling to the behavior of individuals as Bénabou and Tirole do. But there is a clear danger that we conceptually gain little when we extend the concept of signals to a wide variety of elements of individual and firm behavior. Many, if not all, types of economic behavior are not merely functional, but also culturally meaningful. Because the observed decisions made by firms are culturally meaningful, they are, inevitably, signals. Along this line (nearly) all economic behavior can be described in terms of signals, and little is gained over the simpler conceptual framework of strategic behavior by firms and the symbolic aspects of consumption.

One aspect of the literature on signaling is, however, also important for our purposes. In most of the signaling literature, the (potential) buyer is a passive recipient of the signal (Riley, 2001), but some studies have paid more attention to noisy signals as well as the interpretation of price signals (de Haan et al., 2011; Velthuis, 2005). It highlights that symbolic meanings are not passively received by others but must be understood and judged as credible. As emphasized by Bénabou and Tirole in the context of virtuous behavior, the meaning of an action might be ambiguous, is it performed for intrinsic reasons or for the associated monetary reward? Ambiguity might similarly arise because firm-size or branding might have quite different meanings in different market contexts, as we demonstrate below.

3. Three types of goods

In this section, we develop two prominent symbolic meanings (status goods and taste goods) in more detail and we distinguish them from a primarily functional set of goods. It might be argued from a cultural-anthropological perspective that functionality itself is a symbolic meaning, but to avoid overcomplication we proceed our analysis from the perspective that there is a set of goods for which functionality is more important than symbolic meaning. We take functional consumption to refer to the purchase and use of goods for its practical use and reliability for a relatively clear purpose (e.g. tools in a hardware store, essential clothes, or basic foodstuff). Symbolic consumption refers to the purchase and use of goods for their social meaning. We understand that the functional and the symbolic are often intertwined, as in the example of the mass-produced decorative vases mentioned above. Our point is not to argue that in certain markets all consumers are purely motivated by functional concerns, but rather to demonstrate analytically that different symbolic meanings of goods give rise to different market types.

The second distinction we make is between symbolic consumption of the ‘status’ type, and symbolic consumption of the ‘taste’ type. Broadly, status coincides with communicating socio-economic status, and taste coincides with communicating cultural status. Again, our purpose in doing so is not to argue that these concerns are not sometimes entangled, they often are, but rather to demonstrate how the relative dominance of each of these meanings will differently shape firm behavior on markets and impact the institutional organization of markets. This does not (necessarily) make markets static, since the symbolic meaning of (sets of) goods might vary between different communities, and over time (Kopytoff, 1986), a point also highlighted by our illustrative case of craft beer below.

Particularly in sociology, there is an extensive literature on (cultural) consumption patterns, much of which was stimulated by the work of Pierre Bourdieu (1984). Like Veblen, Bourdieu was keenly interested in how goods are used by individuals to demonstrate membership to certain social groups and to differentiate themselves from other groups. Veblen’s great strength was in the analysis of the consumption of luxury products to signal socio-economic status. He emphasized how the ‘waste’ in both time and money that was signified by luxury consumption, signaled the superior socio-economic status of the individual (Trigg, 2001). The more wasteful the more effective the signal. In a classic bit of analysis, he, therefore, suggested that cats were a more effective signal of wasteful consumption than dogs. After all, dogs still had some practical function in guarding the property, while cats were a pure form of waste (or, if you prefer, pure diversion). Veblen’s analysis, more than a century old, is still a relevant description for some types of consumption. One can think of the social status of holidays, as well as the continued prominence of sportscars, big TV’s, or jewelry. Robert Frank (2001) has also done much to emphasize the social importance of consumption patterns and to raise questions about the desirability of status-driven consumption.

