How much do luxury products cost to sell? I’ve noticed in the past 2-3 years a greater number of brands providing ‘luxury’ goods at more affordable prices. These brands claim that they can provide greater value for money by going direct to consumer, and stripping out the overheads that the major luxury brands incur.
It seems that luxury brands are under increasing fire to justify their prices. Tiffany, for example, is struggling because customers increasingly feel they can get the same product at a lower price elsewhere. Is this a general trend across luxury?
When you buy fashion goods you often buy a brand. The problem comes when companies keep the brand but change the way they make things, and it has never been in the interest of customers. If you’re buying from high-end brands at expensive prices you automatically assume it’s of high quality. It’s usually not. And that’s crazy.
Let’s unpack what actually goes into the pricing of luxury products. How much gets spent on overheads before, say, Louis Vuitton makes a profit?
LV spends a lot of money on runway shows and print advertisements in magazines. While this cuts into their profits, they still have very strong margins. As Bernard Arnault, Chairmain of LVMH, put it: “My relationship to luxury goods is really very rational. It is the only area in which it is possible to make luxury profit margins”.
Are there luxury brands you think are blatantly overpriced?
If there are customers that are willing to pay, it isn’t overpriced. The problem is is that it’s often difficult to know what brands are overpriced, and which ones are not. Many customers are looking for value when purchasing products, which historically has been communicated through discounts. Unfortunately, brands have caught onto this and have just raised their prices even further to account for these discounts, making it difficult for customers to know what they are actually paying for.
Is the luxury ‘experience’ – a brand’s in-store service, it’s packaging etc. – enough to sustain a business?
This would depend on the mindset of consumers. There will always be a subset of customers who are looking for this type of experience and have the funds for it. However, we have seen a shift in mindset where customers are focusing on spending on experiences, beyond things. When they buy ‘things’ they are being thoughtful about it, making sure it’s of value. Many customers believe it’s not rational to pay for in-store service, packaging, etc, when it’s completely unrelated to the usefulness/quality of the product.
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