Luxury goods can be defined as items influenced by income or wealth, optional to necessity, or above the standard of necessity. Brand association, availability, price, and status can also influence whether an item qualifies as a luxury good. The concept of luxury allows consumers to focus their disposable income on areas that are important to them. Status is often associated with luxury goods, with some brands considered luxury due to price, company history, or limited market access.
There are many different definitions for what constitutes a luxury good. Some economists define it as any item where demand is primarily influenced by income or wealth. Others consider a luxury item any item that is optional to the necessary, or items well above the standard of necessity. Several other factors can influence whether a specific item qualifies as a luxury good, including brand association, availability, price, and socioeconomic or cultural status.
The economic definition of a luxury good is based more on factors of convenience with respect to income rather than cultural status or criteria of need versus desire. In this initial definition, a good is considered a luxury when a person must have a certain level of income or wealth in order to feasibly purchase it. Furthermore, items that see increasing demand based solely on increased income are also considered luxury goods. In some cases, a luxury item or service, such as a country club membership, may not even be available to the public, instead reserved for those with proven wealth.
Other definition of luxury goods is their status as optional items. Food, shelter, and clothing are all considered basic necessities that don’t change regardless of income status. A television, however convenient and enjoyable, is not a survival necessity, and therefore considered a luxury item. A person’s income can influence their ability to spend money on luxuries, but the need for survival products is constant, regardless of income.
An updated or improved version of a necessary item can be considered a luxury item. For example, a person may need vegetables, but they don’t necessarily need organically grown vegetables. Water is a constant basic need, but bottled purified water is a luxury version. Shelter helps keep out the cold and rain, but a villa performs far beyond these basic standards. Luxury market segments allow consumers to focus their disposable income on areas that are important to them; While many people cannot afford to opt for a luxury item in every area, the existence of luxury segments can allow for some luxury into most people’s lives.
Status is another concept often associated with the idea of a luxury good. Some brands are commonly considered luxury brands, often due to price, company history, or limited market access. An item’s cultural identification as high status can give it a reputation as a luxury item even if the quality of the product is similar to or inferior to a cheaper version. Some market studies have shown that people are more willing to pay more for a branded product due to loyalty or the perception of it as a better product, even if it is obviously inferior to a generic version.
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