There has also been criticism of Veblen’s theory, or at least further development. Veblen was primarily interested in signaling socio-economic status. But with the rising middle-classes many status goods came within reach of larger parts of society, and traditional class structures and associated patterns of consumption broke down (Cowen, 1998). In this social context, Pierre Bourdieu argued that while individuals are certainly interested in communicating economic status, they are even more interested in signaling cultural taste and status. Bourdieu suggested that the (French) upper classes were particularly interested in transforming economic into cultural capital (Bourdieu, 1986). In Bourdieu’s theory economic capital is attainable to everyone with a certain level of income, but cultural capital requires the active transformation of this economic capital into cultural capital, that is the development of taste. In his theory the individual no longer is engaged in idle pastimes, but rather invests time and resources into the development of ‘taste’. This could be the development of cooking skills, connoisseurship in wine, or the development of cultural taste in literature or music. It is crucial for Bourdieu that cultural capital cannot be directly bought, but requires time and dedication spent on the development of these skills. The possession of this time of type of skills is thus the ultimate type of costly signal. When taste is acquired during youth, in what he called the habitus, it communicates important differences in upbringing and social class. In our theory, we suggest that firms might similarly seek to develop certain skills in order to enhance the symbolic meaning of their goods. For example, by investing in artisanal modes of production.

To communicate cultural status, the individual will seek out products that allow them to display the fact that they possess this developed ‘taste’. Hence consumption will be directed towards goods that are symbolically recognized as requiring an acquired taste, for example, wine or opera (Benzecry, 2009). Individuals signal taste not by signaling waste or diversion, but by signaling their ability to properly distinguish and appreciate. As such, the consumption process requires additional inputs (other than money), especially in the form of knowledge, and what Bourdieu terms cultural capital, to make it count. This can range from the styling of different fashion items together into a ‘look’, to the cooking process of foods that were bought to create a ‘high dining experience’, or indeed the conversation that happens around the consumption process, in which the consumer is able to demonstrate that they truly ‘know what they are talking about’. Individuals and groups engaging in consumption for taste distinction thus often look down upon the consumption practices of others, who fail to properly distinguish, appreciate, and consume the goods at their possession. But signals might fail to be credible. The negative association with luxury consumption as Veblen theorized it would be ‘showing-off’, in which the credibility of the status signal is not (fully) accepted by the recipient. The negative association with taste consumption as Bourdieu theorized it would be ‘snobbery’, in which the distinction signal is ‘exposed’ as inauthentic or not credible.

Our analysis proceeds from the analytical distinction between functional, luxury and taste consumption. Similar distinctions can be found in the work of Gronow (2002) and Karpik (2010). We present the key differences between these types of goods in Table 1. We realize that the symbolic meanings of goods are more varied than such a simple distinction suggest, but we demonstrate in the next section how our typology contributes to understand some fundamental institutional differences between different market types.

Table 1. Types of consumption practices.

	Functional	Status	Taste
Symbolic Meaning	Absent	Display/Recognition	Uniqueness/Artisanal
Examples	Tools, basic amenities	Sport cars, Branded clothes	Craft beer, Independent designers
Capital type (Bourdieu)	None	Economic capital	Cultural capital

4. Three market types: functional, status and taste

In the previous section, we have made a stylized distinction between three different types of consumption: functional, status and taste. In this section, we build on these stylized consumption patterns and argue that these give rise to three market types, with different institutional properties. These institutional characteristics structure both firm behavior and consumption choices. There are other attempts to differentiate market types, some of them overlap to some degree with our characterizations here. The four different worlds of production by Salais and Storper (1992) have received particular attention in the literature. But it is strongly rooted in costs concerns and the supplier perspective more generally, not consumer goals or the symbolic meaning of goods. More recently Karpik (2010) has distinguished between four different types of economic coordination regimes including authenticity markets. His notion of judgment devices is an important way of distinguishing between the different types of markets. But he provides no explanation for the differences between the coordination regimes (Hutter, 2011b). Our distinctions do match well with some of the economies of worth distinguished by Boltanski and Thévenot (2006). Their world of inspiration overlaps with our taste markets, and the industrial world with our functional markets, and with some modification the status markets could be seen as a combination of their market and fame world. But although this framework has been applied for the analysis of a variety of markets, it has not to our knowledge been used to explain different institutional market types.

