1. What are the defining characteristics of the luxury goods industry?

What is
the industry like?
In a modern life, the standard of living gradually improves, so people consider carefully
to make right decisions when choosing specific type of good which not only meets their
normal needs but also satisfies the higher expectation of them in their consumption.
The concept of Luxury goods is given to indicate the commodities which respond to the
high requirement. A luxury good is a product that gives great ease and adds pleasure,
but is not absolutely necessary. In economics, it is stated that the luxury good is a good
for which the demand increases more than proportionally as income rises, and is a
contrast to a necessity good, for which demand grows up less than income. The luxury
goods have more than necessary and ordinary characteristics compared to other
products of their categories.

The characteristics of the luxury goods industry are classified into manufacturing,
concrete and abstract characteristics. The manufacturing and concrete characteristics
means the tangible value of products, which could be observed directly. On the
contrary, the abstract characteristics equal intangible value, which seems to be one of
the most important features that makes the difference of luxury goods. To be more
precious, some defining attributes of the luxury goods industry involve superior quality,
brand recognition and high income elasticity of demand.
The first point which would be considered is the superior quality. In the industry, the
target customers are the segments who have much more higher expectations while
deciding to consume a specific good. As a result, the manufacturers virtually use the
most premium materials to ensure their products have the best quality as possible as
they can.
In addition, the luxury goods industry is characterized by brand recognition which refers
to the identification of specific brand by its properties. On other words, a brand would
have its own strategy to make it unique in the market. When people could distinguish a
brand without being explicitly exposed to the company's name, but rather through
visual signifiers like logos, slogans and colors, the brand recognition is most successful.
In general, luxury brand relied on creative designs, high quality, and brand reputation to
attract more customers and build the brand loyalty.
About the elasticity of demand, the luxury goods industry is said to have high income
elasticity of demand, which means that the wealthier people are, the more luxury goods
they would buy. Moreover, the consumers choice of a luxury good is not only for their
satisfaction but also to improve their self-esteem rather than for convenience. Thus,
income elasticity of demand is not constant with respect to income and may change sign
at different levels of income, which means a luxury good can be a normal good or even
an inferior good at different income levels.
The market for luxury goods includes three main categories: haute-couture, traditional
luxury, and the growing submarket accessible luxury. Haute-couture, whose targets
were very high-end custom product offering that catered to the extremely wealthy,
was at the top of the market. Traditional luxury has leading brands including such
fashion design houses as Prada, Burberry, Hermes, Gucci, Polo Ralph Lauren, Calvin
Klein, and Louis Vuitton. Some of these luxury goods makers also broadened their
appeal with diffusion lines in the accessible luxury market to compete with Coach and
other lesser luxury brand. Luxury goods manufacturers believed diffusion brands lower
profit margin were offset by the opportunity for increased sales volume and the growing
size of the accessible luxury market and protected margins on such products by sourcing
production to low-wage countries.
Coachs array of products included ladies handbags and leather accessories. Coach
channels of distribution involved direct-to-consumer channels and indirect ones. It has
full-price stores and factory store in U.S. Both of them were equally brand loyal, but
there was a distinct demographic difference between the shopper segments. Therefore,
the drastic change of luxury goods industry at different levels would affect significantly
Coachs retail distribution.