Ipsos Encyclopedia - Luxury

The broad definition of Luxury when applied to a good is "an inessential, desirable item which is expensive or difficult to obtain" (Oxford Dictionary). Our narrower definition applies to the products or services of specific industries.

LuxuryDefinition

Broad and narrow definitions

The broad definition of Luxury when applied to a good is "an inessential, desirable item which is expensive or difficult to obtain" (Oxford Dictionary).

Our narrower definition applies to the products or services of specific industries:

  • Personal luxury goods: high-end cosmetics, drinks (alcoholic beverages), fashion (ready-to-wear and accessories), fragrances, jewellery, luggage and handbags (leather goods) and watches
  • Luxury cars
  • Luxury hospitality: upscale hotels, spas and resorts, gourmet restaurants
  • Luxury travel: first class air travel, luxury cruises and tour operators
  • Luxury real estate
  • Wealth management and private banking

Statista highlights that "although the technical term luxury good is independent of the goods' quality, [luxury goods] are generally considered to be goods at the highest end of the market in terms of quality and price."

Jean-Noël Kapferer, one of the leading academic experts in the domain of luxury, goes beyond this simple definition by showing that luxury as a brand and marketing strategy obeys such "anti-laws of marketing as higher prices as a method to increase demand". Superior quality is thus not in itself the key criterion of luxury, while price premium and status play a decisive role.

From an economic point of view, a luxury product is clearly distinct from a premium product as it is deliberately overpriced with regard to its functional benefit and so tends to be comparable with art and in any case doesn't not meet particularly rational needs. Kapferer summarizes these distinctions by stating that luxury is not "more of premium".

Luxury is both a quite well-defined industry with very tangible criteria and a relative statement, sometimes based on avowed snobbishness, though more often based on a consensus that Jean-Noël Kapferer calls "absolute luxury".

Luxury brands and branding

Luxury brands are often very old "houses" with history and roots, but global luxury brands are now mostly owned by leading European groups like LVMH, Kering, Swatch Group, Richemont, EPI, Prada. Notable exceptions are Rolex, Chanel, Hermes, a few very prestigious Swiss watchmakers like Patek Philippe, Audemars Piguet, Breitling, Richard Mille or Chopard.

Italian designers like Armani, Dolce & Gabbana, or Ferragamo, have also been able to grow into global independent companies with several distinct lines of products and extensive retail networks.

A similar process has developed in the automotive industry: Bentley, Porsche and Lamborghini are now subsidiaries of Volkswagen, Rolls Royce a subsidiary of BMW Group, Alfa Romeo and Maserati subsidiaries of FCA and Jaguar a subsidiary of Tata Motors.

Alternatively, in order to avoid some pitfalls of brand-stretching, many automakers have also decided to address the luxury segment by creating luxury brands from scratch: this how Toyota created Lexus, Nissan created Infiniti, Honda created Acura, and more recently Hyundai created Genesis and PSA created DS.

Tesla, an independent company, has also recently joined this family of luxury car brands with its exclusive electric vehicles.

Luxury good buyers

Luxury good buyers are generally associated with High Net Worth Individuals (link) or affluent (link) consumers.

The correlation between economic growth and the growth in luxury good sales is well established (read more here), but luxury good consumption is not an immediate consequence of affluence.

Ipsos Point Of View

​Ipsos adheres to the point of view that there can be no simplistic approach to luxury marketing that would be exclusively based on macroeconomic determinants like, e.g. the increase in the number of millionaires in a given country. The luxury goods' market is not exclusively driven by the development of parameters such as purchasing power, retail density or functional benefits.

There actually are several attitudinal, psychological and sociological drivers which can contribute to the luxury good market's growth and explain differences across markets (e.g. China vs. Europe and vs. USA).

The long-standing academic background to this point of view appeared as early as 1899, when Thorstein Veblen demonstrated in his Theory of the Leisure Class that there are several luxury goods for which the quantity demanded increases as the price increases in contradiction with the law of demand. The reason for this apparent anomaly is that the consumption or possession of conspicuously expensive and rare goods or services can be a mode of status-seeking in societies undergoing rapid social change.

As status or identity symbols aimed at self-distinction, luxury goods can be defined as lifestyle and aspirational goods. Even though they must be of exceptional quality and so intrinsically rare, their desirability doesn't really depend on their scarcity but on their desirability and symbolic appeal. This special feature of luxury goods has intensified in our present digital era, when cultural interactions between houses and consumers are reinforced by their mutual efforts to build up a strong identity. This is why branding and careful brand management are so essential in this industry.

Best reading

  • Jean-Noël KAPFERER The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands, Kogan Page Ltd, 2nd Revised edition, 2012
  • Michel CHEVALIER, Gerald MAZZALOVO, Luxury Brand Management: A World of Privilege, John Wiley & Sons, 2nd edition, 2012
  • World Luxury Tracking 2017

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