Table 2 provides the overview of the different market types. Functional markets are characterized by standardized commodities. The consumption of these goods does not require special skills or knowledge and the goods will tend to be appropriately priced, that is pricing will be done to reflect production costs. Quality uncertainty will tend to be low in this type of markets since they are products with frequent repeat purchase, but to gain market share firms are likely to employ low introduction prices. Such products will be widely available and sold at many different retail points. Product differentiation will take place based on industry standards and other widely accepted conventions which reflect the variety of uses to which the product can be put. Quality signals will emphasize the usefulness of the good for its specific purpose, and the fact that it delivers value for money. We believe that firm behavior and strategy for such markets is well captured in existing theories of the firm.

Table 2. Ideal types of markets.

	Functional	Status	Taste
Product type	Commodities/ Standardized	Recognizable /Branded	Unique/Artisanal
Non-monetary costs for consumer	Low	Low/Moderate	High: Time, Engagement and Knowledge
Pricing Strategy	Appropriate, value for money	High, justified by brand value	High, justified by artisanal/traditional mode of production
Dominant Quality Signal	Functionality	Visibility and Exclusivity	Distinctiveness, Authenticity
Marketing Strategies	Industry standards and functional differentiation	Celebrity endorsements, branding campaigns	Local appellations, expert opinion and awards
Firm Size	Determined by economies of scale, competitive markets	Large, international organizations	Small, emphasizing local origins
Location Strategy	Broad availability	Main Street, high prestige locations	Off main-street, in ‘hip’ or creative districts

Status markets are characterized by branded products which could be functional but will typically have an important display function (Vickers & Renand, 2003). These products will tend be sold at a relatively high price which reinforces their symbolic meaning as status goods. In mass markets, these products will require little additional inputs for consumption for the consumer, although at the high-end of the market this might already be different. Special or luxury editions might have to be sought or recognized for their enhanced symbolic status. These products will tend to be sold at brand stores which might sometimes have exclusivity deals with the relevant brand. Producers will in any case attempt to prevent that the product is sold in low-status retail stores. In some cases, they might opt for so-called dedicated flagship stores, which seek to further enhance the status of the brand. These will be in major locations, such as metropolitan cities and main streets. The symbolic meaning of these goods will tend to be enhanced with major branding campaigns and endorsement by celebrities from the world of entertainment or sports. Advertising serves mainly to reinforce the prestige of the good, rather than to send credible information signals (Ackerberg, 2001). The goods in question have some experience goods characteristics, although to a limited extent. Status markets also comprise more recent developments such as mass-customization (Gilmore & Joseph Pine, 1997), which allow for personalized but branded products. One is very unlikely to find low introduction prices as a pricing strategy in these markets since it will undermine the symbolic meaning of the goods in question. Instead, it is more likely that firms will start with high introduction prices which provide an opportunity for the higher segments of the markets to buy the product first, before it becomes a mass-market item. Firms are typically large and internationally recognizable brands, although they must balance the exclusivity of the brand, which is its main asset, with the scale of its operations. It might do this through product differentiation, with premium products which are available in relatively low quantities.

Taste markets are characterized by distinct highly differentiated goods which are meant to symbolize authenticity.³ Authenticity is a contested concept, but we use it for its connotations with genuine: not fake, original, and non-industrial. The highly differentiated nature of the goods sold is well illustrated by relatively extreme cases such as wine or classic music. Wine is differentiated by type (white, red), grape, country, vintage, and sometimes also the vineyard (maison). Classical music recordings are differentiated by recording label, composer, work of composer, orchestra, conductor, venue of recording, as well as the soloists. To describe the qualities of such goods there is a rich vocabulary which can be learned by consumers (Hennion, 2015). In that sense distinguishing between the different goods and properly appreciating them requires extensive additional inputs from the consumers. Picking the right product in these markets is nearly impossible for the uninitiated, but that is precisely the point. Consumption is often time-intensive (or it requires specifically dedicated time), depends on previous knowledge and consumption experience, and tends to be ritualized (often in social settings).

