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Luxury goods - Wikipedia, the free encyclopedia

Luxury goods
From Wikipedia, the free encyclopedia

Luxury goods are products and services that are not

considered essential and are associated with affluence. The
concept of luxury has been present in various forms since the
beginning of civilization. Its role was just as important in ancient
western and eastern empires as it is in modern societies.[1] With
the clear differences between social classes in earlier civilizations,
the consumption of luxury was originally limited to the elite
classes.
The Mercedes-Benz S-Class is a luxury
sedan

Contents
1 History
2 Semantics
3 Economics
4 Socioeconomic significance
5 Market characteristics
6 Luxury brands
7 Market size
7.1 Luxury bans
8 Market trends
9 Luxury department stores
10 Luxury shopping districts
11 See also
12 References
13 Further reading

History
With increasing "democratization",[2] several new product categories have been created within the luxury
market, aptly called "accessible" or "mass luxury". These are meant specifically for the middle class (in this
context, sometimes called the "aspiring class"). Because luxury has now diffused into the masses, defining the
word has become difficult.[3]

Semantics
In contemporary marketing usage, Prof. Bernard Dubois defines "luxury" as a specific (i.e. higher-priced) tier of
offering in almost any product or service category. However, despite the substantial body of knowledge
accumulated during the past few decades, researchers still have not arrived on a common definition. Many other
attempts have been made to define it using the price-quality dimension stating higher priced products in any
category count as luxuries. Similarly, researchers have also compared goods in terms of their uniqueness. Prof.

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Jean-Noel Kapferer takes an experiential approach and defines luxury as items which provide extra pleasure by
flattering all senses at once. Several other researchers focus exclusively on dimension and argue that luxury must
evoke a sense of belonging to a certain elite group.[citation needed]

Economics
In economics, a luxury good is a good for which demand increases more than proportionally as income rises,
and is a contrast to a "necessity good", for which demand increases proportionally less than
income.[citation needed] Luxury goods are often synonymous with superior goods.
Luxury goods are said to have high income elasticity of demand: as people become wealthier, they will buy more
and more of the luxury good. This also means, however, that should there be a decline in income its demand will
drop. Income elasticity of demand is not constant with respect to income, and may change sign at different levels
of income. That is to say, a luxury good may become a normal good or even an inferior good at different income
levels, e.g. a wealthy person stops buying increasing numbers of luxury cars for his automobile collection to start
collecting airplanes (at such an income level, the luxury car would become an inferior good).[citation needed]

Socioeconomic significance
Several manufactured products attain the status of "luxury goods"
due to their design, quality, durability or performance that are
remarkably superior to the comparable substitutes. Thus,
virtually every category of goods available on the market today
includes a subset of similar products whose "luxury" is marked
by better-quality components and materials, solid construction,
stylish appearance, increased durability, better performance,
advanced features, and so on. As such, these luxury goods may
retain or improve the basic functionality for which all items of a
given category are originally designed.
Jewellery made of gold (or other precious
There are also goods that are perceived as luxurious by the
metals) or containing precious gems is a
public simply because they play a role of status symbols as such
textbook example of "luxury good",
goods tend to signify the purchasing power of those who acquire
especially as the purity of the gold and the
them. These items, while not necessarily being better (in quality,
size of the gems increases.
performance, or appearance) than their less expensive
substitutes, are purchased with the main purpose of displaying
wealth or income of their owners. These kinds of goods are the objects of a socio-economic phenomenon
called conspicuous consumption and commonly include luxury vehicles, watches, jewelry, designer clothing,
yachts, as well as large residences, urban mansions, and country houses. Also see positional good.

