Luxury is something we know when we see it. Luxury products are also known as high-end, often with high prices. The segment of buyers of luxury products is traditionally small. It can be between 1% and 8%, depending on how it is defined. On the other hand, conventional products have a simpler profile, they are for larger segments (perhaps between 10 and 50%) of the population. Price is the most identified variable to differentiate between luxury and conventional. Luxury products are expensive while conventional ones are cheap.
Many different kinds of luxury products are differentiated by high prices. A luxury product must have certain characteristics that justify that price. Both a luxury product and a conventional one can satisfy the same need or desire. Although in each category of luxury products we can find different levels of recognition, what is relevant is that they are aimed at small segments that pay for it. For example, since Rolex is a luxury watch brand, we can see that other brands such as Cartier or Patek Philippe are recognized as more luxurious. When comparing these luxury watches to a 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 ones. In luxury cars the main key is the design, although the machinery is also very relevant. Any BMW, Rolls Royce or Ferrari will immediately differ from a Toyota, Ford or Hyundai. As with watches and many other products, luxury is recognized. The way in which we recognize luxury lies mainly in the fact that they have a distinguishable presence of elegance, often perceived by consumers as futuristic.
A luxury product is mainly recognized by its design and structure. However, these products also include elements that conventional products can hardly have. For example, in watches it can be the gold of the structure; in automobiles, it can be fine or exotic leather and wood on seats and dashboards. A conventional product will hardly be made with gold, leather or fine or exotic wood.
All products constantly seek to be differentiated for the segment of interest. It constantly happens that a feature that a luxury product has eventually migrates to a mainstream product; When it happens, the luxury product must already have another differentiation to avoid being considered conventional.
An infinite number of conventional products include attributes that in the past only luxury products had. When the first digital watches hit the market in the late 1960s, they were considered luxury for their unique technological and design features. Currently they are seen as conventional, at prices for broad segments of consumers. Differentiating the products for each segment is something that can change over time and must be adjusted to what consumers demand. It is difficult to maintain a luxury product for large segments.
Luxury products have higher profitability. Due to high competition, for the favor of customers, manufacturers of conventional products abound. Competition causes margins to be generally lower. Luxury products have similar problems, since the segments that can buy them are small. But, unit for unit, the profit margin percentage, as well as the value for money, is generally higher in a luxury product.
It is pertinent that each company identifies the type of product that it offers to its consumers. Segments that demand products with unique designs, features, and technology can and will be willing to pay high prices compared to larger or more mass segments.