In that sense, the product is so configured that it allows for this extensive engagement, and therefore the display of taste. In everyday discourse, such qualities are often claimed to be intrinsic to the products, but our theory suggests that the products are configured to allow consumers to communicate their refined tastes. Firms might offer a range of goods differing from ‘entry-level models’ to highly specific goods aimed at connoisseurs. In that sense, there is similar quality discrimination as in status markets, but here more structured around the level of engagement, rather than price. A wide product scope of firms can thus compensate for the lack of volume of any particular good, and allow for an enlarged production process, while maintaining sufficient ‘authenticity’. In other cases, small companies may wish to scale-up and increase revenues on the basis of volume of a smaller number of products, we contend that this will alter the symbolic meaning of these brands, at least in the medium run and hence limit their appeal in niche markets.

Firms in status markets will seek to construct an authentic image for their products. This means that they will tend to avoid mass-marketing campaigns and try to sell their product in retail stores or specialty shops which reinforce the authentic meaning of their goods. This typically means avoiding main-street locations, and major chains of retailers. In their advertising campaigns they will project an image of authenticity through emphasizing the regional origin, artisanal production method and dedication to the quality of the product. This means that they at least must maintain an image of relatively small-scale production, and this limits firm size in these markets. Unlike in the other markets, there is extensive scope for intermediaries who evaluate the products, which are typically ‘experience goods’ and ‘credence goods’ (Andersen & Philipsen, 1998). Intermediaries such as expert reviewers, tasters, or sometimes themselves (previous) producers can reinforce the authenticity of the product, or indeed diminish it. Pricing strategies will also aim to reinforce the authentic nature of the product, which means that even though prices might be high they are more likely to remain stable without much variation. This signal reflects the fact that the product is truly worth it and might possibly fetch a similar amount on secondary markets.

These three market types are not merely characterized by different types of consumer and producer behavior, but as we already illustrated also differ in terms of institutions: ‘systems of established and embedded social rules that structure social interactions’ (Hodgson, 2006). These rules are directly related to symbolic meaning of goods which structure what firms and consumers can and should do. The clearest institutional difference is the degree of open-endedness of the products. In functional and status markets that open-endedness is limited and the use, value and meaning of the good is tightly structured by major advertising campaigns or the functional use of the product. In taste markets, there is more open-endedness which allows for contributions and engagement of the consumer, who could for example develop their own ‘taste’ among varieties of grapes for wines or offer their own interpretation of more open-ended novels or movies. It also allows for a set of third-party institutions such as awards, reviews, discussion forums, and the like to further valorize the product or service. To an important extent, the valuation of the product is not yet finished when firms sell it (Hutter, 2011a; Hutter & Farías, 2017).

Because of the (partial) open-endedness there is also extensive scope for consumer learning which is facilitated by both firms and third parties, and which further structures the institutional character of the market. This consumer learning, as Earl and Potts (2004) have suggested, is not the type of information about particular goods (advice) that firms tend to convey in advertising, but rather of a more general type about preferences, and where to direct one’s learning. For example, for wine one might learn the relevant characteristics that one should know to distinguish between different wines and grapes. Or in music knowledge of the different genres and the associated qualities within these genres. Elsewhere one of us has explored how exemplary goods serve as instances to learn about these types of characteristics (Dekker, 2016). A similar idea is present in Karpik’s notion of judgment devices which help consumers differentiate and navigate the set of options.

A direct implication of these learning processes is that the effectiveness of consumers’ attempts to communicate directly depends on the communities that one is part of. Sending sophisticated signals of status or taste is only effective when these are recognized as such by one’s peers. In that sense, the theory presented here is consistent with what Potts et al. (2008) has called social network markets. Or to reverse that idea, buying certain goods only make sense when one is part of, or desires to be part of, certain communities (e.g. craft brewers taking part in slow food movements). In that sense, social considerations play a crucial role in determining patterns. Berger and Ward (2010) have suggested that inconspicuous consumption is the purchase and use of subtly marked products which might be misrecognized by most observers, but facilitate interaction with those with the requisite cultural capital. We believe that their distinction is useful for both status and taste markets, as the process of social learning evolves within social groups. Communication efforts will become more inconspicuous in both status and taste markets in communities in which more social learning about the type of good has taken place.