Market characteristics
Some luxury products have been claimed to be examples of Veblen goods, with a negative price elasticity of
demand: for example, making a perfume more expensive can increase its perceived value as a luxury good to
such an extent that sales can go up, rather than down.
Although the technical term luxury good is independent of the goods' quality, they are generally considered to be
goods at the highest end of the market in terms of quality and price. Classic luxury goods include haute couture
clothing, accessories, and luggage. Many markets have a luxury segment including, for example, automobile,
wine, bottled water, tea, watches, jewelry, high fidelity, and chocolate.
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Luxuries may be services. The hiring of full-time or live-in domestic servants is a luxury reflecting disparities of
income. Some financial services, especially in some brokerage houses, can be considered luxury services by
default because persons in lower-income brackets generally do not use them.

Luxury brands
A luxury brand or prestige brand is a brand for which a majority
of its products are luxury goods. It may also include certain
brands whose names are associated with luxury, high price, or
high quality, though few, if any, of their goods are currently
considered luxury goods.
For example, following a nearly crippling attempt to widely
licence their brand in the 1970s and 1980s, the Gucci brand is
now largely sold in directly-owned stores. The Burberry brand is
generally considered to have diluted its brand image in the UK in
the early 2000s by over-licensing its brand, thus reducing its
cachet as a brand whose products were consumed only by the
elite.

Armani is an example of a luxury brand for

clothing.

LVMH (Louis Vuitton Moet Hennessy) is the largest luxury good producer in the world with over fifty brands,
including Louis Vuitton, the brand with the world's first designer label. The LVMH group made a profit of 2bn
on sales of 12bn in 2003. Other market leaders include PPR (after it purchased the Gucci Group) and
Richemont.
A rather small group in comparison, the wealthy tend to be extremely influential. Once a brand gets an
"endorsement" from members of this group, then the brand can be defined as a true "luxury" brand. An example
of different product lines in the same brand is found in the automotive industry, with "entry-level" cars marketed
to younger, less wealthy consumers, and higher-cost models for older and more wealthy consumers.
The advertising expenditure for the average luxury brand is 5-15% of sales revenue. This rises to about 25%
with the inclusion of other communication such as public relations, events and sponsorships.[4]

Market size
The luxury goods market has been on an upward climb for many years. Apart from the setback caused by the
1997 Asian Financial Crisis, the industry has performed well, particularly in 2000. In that year, the world luxury
goods market which includes drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage, handbags
was worth close to US$170 billion and grew 7.9 percent.[5] The largest sector in this category was luxury
drinks, including premium whisky, Champagne, Cognac. This sector was the only one that suffered a decline in
value (-0.9 percent). The watches and jewelry section showed the strongest performance, growing in value by
23.3 percent, while the clothing and accessories section grew 11.6 percent between 1996 and 2000, to
US$32.8 billion. North America is the largest regional market for luxury goods: unlike the modest 2.9 percent
growth experienced by the Western European market, the North American market achieved growth of just
under 10 percent.[citation needed] The top ten markets for luxury goods account for 83 percent of the market,
and include Japan, China, USA, Russia, Germany, Italy, France, UK, Brazil, Spain, and
Switzerland.[citation needed]
In 2012, China surpassed Japan as the world's largest luxury market.[6]

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Luxury bans
In July 2010, the United States Department of Energy banned the sale of luxury showers that use more than 9.5
liters of water per minute.[7]
In February 2013, China banned advertisements for luxury goods on its official state radio and television
channels.[8]

Market trends
The three dominant trends in the global luxury goods market are globalization, consolidation, and diversification.
Globalization is a result of the increased availability of these goods, additional luxury brands, and an increase in
tourism. Consolidation involves the growth of big companies and ownership of brands across many segments of
luxury products. Examples include LVMH, Richemont, and PPR, which dominate the market in areas ranging
from luxury drinks to fashion and cosmetics. Leading global consumer companies, such as Procter & Gamble,
are also attracted to the industry, due to the difficulty of making a profit in the mass consumer goods market.

