Luxury goods are products, services and experiences that are relatively expensive and nonessential. The following are illustrative examples.
Superior GoodsSuperior goods are items that tend to make up a larger percentage of spending as income or wealth rises. For example, the very wealthy spend may on private jets, whereas most people spend zero percent of their income on private jets. This can be contrasted with an inferior good such as fast food whereby a higher portion of your total spending goes towards the good as your income declines.
Veblen GoodsA veblen good is a product or service that receives higher demand at a higher price. For example, a New Year's Eve event that receives higher overall demand because its the most expensive nightclub in town that night. This is the opposite of a regular good that receives less demand as prices rise. A veblen good is mostly a theoretical construct and is exceedingly rare in practice. Normal luxury goods aren't veblen as demand increases a great deal if you discount them, particularly in the short term before the brand's status declines due to the discounting. If you sold a high end super car for $10 instead of $10 million demand would not be low. It is a common myth that all or most luxury goods are veblen.
Positional GoodA positional good is a product or service that is consumed by individuals with high status in a particular culture such that its consumption signals status and group membership. Positional goods may have a high price and may require some cultural capital to purchase. For example, membership in a private club that requires recommendations from existing members. The value of a positional good may fall if people of a lower perceived social standing are buying the good. This is known as the snob effect.
ScarcityScarcity is when a good or material is in limited supply relative to demand such that it is inherently expensive. It is common for luxury goods to incorporate scare materials in order to justify their price. For example, a luxury watch produced with rare metals and jewels.
Artificial ScarcityCreating scarcity by producing products or services in limited numbers. For example, a fashion brand that releases limited edition designs of bags where 20,000 customers may want the design but only 1,000 are produced. This ensures that the brand can maintain high prices and the associated social status of high prices while selling out their inventory. It is a constant temptation for luxury brands to boost output and discount if they end up with inventory. This is known to reduce brand value as the moment you start discounting luxury it no longer feels unique, scarce and exclusive to a social class.
CollectablesItems that are scarce or completely unique that are of interest to enthusiasts in a particular area. Collectables can be considered luxury items based on their scarcity and demand. For example, rare antiques of exceptional quality.
PerformanceGoods that offer higher performance than competitors. For example, a brand of sports car that regularly wins auto racing competitions that is known for its performance engines.
Customer ExperienceProducts and services that offer a superior customer experience in order to differentiate themselves from less luxurious offerings. For example, a first class flight with superior comfort, amenities, food, entertainment and services.
Customer ServiceCustomer service talent is a key differentiator in the luxury market. For example, a hotel that manages to find employees who make every customer interaction professional and pleasant.
Personal ServicesServices that provide personalized attention such as a spa.
SizeLuxurious products and services often offer more space than regular goods. For example, a luxurious house with more space in its bathrooms than the average total house size in the same city.
LocationA superior location such as hotel located in the most convenient and upscale part of a city.
LegacyA time-tested reputation and/or an interesting history. For example, a fashion design house that has a long history of serving royalty.
QualityQuality is the value of a product or service to the customer. It is common for firms to try to find ways to increase quality in order to attract the interest of wealthy customers who may be somewhat price insensitive. For example, a restaurant that has a lush decor, talented chef and wait staff that uses rare and/or local ingredients to earn a reputation for quality.
CraftA common way to increase perceived quality is to produce things by hand, particularly where this is done in a country with high labor costs. For example, shoes crafted by hand in Italy or France.
BespokeBespoke is the practice of designing something unique for a customer in close consultation with them such as tailor-made suits. This implies a great deal of skilled labor is involved as opposed to a process of mass customization.
Haute CoutureHaute couture, or "high dressmaking", is the creation of custom fitted clothing. In France, this is a protected commercial term such that only fashion houses recognized by the Chambre Syndicale de la Haute Couture can use it.
AppellationAn appellation is a legally protected name that can only be applied to products, usually wine or food products, from a particular region that conforms to local standards. This is a means of creating artificial scarcity that gives farmers in a place incentives to produce superior quality as opposed to a commodity crop that receives a market price.
BrandA legally protected identity for products and services owned by a single firm. This gives a firm an incentive to build a reputation for quality or simply build a sense of social status around the brand in order to be considered a luxury item.
Designer LabelA brand based around the personal image of a company founder or designer such as a fashion designer.
Middle LuxuryMiddle luxury are luxury products, services and experiences that are marketed to the middle class as opposed to the bourgeoisie or upper class. For example, a relatively expensive watch that contains no precious metals or jewels but has a high status brand name.
Conspicuous ConsumptionConspicuous consumption is a purchase motivated by a desire to signal social status such as wealth, coolness, youth and popularity. In many cases, luxury brands capitalize on this motivation by providing highly identifiable products that are widely known to be expensive and associated with a number of well known individuals such as celebrities. In many cases, the middle class buy brands they associated with the bourgeoisie and the bourgeoisie buy brands they associate with the upper class. In other words, it is common to buy luxury that is difficult to afford to signal your economic strength relative to your peers.
Conspicuous ConservationConspicuous conservation is a purchase motivated by a desire to show that you are a good person. For example, attendance at an expensive charity dinner whereby guests can enjoy luxurious food while feeling good about themselves.
Private EventsPrivate events such as weddings often involve displays of wealth. Weddings alone represent a significant portion of luxury spending.
Arts & CultureArt can be extremely expensive and offers a way to build cultural capital. Likewise, cultural and sporting events are often expensive and exclusive in that it can be difficult to secure tickets. As such, obtaining tickets to well known events can signal social status.
Corporate LuxuryLuxury goods that are marketed to corporations as, often nontaxable, benefits for employees. For example, luxury box seating at sporting events or a corporate jet.
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