One of the more striking facts about the creative industries is that many of them are segmented markets (Lamont & Thévenot, 2000). In the book market, for example, there is a distinction between fiction and literature, in movies between arthouse movies and commercial movies, in visual art between decorative and fine art, and so on. These market segmentations are reflected in the infrastructure of these markets: arthouse movies are shown in different theaters than commercial movies. Specialized shops and galleries sell literature, poetry and fine art. Major fashion stores are clearly differentiated from ‘boutiques’. These market segments, we suggest, exist because the products have different symbolic meanings, and hence to effectively realize these different symbolic values, a clear differentiation between the markets is required. A consumer cannot clearly communicate their ‘taste’ for arthouse movies by visiting a major cinema. This market segmentation is thus an institutional solution to the fact that ‘similar’ goods have different symbolic meanings. Or to put it differently one type of good can be part of different market types, when there is clear market segmentation. This also means that one cannot always classify one type of good within one of the market types we identified.

Another consequence of these different market types is that the variety of firm strategies is typically not misinterpreted by consumers. Because the market types are recognizable by consumers, they will tend to interpret firm behavior and strategies in the intended way. In that sense, the institutional types of markets we identified are systems of social rules which facilitate coordination by reducing the degree of ambiguity of signals. The institutional structure provides an interpretive context on which both producers and consumers rely. This can be well illustrated with an example. Not all goods have similar interpretations across borders. In countries like France and Italy, the food industry is more concerned with artisanal modes of production and regional varieties of products, as evidenced in their wine and cheese industries (Karpik, 2010). In other countries, such meanings are less prominent, and one of the successes of the Australian wine industry has been the introduction of megabrands such as Jacob’s Creek which have effectively marketed wine more according to the status regime (Bruwer et al., 2002). That strategy will work poorly in countries like France and Italy where the signals are either misinterpreted or considered non-credible.

5. Beer: from luxury to craft

To further illustrate the difference between these market types, and to demonstrate how change might take place, we will develop our argument with a small case-study of the rise of craft beer. Craft beer can be considered part of the ‘slow food movement’ (Pietrykowski, 2004) as producers typically use this denomination to show how goods should be more than simple commodities. Agents who are part of these movements often see themselves as ‘story-tellers’, value producers and cultivators of relationships with consumers through artisanal goods (Delmestri & Greenwood, 2016).

In the past two decades, the beer industry has been upset by the rise of craft beer, and micro-breweries (Elzinga et al., 2015). The absolute size of the craft beer industry is still relatively small in comparison to the major beer companies which still have a market share of about 75%. Nevertheless, the rise of craft beer has meant a major transformation in the beer industry. Whereas the major companies market beer broadly in line with the status model we outlined above the craft producers explicitly appeal to the ‘uniqueness’ model (Chapman et al., 2017). The rise of craft beer has dramatically changed the symbolic meaning of beer, a development which has been called a ‘taste revolution’ (Aquilani et al., 2015). The rise of the microbrewery in the beer market should not simply be understood as the product differentiation strategy of few companies within an existing market, but instead it has altered the symbolic meaning of beer. This has been observed in other similar products such as the case of grappa and the development of taste market (Delmestri & Greenwood, 2016). This transformation has altered how both consumers and producers understand the qualities of beer (Carroll & Swaminathan, 2000). The transformation has been described as the ‘embourgoisement of beer’ in line of consumption practices seen in other markets such as wine (Thurnell-Read, 2018). There are now beer tastings, beer is used as an accompaniment to high dining and served by beer sommeliers, and beer is marketed in wine-sized bottles.

Traditional major beer companies such as Heineken or Budweiser sold nearly exclusively lager beers which were differentiated by strong branding. Signals about product quality concentrated on the social status of the brand, reinforced by product placements and high visibility of the brands at major sports and music events. The new craft-beer producers, on the other hand, appeal to a completely different set of qualities. They hardly produced any lagers, but focus on traditional types of beer such as IPAs, APAs,⁴ Stouts, Belgian Whites, etc. These are produced in extensive variety, often including limited editions and beers brewed for special occasions. No longer is the social status of the brand the crucial differentiator, but rather the distinctiveness and uniqueness of the beer. The microbreweries tend to emphasize their local authentic character and consciously seek to sell to a specialized audience often at a significantly higher price. That image is reinforced with the rise of specialty retail stores, cafes and pubs, as well as (craft) beer festivals. Consumers are able to use such spaces to choose from a selection of hundreds of beers, and to display their taste to their peers. The new venues with the broader selection, distinct glasses, special events, and new mobile applications allow consumers to communicate their own developed taste to their social network.