Luxury department stores

Since the uprising of the 'luxury brand' in the 1800s, department stores dedicated to selling all major luxury
brands have popped up in most major cities around the world. Le Bon Marche located in Paris, France is
credited for being one of the first of its kind, but also Neiman Marcus, Selfridges, Harvey Nichols, Saks Fifth
Avenue, David Jones, KaDeWe, Harrods and Holt Renfrew are seen as some of the most influential and
historical. Most big fashion houses & jewelers from Chanel to Tiffany & Co. have boutiques located inside these
massive stores.

Luxury shopping districts

Another phenomenon of the luxury market are "Luxury Shopping Avenues". Certain thoroughfares like Leeds'
Victoria Quarter, Milan's Via Monte Napoleone, Rome's Via Condotti, Tokyo's Ginza, Moscow's Tverskaya
Street, New York's Madison Avenue and Fifth Avenue, Chicago's Michigan Avenue, Beverly Hills' Rodeo
Drive, Paris' Champs-lyses, Avenue Montaigne and Rue du Faubourg Saint-Honor, London's Bond Street
and Sloane Street, Mexico City's Avenida Presidente Masaryk, So Paulo's Rua Oscar Freire, Prague's
Pask street, Toronto's Bloor St., Dsseldorf's Knigsallee, Lisbon's Avenida da Liberdade, Melbourne's
Collins Street, Singapore's Orchard Road and Frankfurt's Fregass area are some places where most luxury
brands tend to be concentrated.[citation needed] These retail districts concentrate luxury good stores that are
managed by large corporations, while conventional and independent retailers are pushed out because of
increasing rent and real estate prices.[citation needed]

See also
Commodity fetishism
Designer label
Luxury real estate
Positional good
Veblen goods
Wealth effect

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References
1. ^ "Defining luxury: the conundrum of perspectives" (http://beta.luxurysociety.com/articles/2010/05/definingluxury-the-conundrum-of-perspectives). Beta.luxurysociety.com. Retrieved 2010-08-09.
2. ^ Wong, N. Y., & Ahuvia, A. C. (1998). Personal taste and family face: Luxury consumption in Confucian and
Western societies. Psychology & Marketing, 15(5), 423-441.
3. ^ "What is luxury?" (http://www.pauravshukla.com/what-is-luxury). Paurav Shukla. 2010-05-14. Retrieved
2010-08-09.
4. ^ Okonkwo, Uch. Luxury fashion branding: trends, tactics, techniques (http://books.google.fi/books?
id=a_6CublRtYwC&lpg=PA145&ots=99kkoCrh7h&dq=advertising%20expenses%20in%20luxury%20goods&p
g=PA145#v=onepage&q=advertising%20expenses%20in%20luxury%20goods&f=false) . Page 145.
5. ^ The World Market for Luxury Goods. Global Market for Luxury Goods. Nov 1, 2001, March 5, 2007
(http://www.library.yorku.ca/eresolver/?id=984257).
6. ^ "China bans television ads for bling" (http://edition.cnn.com/2013/02/08/business/china-bans-luxury-productads/index.html?hpt=hp_bn5). Retrieved February 15, 2013.
7. ^ Power, S. Wall Street Journal "A Water Fight Over Luxury Showers" July 21, 2010
(http://online.wsj.com/article/SB10001424052748704913304575371462611463490.html)
8. ^ Inocencio, Ramy (February 8, 2013). "China bans television ads for bling"
(http://edition.cnn.com/2013/02/08/business/china-bans-luxury-product-ads/index.html?hpt=hp_bn5). CNN.
Retrieved February 15, 2013.

Further reading
Chadha, Radha; Husband, Paul. (2006). The Cult of the Luxury Brand: Inside Asia's Love Affair
with Luxury (http://books.google.com/books?id=4os0UbTuFngC). ISBN 1-904838-05-7.
Heine, Klaus: (2011) The Concept of Luxury Brands
(http://www.conceptofluxurybrands.com/concept-of-luxury-brands). Luxury Brand Management,
No. 1, ISSN: 2193-1208
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