Concept of Luxury Goods: The definition of luxury goods may be a subjective one but almost everybody associates luxury goods with terms like exclusivity, high quality, prestige and high pricing. Products and services that are perceived as being luxury goods are always seen as goods of better quality, design, lifetime value and performance than their comparable substitutes on the market. There are also goods that are perceived as luxurious by the public because of their intangible product characteristics; being a high status symbols, displaying personality, prestige and superiority. This is caused by the added emotional benefits that people get by buying and owning certain products (Uche Okonkwo ,2007). These added emotional benefits are caused by the fact that not everybody can afford luxury goods so consumers of luxury goods automatically belong to an exclusive group of people who are able to afford these pricey items. These kinds of goods commonly include exclusive goods like luxury cars, jewellery, clothes, accessories and luggage. The way the term luxury is defined is directly linked to the income level and spending power of the person who is using the term. People use many indicators to define which goods belong to the luxury category. The most commonly used initial indicator is price.
If a product is located in the highest price segment of the market it is almost automatically seen as a luxury good. There are also other indicators of luxury than price like: quality, design, durability and performance, but price is the most commonly accepted initial indicator of luxury (Caserta, Kimberly, 2009).
In a purely economic sense, a luxury good is a good for which demand increases as income rises and a good that has a high income elasticity of demand. This means that when people become wealthier, the demand for luxury goods will increase. This also applies vice versa, which means that when there is a decline in income its demand will decrease. But when the economy is in recession the demand for luxury goods does not drop drastically due to the consumer loyalty and virtually constant spending power of the luxury consumers, although, these consumer characteristics are only applicable to the highest income segment of the luxury consumers market. This is some luxury goods are also referred to as being “Veblen goods”.
Veblen goods are goods for which people’s interest for purchasing them increases as a direct result of their high price level. The Veblen effect states that when the prices of these Veblen products decrease the amount of purchases of the products also decrease because they are no longer seen as exclusive or luxury products. Because consumer directly link high prices with exclusivity and luxury a price increase can cause an increase of the demand (Bagwell, Laurie S., and Douglas B. Bernheim, 1996).
There are three main categories of luxury goods can be defined; the home luxury goods, personal luxury goods and the experiential luxury goods. Home luxuries include goods like art, antiques, electronics and furniture. The personal luxuries category include goods like clothing, cosmetics, handbags or shoes and car. The last category of experiential luxury goods consists of mostly services like dining, entertainment, and travel. (Danziger, P., 2006). It is also impossible to define luxury brand for each product because every product category on the luxury market needs a different economic approach.