Luxury goods are products with a demand that is directly related to consumer income exponentially which means if consumer income increases, they will purchase more of these goods.
Demand for luxury goods in Malaysia continues with different location and income group. A large number of products in Kuala Lumpur, Penang and Johor are being found in premium shopping. Most premium outlets are also established within these locations, where demand for luxury goods is highest. In 2017, new premium outlets like Genting Premium Outlet (GPO), which houses an extensive range of luxury brands, also opened its door to customers.
Luxury goods are use by the persons with high income. This is because the price of luxury goods are so high for persons with an average income. The persons with an average income cannot afford to buy those luxury goods.
Luxury brand pricing strategy is finding the right balance between exclusivity and availability and also on being able to provide consistency across various countries and product ranges. The price of any product from a luxury brand must reflect the key messages of any luxury brand is quality, heritage and exclusivity. This is different from premium brand pricing where the product is freely available to those willing to pay the price.
Luxury goods are said to have high income elasticity of demand because as people become wealthier, they will buy more luxury goods. This also means, that if the income decrease, its demand will drop.
Income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. This means a luxury good may become a normal good or even an inferior good at different income levels. For example, a wealthy person stops buying luxury cars for his or her automobile collection because the person wants to start collecting airplanes. With this income level, the luxury car would become an inferior good.
Some luxury products have been claimed to be examples of the Veblen goods that are with a positive price elasticity of demand such as making a perfume more expensive can increase its perceived value as a luxury good to such an extent that sales can go up rather than going down.
A Veblen good is a luxury item which price does not follow the usual laws of supply and demand. Usually, the higher the price of a particular good the less people will want it. For luxury goods, such as very expensive wines, watches or cars, the item becomes more desirable as it grows more expensive and less desirable should it drop in price. Veblen goods are not similar with Giffen goods which is also rise in demand as the price increase. Giffen goods tend to be staple food items, the increased demand which is because of poverty.
Although the term of luxury good is because of the goods’ quality, they are generally considered to be goods at the highest of the market in terms of quality and price. Classic luxury goods include high fashion clothing, accessories and luggage. Many markets have a luxury segment including such as automobile, yacht, , watches and jewelry.
Luxuries also can be services. The hiring of full-time or live-in domestic servants is a luxury reflecting disparities of income. Some financial services, building a house can be considered luxury services by default because persons with lower income will do not use them.