Luxury is something we look for when we see it. Luxury products are also referred to as high-end, often with higher prices. The segment of buyers of luxury products is traditionally small. Depending on how it is defined, it can be between 1% and 8%. Traditional products, on the other hand, have a simpler profile, they account for a larger proportion of the population (perhaps between 10 and 50%). Price is the most recognized variable to differentiate between luxury and traditional. Luxury products are expensive while conventional ones are cheap.
Many different types of luxury products are distinguished by high prices. A luxury product must have some features that justify the price. A luxury product and a conventional product can both satisfy the same need or want. While in each category of luxury products we can find different levels of identity, what is relevant is that they are aimed at a small segment that pays for it. For example, since Rolex is a luxury watch brand, we can see that other brands like Cartier or Patek Philippe are considered more luxurious. When comparing these luxury watches to Citizen or Casio, several differences will be noted. Some of the most noticeable are the design and the case that houses the watch mechanism.
In cars you can also differentiate between luxury and conventional. The main key in luxury cars is the design, although the machinery is also very relevant. Any BMW, Rolls Royce or Ferrari will be immediately distinguishable from a Toyota, Ford or Hyundai. Like watches and many other products, luxury is recognized. The way we recognize luxury mainly lies in the fact that they have a distinctive appearance of elegance, which is often perceived by consumers as futuristic.
A luxury product is primarily identified by its design and composition. However, these products also contain ingredients that may be rarely found in conventional products. For example, in watches it may be the gold of the composition; In automobiles, it can be fine or exotic leather and wood on seats and dashboards. A traditional product would hardly be made from gold, leather or fine or exotic wood.
All products constantly seek to differentiate for the segment of interest. It is frequent that one feature is that a luxury product eventually migrates to a mainstream product; When this happens, the luxury product must already have a further difference to avoid being considered traditional.
An infinite number of traditional products include features that in the past were only luxury products. When the first digital watches hit the market in the late 1960s, they were considered a luxury for their unique technical and design features. They are currently seen as conventional at prices for a wide range of consumers. Differentiating products for each segment is something that can change over time and must be adjusted according to consumer demand. It is difficult to sustain a luxury product for a large segment.
The profitability of luxury products is high. Due to the high competition, there is a glut of manufacturers of traditional products at the customers’ side. Margins are generally low due to competition. Luxury products have similar problems, as the segments that buy them are smaller. But, unit for unit, the profit margin percentage, as well as the value for money, is usually higher in a luxury product.
It is pertinent that each company identifies the type of product it offers to its consumers. Segments that demand products with unique designs, features, and technology will be more willing to pay higher prices than larger or more niche segments.