Yesterday, I got into an intense discussion with two of my classmates about the strategic justifications for my focus on the “luxury” segment. While my colleagues were making an argument for the limited market size demerits of luxury products, I tried to explain my thesis of luxury goods/services in a transactional framework. In the end, both sides came to similar conclusions. I’ll attempt to take you through the debate first from an abstract level.

If a customer asked me: “why do you consider your product/service a luxury?”, I’d say to them:

For the level of service/quality I provide, my customers are WILLING to FULLY APPRECIATE (pay for) my products and services.

Now, my statement might describe just about any product or service tier. However, I like to use it just as it is because it comfortably occupies the chasm of relativity that lies between the extremes of perceived and expected value. As is well known, luxury products, by their nature, do not propose to be the cheapest or the most accessible. Rather, they exude an awareness and confidence of the fact that they fulfill both the expressed (extrinsic) and unexpressed (intrinsic) needs of users. So, by my definition above, the phrase “fully appreciate”, reflects the typical price insensitivity customers have when it comes to premium goods.

I’m not saying the luxe purchasers don’t have their wits about them – every transaction they conduct is still based on fundamental economic principles like “getting value from what you pay for”. What I am saying is that compared to commoditized widgets, the perceived value of luxury goods allows manufacturers to charge premiums that can only be absorbed by those who truly understand the concepts of prestige, heritage, craftsmanship, and quality.

If my previous lines are too esoteric, fear not. I’ll present my argument with a more academic perspective in my next post.