People buy luxury goods to gain status and ultimately improve their lives. Luxury brands are expensive because they have to be. If luxury brands were cheap, they would lose their ability to ascribe social status to their buyers.
Porsche is the most valuable luxury brand in the world. Brand Finance estimates its brand value at $34.3 million, nearly $20 million ahead of GUCCI which sits in the second place. Scanning the list, we see many brands that are known all around the world. These are car manufacturers such as Porsche and Ferrari, watchmakers, fashion designers and cosmetic brands for the most part.
These brands satisfy the same functional needs as their non-luxury and much less expensive counterparts. Porsche gets you from point A to B just like a Volkswagen does and Rolex tells you the same time a Casio would. But still people aspire to own these brands. Why?
In this article, you will learn why do people buy luxury goods, and why are luxury brands so expensive.
Why do people buy luxury goods?
The main role of luxury goods is being special. They are the everyday consumer equivalent to the medal of service for military generals.1Kapferer, J. (2008, p. 66). The New Strategic Brand Management: Creating and Sustaining Brand Equity. London: Kogan Page. Luxury goods send signals about who you are, what you’ve accomplished and where you come from through the social meaning associated with the brand by the broader society.
Consumers want to stand out and self-define so people buy luxury goods mainly to attain status, pride, respect and admiration from others, but such endeavors can also trigger emotions of envy and arrogance.
Research on luxury consumption generally cites defining and expressing self-identity, signaling wealth, social comparison and differentiating from others.2Ko, E., Costello, J., & Taylor, C. (2019). What is a luxury brand? A new definition and review of the literature. Journal Of Business Research, 99, 405-413. doi: 10.1016/j.jbusres.2017.08.023 Luxury brands like other brands are after all signals of identification. It’s a reasonable argument and by no means wrong, but also details we don’t need for the purposes of this article. As you see, all the above reasons tie back to status one way or another.
Evolutionary psychologists claim that the need for status is one of the fundamental motives of human behavior.3Griskevicius, V., & Kenrick, D. (2013). Fundamental motives: How evolutionary needs influence consumer behavior. Journal Of Consumer Psychology, 23(3), 372-386. doi: 10.1016/j.jcps.2013.03.003 What this means is that at the most basic level, people buy luxury brands in pursuit of a healthy life and survival. Back when we all lived in hunter-gatherer communities, the individuals who were ascribed the highest status ate first, got the best shelter, mated with the most desirable partners and so on. Today, you can see the same patterns, only its a much longer and less obvious journey through the modern marketplace that may look something like this:
Why are luxury brands so expensive?
Looking at it from the evolutionary perspective, luxury brands are actually quite important in our society. We have built a world that depends on a continuous acquisition, consumption and disposition of goods. Good or bad, it’s the nature of how things are today.
In a consumerist society like ours, the basis of reputation ultimately rests on financial strength. You need to look no further than to who and what stories we are taught to admire to see this. So, people want status and the best way to achieve it is to spend a lot of money to signal your wealth. Connecting the dots, the reason why luxury brands are so expensive is that if they weren’t then people wouldn’t gain status and prestige by buying them.
You can of course take a different route and say luxury brands are so expensive because they make quality products, have a strong heritage, have symbolic qualities (status, status, status!) and resonate with people (again, why do they and what then is the difference from any other non-luxury symbolic brand?), but if you are to pick one, it’s status.
Is Apple a luxury brand?
To illustrative my last point, we can consider Apple. Is Apple a luxury brand? No. Apple products may be expensive, and people sometimes use the brand to define a big chunk of their personalities (“I’m an Apple person”), but it is not a luxury brand. It’s more of a premium brand.
Luxury brands need to maintain some exclusivity in order to satisfy the core need they exist to fulfill: status. Apple caters to the masses. In 2021, Apple commanded 46.9% share of the US smartphone market. According to it’s latest earnings call, there are now over 1.8 billion active Apple devices worldwide. That’s about a quarter of an Apple device for every living person on earth. Therefore, Apple goods cannot ascribe social status since its a quite ordinary thing to possess.
Conclusion
If there is a point to be made here it is that luxury brands offer status and status is built on exclusivity expressed through financial means. Luxury brands are not catered to the masses and that’s also precisely the reason why they are as expensive as they are.
I write a lot about the value of open brand management and being close to consumers on this blog, but the opposite is actually true for luxury brands.4Fuchs, C., Prandelli, E., Schreier, M., & Dahl, D. (2013). All That is Users Might Not be Gold: How Labeling Products as User Designed Backfires in the Context of Luxury Fashion Brands. Journal Of Marketing, 77(5), 75-91. doi: 10.1509/jm.11.0330 User generated luxury goods fail to signal high status meaning that if you are managing a luxury brand, you want to emphasize craftsmanship rather than joint value creation.
References
- 1Kapferer, J. (2008, p. 66). The New Strategic Brand Management: Creating and Sustaining Brand Equity. London: Kogan Page.
- 2Ko, E., Costello, J., & Taylor, C. (2019). What is a luxury brand? A new definition and review of the literature. Journal Of Business Research, 99, 405-413. doi: 10.1016/j.jbusres.2017.08.023
- 3Griskevicius, V., & Kenrick, D. (2013). Fundamental motives: How evolutionary needs influence consumer behavior. Journal Of Consumer Psychology, 23(3), 372-386. doi: 10.1016/j.jcps.2013.03.003
- 4Fuchs, C., Prandelli, E., Schreier, M., & Dahl, D. (2013). All That is Users Might Not be Gold: How Labeling Products as User Designed Backfires in the Context of Luxury Fashion Brands. Journal Of Marketing, 77(5), 75-91. doi: 10.1509/jm.11.0330
