The Value of Luxury

auction-paddle-2Luxury has been defined as something that is pleasant to have or experience, but is not a necessity. The concepts of exclusivity and rarity can also factor into the definition of luxury. Value, on the other hand, is determined by the relation of price to perceived benefit. But if luxury is not a necessity, then how do we determine its value?

Psychological benefits are considered to be the main factor that distinguishes luxury products from non-luxury products. Owning, wearing or displaying a
particular branded product can bring esteem to its owner. From the perspective of service, receiving the level of personalized service equated with luxury brands can create a sense of feeling special. It’s why people are willing to spend more for luxury brands.

If luxury consumers do not perceive value in the brand, they will forgo it. If the brand itself becomes overexposed, it may no longer make the wearer feel “special.” That particular benefit disappears and the brand’s value is diminished.  A recent article in the Washington Post highlights this very situation in respect to several premier brands. The article begins by referring to Gucci’s rather lackluster Q3 earnings. According to the author, the problem with Gucci (and others, including Abercrombie & Fitch, Michael Kors, and Coach) is that “the brand has become so widely recognized and so prolific that women are turning away from it because it no longer feels unique or special.”

When I see these so-called luxury brands appear on the racks of discounters such as TJ Maxx and Marshalls, to me it’s the fashion equivalent of television’s “jumping the shark.”  It signifies overexposure and it’s a turning point. If I see a Coach handbag at a discount store, not only is the item no longer unique, it’s  also not accompanied by the luxury experience I associate with the brand. The product’s lack of uniqueness, combined with the loss of the luxury experience, causes the brand’s value to fade. Wall Street has taken notice.

It is possible to turn around a damaged brand (see “Can You Repolish a Tarnished Brand“), but it isn’t easy. One brand that was able to make this transition successfully is Burberry. Burberry’s CEO, Angela Ahrendts, was able to accomplish this by refocusing on key items such as the iconic trench coat, aligning the leadership team and organization around a common vision, and training store associates to be powerful brand advocates. For sure, these would be considered challenges for any brand. For luxury brands, however, they are necessities.

2 thoughts on “The Value of Luxury

  1. I was just in Costco, an encountered a prominent display of handbags just inside the entrance. I didn’t pay much attention, already drowning in purses, but I did notice Fendi and Burberry. One Burberry bag was over $1400—at Costco! Is this diminishing the brand, or is the price sufficient to keep it exclusive?

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