The revolution in the beer market also led to changes in the beer industry in particular countries, most famously Belgium and The United States. The beer industry in Belgium had always remained less concentrated and more varied, including the tradition of trappist beers brewed in monasteries (Garavaglia & Swinnen, 2018). The justification of the value of craft beer is in this new market type related to the origin of the beer and the way in which it was produced, as well as its unique taste. Within this ‘taste’ type, we expect buyers to be willing to pay a premium for the ‘real thing’ and, more than that, to engage in new consumption practices. To evaluate their authenticity microbreweries invited customers into the brewery, where they could witness the craft. This helped certify the authenticity of the beer, but also facilitated the construction of the new symbolic meaning of beer and provided another form of engagement with the product. The result was that the structure of the beer market was radically upset with the rise of small companies. Whereas before major brands had dominated with massive costly advertising campaigns, now small independent breweries shaped the market, often without extensive advertising campaigns and production at much smaller scale and at higher costs. They communicated and performed, quality through their regional character, distinctive taste and name (!) as well as the authenticity of the production process.

The change in the beer industry was accompanied by the rise of third-parties which facilitated learning about the new product. Elzinga et al. (2015) detail some of the early promoters and the important role they played in the diffusion of knowledge to both producers and consumers of craft beer. More recent year have seen an explosion of books and websites and apps which help the consumer navigate the wide variety, and allow them to communicate their engagement with craft beers.

The developments in the beer market are still underway, and it is not our goal to make predictions about the future of the beer market. One of the current developments is that of major brands promoting crossovers between major brands and craft beers. The website of Heineken, the large Dutch-based brand of beer now states: ‘funnily enough, there’s no official definition of “craft beer”. But a craft brewer is “small, traditional and independent”. And that’s how even Heineken started out’ (Heineken, 2020). Such hybrids might work, but Heineken itself here acknowledges that in order to be recognized as craft beer the beverage might have to be produced by a small and independent brewer, in line with our theoretical framework. Similar to other cultural markets, we might also see a segmented beer market in the future.

The rise of the craft beer industry in the United States has often been linked to the repeal of the ban on homebrewing which first went into effect in some states in 1978 (McCullough et al., 2019). This suggests that the changes were driven by traditional economic factors based on costs. It is important to emphasize that our theoretical model which links the symbolic meaning of goods to different institutional market types does not specify where the change originated. Instead we argue that once the symbolic meaning of a good changes, for beer from a functional or status good to a taste good, firm behavior and marketing and pricing strategies will have to take this into account. This could mean that the change in the symbolic meaning of beer was actively promoted or caused by beer producers, but once that change was successful it gives rise to a new market type, as we have illustrated here for the case of beer.

6. Conclusion

In this article, we have argued that the different symbolic meanings of goods give rise to different institutional market types. The two different types of prestige, status and taste, give rise to three different institutional market types, functional, luxury and taste markets. This is not to suggest that no other symbolic meanings exist, or that this exhausts all institutional market types. But we chose for three to make our theory as clear as possible. For each of the three market types, we have sought to describe how firm behavior as well as marketing and pricing strategies depend on the symbolic meaning of goods. In order to communicate or perform the symbolic meaning of their products, firms will have to embody these characteristics which impacts their strategies for product differentiation and pricing, as well as the ‘optimal’ or ‘appropriate’ firm size.

An important implication of our theory is that theories of firm behavior need to be refined with more institutional detail to generate relevant explanations and predictions about the type of pricing and marketing strategies. Major brands and umbrella branding as strategy is unlikely to be successful in taste markets because it will tend to diminish the authentic, small-scale, image of the product. Or to name another example, low introduction prices are unlikely strategies in status and taste markets, because they will undermine the symbolic meaning of the good. In our analysis, we have made clear that other aspects of firm behavior such as production method, location choice and advertising strategies are similarly influenced by the symbolic meaning of goods, and the purposes that consumers have with the products. This consequently means that not information about underlying properties of the goods as in the Akerlof-perspective, or production costs as in the institutional market theory of Salais and Storper, but the symbolic meaning becomes the determining factor in shaping the institutional structure of markets.

