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The Increasing Price of Luxury

Published by Noora Uusitalo on 8-Apr-2013 Industry, Fashion
Tags: luxury

Studies show that a product with a €500 price tag sells better, feels better and tastes better than the same product with a €50 price tag. The more expensive the product is the more desirable it becomes. In economics, there is even a name for this phenomenon; "Veblen good". A €90 wine tastes better than a €10; that's just how it goes.

When people are asked about luxury, they tend to say words and concepts such as “Exclusivity”, “Unique”, “High Quality” and “Craftsmanship”. Wealthy consumers often consider luxury items as an investment - which people think is quite amusing when talking about buying bags instead of apartments. Watches are actually one of the rare luxury products seen as financial investments. Some fans – or cautious investors – buy two of the same model twice. They wear one and leave the other one under cellophane in a safe, waiting to be resold.

It takes a lot to become a luxury brand. The prices must be kept high, since if everybody could afford these items, who would buy them anymore - it is this "hard to define" feeling of owning something that precious that makes people buy these products. That's why they stand out from the ordinary every day items. So - luxury has always been expensive but now the prices have really gone high.

Both Prada and Louis Vuitton have decided to increase prices in Europe. This all is because of an alarming number of Chinese are opting to make their shopping abroad, predominantly Europe. Luxury products cost more in Asia, due to taxes, customs and export. Luxury companies have spent heavily expanding their operations in China and want the payoff, but Chinese consumers are passing up the stores closest to home in favor of outlets abroad. The disparity has grown in recent months.

For instance, in the past 11 years, the price of a Burberry gabardine cotton raincoat was multiplied by 5.6, from €122 to €1,190. At a time when there is a waiting list and a minimum six-month delay to buy a 4,500-euro Hermès bag, a 3% price hike won’t change much. These types of products target only a minority of clients, who are so wealthy that this kind of change has almost no impact on their purchasing.

What is interesting, is that Americans and Europeans are complaining about poor quality and the disappearance of craftsmanship, where as a clear majority of Chinese buyers think that the quality and customer service have never been better. One of the reasons might be that a Chinese luxury product buyer is, so to speak, less experienced and younger then the European customer.

Noora studies Fashion Design in Finland, but is, currently, an exchange student at Winchester School of Art. 
(Photo by Petroff/Dufour/Getty Images)

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