by Benjamin Voyer on forbes.com, January 21st 2025
Is Luxury Still Worth It? Luxury Brands Try To Justify High Prices
“The world of luxury—often perceived as immune to mainstream market fluctuations—is now facing a reality check. Since the Covid-19 pandemic, luxury prices have surged well beyond that of high-street products and consumer price indexes. Consumers, emboldened by social media platforms, openly question the value of high-priced luxury items. Viral posts dissecting the cost of a designer handbag or debates over the justification for luxury sneaker price tags have placed the luxury industry under unprecedented scrutiny. At the heart of it all lies a fundamental question: Is luxury still worth it
NEW YORK – FEBRUARY 10: A Louis Vuitton handbag is shown at a press conference to announce the …
Luxury Prices: From Costs to Value
Luxury goods have always presented a paradox. For consumers, they represent highly desirable yet nonessential items. For economists, they defy traditional market logic, sometimes exhibiting positive price elasticity—where demand increases as prices rise.
Historically, luxury pricing followed a cost-based approach. Manufacturers set markups based on production costs and related expenses, such as marketing and retailing. Higher-quality materials and more complex manufacturing processes were often cited to justify these premiums. However, as luxury conglomerates and luxury mega-brands have emerged, many have shifted to a value-based pricing model. This approach emphasizes the perceived value of a product—for instance, its ability to signal status, taste, and prestige—rather than its raw production cost.
Yet even with a value-based model, luxury products do not escape economic scrutiny. Consumers rely on reference points for what they expect to pay for a designer item. Exceeding these points can trigger backlash, particularly as brands continue raising prices across popular categories like handbags, sneakers, or jeans. For many middle-class consumers, escalating prices push these reference points to the breaking point, prompting aspiring luxury shoppers to seek alternatives. Some of these consumers may turn to entry-level goods such as cosmetics and perfumes. While these categories offer a gateway to the luxury world, they are more volatile and less likely to foster long-term brand loyalty.
Multiple factors explain recent price hikes. As former Chanel executive Olivier Nicolay notes, ‘costs of raw materials are only part of the picture. Historically Advertising and promotional costs were also very significant. Now, many brands and conglomerates have ESG targets in sight, leading them to use volume as a tool to reach their very ambitious objectives. Increasing prices has helped boosting turnover for a few years but it will be more difficult from now on’. Nicolay adds that ‘The globalisation of the luxury market has created a need for price coherence, slowly bringing Asian-level prices to the West, as the reverse would be too damaging in terms of margins.’ Meanwhile, master perfumer Nathalie Feisthauer points to the strong growth in fine and niche fragrances, which has led to ‘more competition for premium perfumery ingredients. […]”
To see the full article : Is Luxury Still Worth It? Luxury Brands Try To Justify High Prices
