In last month’s blog we discussed the word ‘luxury’ and how, in an interior designer forum, it was proposed that the word was reclaimed for the profession. Perhaps for those working at the pinnacle of the interior designer profession, it’s possible you might feel the word ‘luxury’ had been used to excess. In the forum I also introduced the term ‘Veblen goods’ as another means of considering ultimate luxury.
The name comes from the work conducted by American economist and sociologist Thorstein Veblen (1857 – 1929). Veblen’s work discusses why certain goods become more rather than less attractive to some consumers the higher the price they command. Veblen, an American of Norwegian descent, came from a very humble Norwegian speaking immigrant farming community in Wisconsin. As a scholar he went on to study economics at John Hopkins University and Yale University during which time he largely rejected the views and opinions of all his professors, a process that appears to show him caught in a conflict between his roots and those of his more learned counterparts in academia.
Despite this he went on to teach political economics at the University of Chicago and it was during this time he became one of the first academics to examine the relationship between consumption and wealth when he wrote his most renowned book, ‘The Theory of the Leisure Class’. Veblen despised what he saw as unnecessary, extravagant or wasteful behaviour and he came up with the notion of ‘conspicuous consumption’, the process that certain individuals use to gain increased social leverage through the acquisition of luxurious goods and their association to them.
Today, the term Veblen goods refers to those items, that due to their inherent levels of social credibility, attractiveness and power, demand for them will always continue to outstrip supply.
Through marketing excellence, manufacturers and suppliers of goods and services that include everything from desirable yachts to lavish short-term retreats have managed to create a wealth of interest from clients because their products and services are available in very modest numbers. Individuals who purchase these items are assured that they won’t arrive at the theatre with the same accoutrements as someone else.
In making a decision to buy a highly luxurious product we consider the reputation of the designer or manufacturer, the products expected performance and its rarity and symbolism. The attitudes we have towards owning it (affective), our beliefs about it (cognitive) and our behaviour once we own it (conative) mark us as individuals. Some will feel uncomfortable owning specific brands because of the connotations that go with them and this may even be the case if some luxury products were offered to individuals who couldn’t afford them. This would most certainly have been the case with Thorstein Veblen. Whereas there will be others who would delight from such a situation because it conveys a message, not just that they are rich, but they are avant-garde, or intrepid or risky. Bryan Jones Marketing Manager at Fairline Boats knew this when he said in an interview back in 2008, “Fairline Boats is a luxury brand and you don’t discount luxury brands”; buyers of these products are for the reasons outlined above, only too willing to pay top dollar.
So when you consider the setting of a price you must think carefully about your market, your target and your competition and this brings us on to the difference between price elasticity and non-elasticity i.e. will you sell more if you discount your goods or less? If a product needs to be discounted to be sold in order to increase demand then in Thorstein Veblen’s world it can’t be truly considered as luxury. Reducing prices will only serve to damage the brand because it devalues both existing products and more importantly all the products sold up to-date, ask Gerald Ratner who wiped £500 million of the value of his jewellery business in 1991 by devaluing his products. However, securing a position for your brand that places your products in this enviable position takes a considerable strategy, budget and personal commitment, and it will need the help of a specialist.
If you would like to ask us how to go about setting prices, or if you have any comments to make in this blog, please let us know.