As far back as anyone can remember, luxury has been associated with high prices, custom service and a sense of exclusivity. For over a century haute couture, chauffeurs, ski villas and butlers have been enjoyed only by those privileged enough to own them. But a new class of competitors is changing this. Digital challengers are redefining luxury as they change the economics and access points to many of these goods.
To understand the economics of luxury, one needs to go back over 100 years to the writings of American economist, Thorstein Veblen. He focused on the theory of demand which says that as the price of an item goes up, the demand goes down. But Veblen realized that certain goods did not follow this rule and that as prices increased, they became more desirable. These goods came to be known as Veblen goods or what we now call luxury goods. In his book, The Theory of the Leisure Class, he explained the Veblen effect and coined the phrase, conspicuous consumption. Veblen recognized the psychology behind buying expensive and luxurious goods. Buyers weren’t looking for just utility; they wanted a status symbol to flaunt their wealth.
Today, the laws of luxury are in flux. Companies offering access to butler services, drivers and gourmet meal delivery are emerging as a new class of luxury players. Digital technology has enabled access through websites and mobile apps. Temporary staffing models have lowered price points. It seems that today, luxury goods and services are affordable and available to more people than ever before. Companies like Uber, AirBnB and NetJets are emblematic of this trend.
The shift is significant because it calls into question the very premise of Veblen’s theory. If digital business models make luxury goods more available and affordable, are they still luxury goods? Will buyers and owners of these goods still consider them status symbols if the masses can also enjoy them? Will luxury, as we know it, change?
Read the full article on Forbes.