Luxury: For What It’s Worth

July 29, 2010Sparxoo

What makes a pair of Jimmy Choo heel sandals worth $1,150? Or a $17,500 price tag for a night at the Dunton Hot Springs? In essence, what is luxury worth?  Everyone perceives products and service value differently. You’ve likely been in Gucci or Hermes and said, really? A shoe-shaped Gucci key ring is $170. Really? For some, it’s worth it. “We see consumers as the ultimate experts on brand prestige and this year they are voting on the entire perceived price/value equation of the brand as well as prestige,” said Milton Pedraza, CEO of the Luxury Institute. Brand, quality, rarity all play a role in how we valuate prestige products and experiences. As everyone derives value differently, there are three main criteria that help us decide whether a luxury product or service is worth it:

Exclusive Value – Uniqueness

By economic standards, value is derived from supply, demand and barrier to entry. Short supply, high demand and high barrier to entry drives the luxury market. Accordingly, only a select few high net worth individuals can afford to buy a $1.42 million Lamborghini Reventon or even a $170 Gucci key ring. In fact, only 20 individuals own the Reventon, as they are so rare. Uniqueness not only applies to products, but experiences as well. Quintessentially and Artisans of Leisure Travel design custom vacation packages ranging from Indiana Jones-inspired adventure or an immersion in Turkey and Israeli cultures. For those high net worth individuals seeking exclusive value, very short supply weighs heavier than quality.

Enduring Value – Artisan Craftsmanship

The economic recession has the luxury industry returning to its core: enduring quality. Hermes and Louis Vuitton have flourished amid harsh economic storms, while other, trendier fashion houses such as Christian Lacroix have gone belly-up. Hermès managed to increase sales by 8.5 percent, including an 11 percent bump in the final quarter and an astonishing 20 percent gain in the Americas. In fact, Louis Vuitton held an event called “The Art of Craftsmanship,” to educate young designers on the importance of old-fashioned values such as artisanship and the mastery of traditional skills at New York City’s Fashion Week.

Price Value – Deal-seekers

There is always a risk to integrity whenever a prestige brand discounts, says Milton Pedraza, CEO of the Luxury Institute. A discount suggests the original perceived value was too high and essentially, you were getting ripped off. Despite Pedraza’s foreboding, Guilt Groupe has grown by leaps and bounds by offering daily flash sales to its “exclusive” 2 million invite-only members. Gilt expects to pull in $500 million in revenue in 2010 and in 2009, just two years after its launch, it posted revenues of $170 million. To counter Pedraza’s point, even a 10 percent discount on $1,150 Jimmy Choo shoes ($1,035) is still not accessible for most.

To make your luxury product or service valuable, you must first start with those consumers passionate about your category. For instance, targeting the famous, stylistically challenged Warren Buffet to don a new Gucci suit is worthless, as Buffet finds little value in fashion. But marketing an Indiana Jones-inspired vacation to thrill-seeking high net worth individuals like Richard Branson is smart. To obtain a high perceived value in your customers eye, it’s about finding the right customers and accentuating your products to appeal to their passion points.

To read more about luxury trends:

2010 luxury trends

View more presentations from David Capece.
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