Economics of Luxury Products
Louis Vuitton, Gucci, and more. The huge price tags behind these luxury items seem unreasonable and impractical. However, for some, the sense of self-worth and importance from wearing these brands are worth the exorbitant prices. Recently, researcher Ariely and his colleagues at the Hebrew University of Jerusalem conducted an interesting experiment. In each category, half the group was given an expensive brand while the other half was given a cheaper one. The groups given the more expensive brand performed the given task better than the competing group. "The group with Ray-Bans made fewer mistakes than the group with Mango sunglasses. Participants wearing 3M earmuffs did a better job hearing 62 unrelated words recorded at a noisy construction site compared with what those wearing Etkes earmuffs did."
The differences in performance are likely due to the placebo effect, where someone really believes that wearing Ray-Bans over Mango sunglasses will really improve your performance, while the difference is actually marginal. The belief that your performance and self-worth will go up by wearing expensive products is false, but by telling yourself this, you will have more confidence, which can lead to higher performance in given tasks. Therefore, by buying luxury brands, you aren't buying the actual product but instead the sense of superiority and self-worth that comes from wearing the products.
Ariely states, "Luxury brands fool people into believing they are superior, and this belief proves self-fulfilling. And like placebos, expensive ones work better than cheap ones." Using luxury products makes one feel superior to other people who wear cheaper products. While this behavior is extremely arrogant and incorrect, some people may need the extra confidence to help them perform their tasks. For them, the marginal benefit of luxury goods outweighs the marginal cost. While Ray-Bans may not actually improve your vision compared to cheaper alternatives, the belief that expensive products are strictly better will ensure that these luxury brands are here to stay.
Source:
https://www.livemint.com/Home-Page/W8eexIwEwMoy6zTb1n5vGO/The-curious-economics-of-luxury-brands.html
The differences in performance are likely due to the placebo effect, where someone really believes that wearing Ray-Bans over Mango sunglasses will really improve your performance, while the difference is actually marginal. The belief that your performance and self-worth will go up by wearing expensive products is false, but by telling yourself this, you will have more confidence, which can lead to higher performance in given tasks. Therefore, by buying luxury brands, you aren't buying the actual product but instead the sense of superiority and self-worth that comes from wearing the products.
Ariely states, "Luxury brands fool people into believing they are superior, and this belief proves self-fulfilling. And like placebos, expensive ones work better than cheap ones." Using luxury products makes one feel superior to other people who wear cheaper products. While this behavior is extremely arrogant and incorrect, some people may need the extra confidence to help them perform their tasks. For them, the marginal benefit of luxury goods outweighs the marginal cost. While Ray-Bans may not actually improve your vision compared to cheaper alternatives, the belief that expensive products are strictly better will ensure that these luxury brands are here to stay.
Source:
https://www.livemint.com/Home-Page/W8eexIwEwMoy6zTb1n5vGO/The-curious-economics-of-luxury-brands.html
Cool post! I think this is especially relevant with the arising culture of "flexing" in our current day and age. Another way I found to explain this was through utils, which is an arbitrary measurement of how much satisfaction someone gets out of something. As is the case with luxury brands, this can vary from person to person depending on how much people care about name brands or superiority. This also can be related to the law of diminishing marginal utility in which people receive less and less utils for each consecutive product they consume.
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I think it really is in our human nature to boast or flaunt when we can. Rationally speaking, brands like Supreme and Gucci should not be able to sell their products at the price they do for the marginally better quality they offer, but both brands perfectly exploit human psychology in order to succeed. This principle is called "intraspecific competition" whereas we compete with our own species over a limited resource. The resource in this case is the respect and prestige one can gain from flaunting wealth and fashion through expensive, luxury products.
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This is a really interesting concept in our society that is tragically accurate because we have a tendency to value luxury goods more than what seems logical. However, if people notice that they perform a certain task well with something expensive, they can start to believe that in order to perform the task well, they need that expensive item. I think this relates to sports as well because many athletes refuse to buy equipment from any random company, they have their favorite company that they think they owe their success to.
ReplyDeleteSuper interesting post! I often find myself looking at expensive brands I know I could never afford, yet I still come back to their websites. I think the idea of perceived worth and value is incredibly important. Supreme and other street-wear brands take advantage of hype and this idea. I think this post lends itself very well to the documentary we watched on marketing. These brands inspire loyalty and people want their products for the name. I found an article about how Ralph Lauren is trying to use hype to sell its products now. For me, Ralph Lauren conjures up a more work place formal kind of outfit. The current CEO is hoping to change that image through less print and more media advertising. Do you think that hype draws you into buying a product, or are we already starting to move past it? Supreme was huge just in the past three years, but already I feel like people are starting to move past it. Is this marketing style sustainable or will people lose brand loyalty just as fast as they became hyped?
ReplyDeleteSource:
https://www.bloomberg.com/news/articles/2019-02-05/ralph-lauren-s-plan-to-lure-younger-shoppers-hype