Branding Luxury Goods and Achieving Market Incentives

In economics, a luxury item is something that is bought with high anticipation and with the expectation of having better living standards and increased material comforts in the future. So, why do people tend to spend a lot of money on luxurious items like cars, designer clothes, etc? In simple terms, high expectations and a long term motivation towards higher living standards are the main drivers behind luxury spending. This then goes on to show that the same phenomenon can be observed in the case of sports automobiles.


In economics, a luxury item is something that is purchased with high anticipation and with the higher expectation of getting better living standards in the future, so that actual expenditures on such goods become a larger percentage of income. In the case of sports automobiles, the same theory is applied, but this time the expenditure of the vehicle is more due to higher income levels and to the high possibility that the car will fulfill all our needs in the future. In other words, we expect to have a brand new Mercedes-Benz instead of a used Toyota Celica or an engine supported by Honda Civics. Now, let us apply this same theory to luxury items like designer clothes, sports cars etc… If we observe carefully, we can see that luxury goods tend to become more costly over time due to the increase in their overall usage and their higher infrequency of use.

All this suggests a very important psychological fact – that in the case of marketing professionals, their goal is not to sell the brand, but to create brand awareness and, through this, higher price points. And in the case of athletes, their objective is not to win medals, but to elevate their status in the society. Therefore, branding, marketing professionals’ primary objective is not to make the brand more profitable, but to make the product (i.e., luxury goods) more attainable, and at the same time less ambiguous.