Why does a $7,000 Louis Vuitton bag create more demand than a $70 bag you can buy on Amazon? According to the law of demand, which states that product demand is inversely proportional to product price, demand should decrease as prices rise. However, as demand increases as demand increases, demand for luxury goods is an attractive exception to the law, a phenomenon known as the Veblen effect. This effect elucidates how status drives demand along with utility. Luxury goods are against the demand law, and their value lies in their status and practicality, so demand laws lead to higher prices becoming desirable rather than discouraged.
The concept that is most closely tied to the reasons for this trend is the elasticity of the price of demand. The demand for luxury goods is not elastic, so it does not change much from price changes. Often, as prices rise, products become more desirable as we live in a society where people want to show their wealth. For example, imagine someone who buys tickets to a concert by their favorite artist. They can purchase standing tickets, standard seating tickets, or VIP seats, allowing you to see the show right from the front. The music is the same regardless of the ticket you purchase, but always buy a VIP seat. why? It offers an exclusivity, a sense of being part of an elite group. High-end branding is similarly based on recognition. Nike T-shirts and Palm Angels T-shirts serve the same purpose, but the weight the latter holds in terms of being a status symbol persuades people to spend more of it.
Luxury brands showcase this exclusiveness through business models that are based on limited product availability, such as Hermes’ Birkin Bags weight list and vertical integration. Brands such as Armani, Hermes, Prada Controls most of the production siteonly a few products are outsourced to small workshops and subcontractors. It is not the product that defines luxury In my opinion, experience. To give customers the experience to justify the money they pay, brands need to maintain the quality and craftsmanship that consumers are used to.
When it comes to numbers, this approach is clearly successful. Global sales of luxury goods in 2019 were $305 billion,and Market revenues are projected to be $49.5 billion in 2025The expected combined annual growth rate is 3.94%. China is the largest market for luxury goods, reflecting the “glocalization” of the market. This is a phenomenon that explains how globally distributed products take into account local consumers. Once dominated by North America and Europe, the market is now witnessing a paradigm shift, with the East becoming a more valuable customer. The growth of luxury brands in countries such as China and India has made them more cost-effective due to lower labor costs in these countries. This meant they could produce more now, leading to expansion.
As they expand, luxury brands will also need to accommodate changes in consumer psychology and generational preferences. Millennials and Gen-Z It has established itself as a major consumer of luxury products, with a shift from flashy logos and luxury labels. Consumers are now adopting simplicity – It’s clear through brands like Celine (Poster boy of “Quiet Luxury”) – prefers craftsmanship over brand name. This shift is primarily due to the natural drive to reduce the clarity and excess of the world we have become accustomed to. Consumers also prefer clothing that feels personal and connected to them, rather than brands that mask their personality.
Other changes in the luxury market include a more sustainable approach to production. According to a study by consulting firm McKinsey, 67% of consumers believe that the use of sustainable materials is a typical part of their decision to buy a product. Chanel responds to this preference for sustainabilityusing electric vehicles for transportation and switching from air to ocean transport to reduce carbon dioxide emissions. They also acquired two Italian leather products manufacturers to localize material sourcing.
The luxury market is attractive and is supported by wealth, elegance and exclusiveness. The economic and psychological factors behind purchasing luxury products allow us to understand why people are still fascinated by these products. The luxury market is not just about products, but also about recognition, experience and prominent business. A brand that balances these aspects defines the next era of luxury.
