Luxury goods


In economics, a luxury good is a product or item or service for which demand increases more than what is proportional as income rises, so that expenditures on the good become a more significant proportion of overall spending. Luxury goods are in contrast to necessity goods, where demand increases proportionally less than income. Whereas people consume necessity goods to meet basic survival needs, luxury goods are consumed both for their "intrinsic quality and to signal their wealth and confirm social status." In economics, luxury goods is often used synonymously with superior goods.

Definition, etymology and usage

The word "luxury" comes from the Latin term "luxuria", which meant "excess, extravagant living, profusion; delicacy." The meaning gained different implications as the word became part of Old French as "luxurie" in the 12th century, taking on the sense of "debauchery, dissoluteness, lust."
The word "" has an etymological cognate in the Latin verb meaning "to overextend" or "to strain".
From this, the noun and the verb developed, "indicating immoderate growth, swelling,... in persons and animals, willful or unruly behavior, disregard for moral restraints, and licentiousness", and the term has had negative connotations for most of its long history. One definition in the OED is a "thing desirable but not indispensable". As the word became part of the English language it "lost its pejorative taint"; by the 1630s, the English word meant "habit of indulgence in what is choice or costly" and by 1704 it meant "sumptuous surroundings." By 1780, the word was defined as "something choice or comfortable beyond life's necessities."
Economists can identify a luxury good by comparing the demand for the good at one point in time against the demand for the good at a different time, at a different income level. When personal income increases, demand for luxury goods increases even more than income does. Conversely, when personal income decreases, demand for luxury goods drops even more than income does. For example, if income rises 1%, and the demand for a product rises 2%, then the product is a luxury good. This contrasts with necessity goods, or basic goods, for which demand stays the same or decreases only slightly as income decreases.

Scope of the term

With increasing accessibility to luxury goods, new product categories have been created within the luxury market, called "accessible luxury" or "mass luxury". These are meant specifically for the middle class, sometimes called the "aspiring class" in this context. Because luxury has diffused into the masses, defining the word has become more difficult.
Whereas "luxury" often refers to certain types of products, luxury is not restricted to physical goods; services can also be luxury. Likewise, from the consumer perspective, luxury is an experience defined as "hedonic escapism".

Confusion with normal goods

In economics, "superior goods" is the gradable antonym of "inferior good". If the quantity of an item demanded increases with income, but not by enough to increase the share of the budget spent on it, then it is only a normal good and is not a superior good. Consumption of all normal goods increases as income increases. For example, if income increases by 50%, then consumption will increase. A superior good is a normal good for which the proportional consumption increase exceeds the proportional income increase. So, if income increases by 50%, then consumption of a superior good will increase by more than 50%.
In economics terminology, all goods with an income elasticity of demand greater than zero are "normal", but only the subset having income elasticity of demand > 1 are "superior".
Some articles in the microeconomics discipline use the term superior good as an alternative to an inferior good, thus making "superior goods" and "normal goods" synonymous. Where this is done, a product making up an increasing share of spending under income increases is often called an ultra-superior good.

Art history

Though often verging on the meaningless in modern marketing, "luxury" remains a legitimate and current technical term in art history for objects which are especially highly decorated to very high standards and which use expensive materials. Luxuries like this can play a role in developing trade-relations with colonies.
The term is especially used for medieval manuscripts to distinguish between practical working books and fully illuminated manuscripts, that were often bound in treasure bindings with metalwork and jewels. These are often much larger, with less text on each page and many illustrations, and were originally usually kept on the altar or in the sacristy rather than in any library that the church or monastery who owned them may have had. Secular luxury manuscripts were commissioned by the very wealthy and differed in the same ways from cheaper books.
"Luxury" and "luxury arts" may be used for other applied arts where both utilitarian and luxury versions of the same types of objects were made. This might cover metalwork, ceramics, glass, arms and armor, and various objects. It is much less used for objects from the fine arts, with no function beyond being an artwork: paintings, drawings, and sculpture, even though the disparity in cost between an expensive and cheap work may have been as large.

History

An awareness of a concept of luxury dates back at least as far as Plato. The issue of luxury was also considered by John Locke, Adam Smith, Karl Marx, George Simmel, and Max Weber.

Market

Characteristics

Luxury goods have high income elasticity of demand: as people become wealthier, they will buy proportionately more luxury goods. This also means that should there be a decline in income, its demand will drop more than proportionately. The income elasticity of demand is not constant with respect to income and may change signs at different income levels. That is to say, a luxury good may become a necessity good or even an inferior good at different income levels.
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. However, Veblen goods are not synonymous with luxury goods.
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. Many markets have a luxury segment including, for example, luxury versions of automobiles, yachts, wine, bottled water, coffee, tea, foods, watches, clothes, jewelry, cosmetics and high fidelity sound equipment. Luxuries may be services. Hiring full-time or live-in domestic servants is a luxury reflecting income disparities. 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 goods often have special luxury packaging to differentiate the products from mainstream competitors.

Trends

Originally, luxury goods were available only to the very wealthy and "aristocratic world of old money" that offered them a history of tradition, superior quality, and a pampered buying experience. Luxury goods have been transformed by a shift from custom-made works with exclusive distribution practices by specialized, quality-minded family-run and small businesses to a mass production of specialty branded goods by profit-focused large corporations and marketers. The trend in modern luxury is simply a product or service that is marketed, packaged, and sold by global corporations that are focused "on growth, visibility, brand awareness, advertising, and, above all, profits." Increasingly, luxury logos are now available to all consumers at a premium price across the world, including online.
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. The customer base for various luxury goods continue to be more culturally diversified, and this presents more unseen challenges and new opportunities to companies in this industry.
File:Kelly Bag.jpg|thumb|A luxury handbag. While many handbags are valued on their ability to carry objects, designer handbags are valued based on fashion.
There are several trends in luxury:
  • Democratization of luxury. Also known as masstige, is a marketing strategy that aims to make brands prestigious while retaining their affordability.
  • Globalization: Consumers in some countries are becoming wealthier; thus, new markets are opening for luxury marketers. Reports by consulting agencies like McKinsey predicted that East Asia would become the world's largest personal luxury goods market. China will consume half the global market value of luxury goods.
  • Consolidation: Consolidation involves the growth of big companies and ownership of brands across many segments of luxury products. Examples include Kering, LVMH, and Richemont, which dominate the market in areas ranging from luxury drinks to fashion and cosmetics.
  • Luxury brand collaborations. This marketing strategy demonstrates the potential of unexpected partnerships and co-branding opportunities between luxury brands and an unconventional partner seemingly at the opposite end of the design spectrum. Collaborations include pairings of luxury brands like Fendi x Versace but also pairings with streetwear brands including skateboarding brand Supreme x LVMH, with celebrities such as Bad Bunny x Adidas, anime characters like Doraemon x Gucci, and now video game franchises like Fortnite x Balenciaga. The collaborations are often limited edition collections.