Across countries and cultures, as well as within various niche markets, it will be relevant to distinguish other ideal-typical symbolic meanings of goods than the three we have identified here: functional, status and taste. An example of such an alternative symbolic meaning in the contemporary economy is that of ‘green’ or sustainable products. Our three ideal types are not meant to exhaust all possibilities, but we believe that they provide an empirically fruitful way of analyzing the differences between market types. In the illustrative case-study of the craft beer industry, we have demonstrated the empirical relevance of our theory. But further empirical studies will have to demonstrate to what extent different types of symbolic meanings can co-exist or require market segmentation, as we have suggested. Further empirical variety might come from the absence of the neat alignment between the symbolic meaning signaled by firms, and those conveyed by consumers. A full analysis should include the possibility that individuals and firms have the ability to transform the symbolic meaning of goods.

Goods now and in the past have hardly ever been devoid of symbolic meaning. From clothing, to food and drinks, cars and cultural consumption, nearly all goods are inputs into the creation of the identity of the individual. Goods and services are used and valued by consumers because they allow them to construct and communicate that identity to others. In a pluralistic society such identities, and hence symbolic meanings will be diverse. To understand the heterogeneity of markets, and the associated behavior and strategies of firms, the symbolic meaning of goods cannot be ignored.

Our analysis also shows that consumers who are not part of dominant social classes can aspire to reach distinction through taste differentiation, not economic capital. As a consequence, cultural capital can be highly differentiated with its subcultures, groups and niches with their own symbolic boundaries and circuits. Overall, as long as consumers have access to knowledge about the symbolic dimension differentiated goods, they can access social markers of cultural capital based on authenticity, and other heterogenous symbolic meanings.

Further research in this area can build on the market types developed here to study the interrelationship between social identities and markets in different institutional settings. Our perspective suggests that changes in the symbolic meaning of goods, including new meanings, have the power to upset existing industries and the way that value is generated in these industries. The relevant empirical question is whether such changes in meaning are primarily driven by new ideals and identities that citizens seek to realize, or whether firms are more powerful in shaping the dominant symbolic meaning of goods. One way or another, these questions may refer back to consumer-driven empirical strategies. A further question that emerges from our analysis is the extent to which the economy is moving in a more small-scale and local direction when ‘taste markets’ become relatively more important, thereby widening the difference between economic and cultural capital.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

This paper does not include datasets or empirical data.

Additional information

Notes on contributors

Carolina Dalla Chiesa

Dr. Carolina Dalla Chiesa is postdoctoral fellow at Leuphana University Lüneburg and Lecturer at Erasmus University Rotterdam.

Erwin Dekker

Dr. Erwin Dekker is Senior Research Fellow at the Mercatus Center at George Mason University.

Notes

1 To assure buyers of the quality of products sellers will send costly signals, for example through low introduction prices (Nelson, 1970). Only sellers with high quality products, who are sure they will attract repeat customers, will be willing to send such signals. This acts as an entry barrier to the market, and hence will lead to firm concentration. A tendency that is even stronger if we accept the plausible suggestion that ‘umbrella branding’ is one of the most effective signaling strategies (Wernerfelt, 1988). According to this extension, firms leverage their reputation in related markets as credible signals for the introduction of new products.

2 Some qualities can denote for instance codes of honor, moral decisions and rituals that are ‘manufactured' signals. In the short run, they do not appear as costly but entail a great deal of effort. Volunteer activities for instance portray the engagement in ‘communal benefits' and gift-giving rationales (Grossman, 2015).

3 It is worth emphasizing that markers of authenticity are context-dependent and varies across space and time. Firms might utilize such differences or foster them. They can, for instance, sell the same branded product as commodity in one market and as exclusive branded, imported, in another region.

4 Indian Pale Ale (IPA), American Pale Ale (APA) are types of craft beers.