Selling Luxury Brands in Downturn

- by Aniruddh Kr. Singh *

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Luxury Brands: An Introduction

Luxury brands are brands whose ratio of functional utility to price is low while that of intangible utility to price is high. They are brands for which a majority of their products are luxury goods. In Economics, a "luxury good" is a good for which demand increases more than proportionally as income rises, in contrast to a "necessity good" for which demand increases less than proportionally as income rises. Another market characteristic of luxury goods is their very high sensitivity to economic upturns and downturns, high profit margins as well as prices, and very tightly controlled brands.

Luxeplosion: Not Recession Proof

Gold was raining from above for luxury brands in the good old days of 2007. Last December, the designer Marc Jacobs held his annual holiday party for 800 guests, including revelers from Vogue, W, and Harper's Bazaar, in the Rainbow Room at Rockefeller Center. With the theme of Arabian Nights, Mr. Jacobs had arranged for tableaux vivants, contortionists, 5 open bars, bare-chested women bedecked in gold necklaces, bare-chested men balancing candelabras on their heads and, at one point, a shower of gold glitter poured over the guests.

Mr. Jacobs has held the party for each of the last 18 years, but on November 4, 2008, a short e-mail message was sent out by his business partner, Robert Duffy: "Due to the financial climate, I had to make the decision to cancel the 2008 holiday party."

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* Contributed by: -
Aniruddh Kr. Singh,
Batch of 2007-09,
Faculty of Management Studies, Delhi.
Article posted on December 21, 2008.

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