Luxury goods
In economics, a luxury good (or upmarket good) is a good for which demand increases more than what is proportional as income rises, so that expenditures on the good become a more significant proportion of overall spending. Luxury goods are in contrast to necessity goods, where demand increases proportionally less than income.[1] Luxury goods is often used synonymously with superior goods.
Economics[edit]
In economics, superior goods or luxury goods make up a larger proportion of consumption as income rises, and therefore are a type of normal goods in consumer theory. Such a good must possess two economic characteristics: it must be scarce, and, along with that, it must have a high price.[31] The scarcity of the good can be natural or artificial; however, the general population (i.e., consumers) must recognize the good as distinguishably better. Possession of such a good usually signifies "superiority" in resources and is usually accompanied by prestige.
A Veblen good is a superior good with a prestige value so high that a price decline might lower demand. Veblen's contribution is demonstrated by the significance of the Veblen effect, which refers to the phenomenon of people purchasing costly items even when more affordable options that provide similar levels of satisfaction are available.[32]
The income elasticity of a superior good is above one by definition because it raises the expenditure share as income rises. A superior good may also be a luxury good that is not purchased below a certain income level. Examples would include smoked salmon, caviar,[31] and most other delicacies. On the other hand, superior goods may have a wide quality distribution, such as wine and holidays. However, though the number of such goods consumed may stay constant even with rising wealth, the level of spending will go up to secure a better experience.
A higher income inequality leads to higher consumption of luxury goods because of status anxiety.[33][34]
Luxury brands[edit]
The idea of a luxury brand is not necessarily a product or a price point, but a mindset where core values that are expressed by a brand are directly connected to the producer's dedication and alignment to perceptions of quality with its customers' values and aspirations.[36] Thus, it is these target customers, not the product, that make a luxury brand.[36] Brands considered luxury connect with their customers by communicating that they are at the top of their class or considered the best in their field.[37] Furthermore, these brands must deliver – in some meaningful way – measurably better performance.[37]
What consumers perceive as luxurious brands and products change over the years, but there appear to be three main drivers: (1) a high price, especially when compared to other brands within its segment; (2) limited supply, in that a brand may not need to be expensive, but it arguably should not be easily obtainable and contributing to the customers' feeling that they have something special; and (3) endorsement by celebrities, which can make a brand or particular products more appealing for consumers and thus more "luxurious" in their minds.[38] Two additional elements of luxury brands include special packaging and personalization.[38] These differentiating elements distance the brands from the mass market and thus provide them with a unique feeling and user experience as well as a special and memorable "luxury feel" for customers.[38]
Examples include LVMH, the largest luxury goods producer in the world with over fifty brands (including Louis Vuitton)[39] and sales of €42.6 billion in 2017,[40] Kering, which made €15.9 billion in revenue for a net income of €2.3 billion in 2019,[41] and Richemont.
The luxury brand concept is now so popular that it is used in almost every retail, manufacturing, and service sector.[42] New marketing concepts such as "mass-luxury" or "hyper luxury" further blur the definition of what is a luxury product, a luxury brand, or a luxury company.[42] Lately, luxury brands have extended their reach to young consumers through unconventional luxury brand collaborations in which luxury brands partner with non-luxury brands seemingly at the opposite spectrum of design, image, and value.[20] For example, luxury fashion houses partner with streetwear brands and video games.[43]