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Luxury good

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A Lincoln Town Car luxury sedan is an example of a typical luxury good.
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A Lincoln Town Car luxury sedan is an example of a typical luxury good.

In economics a luxury good is a good for which demand increases more than proportionally as income rises, contrast with inferior good and normal good. Luxury goods are said to have high income elasticity of demand: as people become more wealthy, 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. It must be noted, though, that 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).

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Perception

In popular culture and the public imagination, certain luxury goods have become status symbols as they tend to signify the purchasers ability to obtain such a good and thereby his or her income. These items commonly include luxury cars, luxury watches, and yachts.

Market characteristics

Some luxury products have been claimed to be examples of Veblen goods, with a positive 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 instance, cars, wine, and even chocolate.

Luxuries may be services. The hiring of domestic servants is an obvious 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

The logo of the American luxury car manufacturer Cadillac.
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The logo of the American luxury car manufacturer Cadillac.
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. The automobile manufacturer Hummer is an example of such a brand, as a Hummer automobile is considered a status symbol, even though none of the vehicles in the Hummer line-up meet the requirements to be classified as a luxury car.

Another market charateristic of luxury goods is their very high sensitivity to economic upturns and downturns, high profit margins as well as prices, and very tightly controlled brands. Other guidelines may apply to certain luxury markets such as the luxury vehicle market.

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.

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.

Locations

El Paseo in Palm Desert, California is an example of a luxury shopping destination.
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El Paseo in Palm Desert, California is an example of a luxury shopping destination.
Like other sectors of the retail market, luxury goods retailers like to cluster their stores closely together in order to create a shopping "destination." In the case of luxury goods, these areas are generally perceived to be centers of luxury retailers.


Asia


Australasia

Europe

Americas





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