With all this talk of the global economic doom, India getting downgrade warnings from rating agencies and grim balance sheets all around, you'd think people wouldn't drop three months worth of salary on a handbag. Or spend their savings on a down payment for a luxury car. You'd be wrong.
According to Bain and Co, which, among its varied services, advises the global luxury goods industry, global luxury revenues grew 10 per cent in 2012. In the most recent update to its Luxury Goods Worldwide Market Study, Bain announced that luxury goods market revenues worldwide would grow a whopping 50 per cent faster than the global gross domestic product in coming years. It is expected to rise four to five per cent in 2013 and five to six per cent through 2015.
Closer home, the figures are equally remarkable. ASSOCHAM's latest survey Indian Luxury Market Holds Strong despite Global Economic Downturn says high income group Indians spend over 40 per cent of their monthly income on coveted global luxury brands. It adds that more than 75 per cent of potential consumers of luxury brands search for them on the Internet at least once a month. Nearly all major luxury brands are continuing with their current investments despite the financial slowdown, and the luxury market in India is pegged to grow at 25 per cent in 2013 through 2015, rising to $15 billion from the current level of $8 billion.
Indeed, when it comes to luxury buying, it is funny how little purchasing behaviour has to do with purchasing power. Or even the actual product bought. Instead it has everything to do with how luxury products make you feel.
Researchers say buying luxury items makes people feel better about themselves Photo: Vivan mehra
A study by Belgium-based Ghent University threw up some interesting results. Researchers found that merely looking and touching luxurious products provides instant gratification to many. And when you actually purchase an expensive item, your brain gets an incredible sense of 'reward', not too different from what happens when you achieve an important life goal. This feeling is exclusive to expensive shopping. Research has shown that because we subconsciously believe that pricey items are of better quality than cheaper ones - which may not even be true - we derive more pleasure from them. Case in point: during a study, when tasters were told a particular wine cost $90 a bottle, they enjoyed it. But when they were given the same wine and told it cost $10 a bottle, they claimed it wasn't as good.
Then there's the issue of self-esteem, our deep-rooted need to feel good about ourselves. It is hardly a secret that most marketers focus their advertising messages on consumers' egos. This is why ads encourage you to compete with your neighbour over air conditioners and televisions, compare your children's grades with those of his children, and decide whose wife has better shirt-cleaning skills. But when it comes to luxury, this matter of 'selfesteem purchasing' becomes even more significant.
A series of studies have found that people are more likely to shop for high-status items when they're feeling under-confident. Researchers Niro Sivanathan and Nathan Pettit of Cornell University, US, asked 150 college students to rate a pair of designer jeans against regular ones. But before that, they were asked to take a test to measure their "spatial reasoning and logic ability". The students who were told they scored poorly in the test were willing to pay 30 per cent more for luxury jeans. That's not a coincidence, say researchers...spending on yourself, especially on expensive and 'attractive' items, really does make you feel better.
But the impact of luxury goods isn't restricted to the mind. It can have physiological impact, too. You've heard the story of the middle-aged man buying a red Ferrari, right? Let's not make fun of him just yet - there may be a good biological explanation...and it's called testosterone. As evolutionists have found, men's testosterone levels dip as they age. Researchers from Concordia University in Montreal recruited 39 men for a study, and asked them to drive one of two cars: an old Toyota Camry or a slick Porsche 911 Cabriolet. Each car was driven down a busy street full of women, as well as along a quiet road. The saliva samples of the men driving the Porsche showed a significant increase in testosterone, whether there were any women present or not. But the guys behind the wheel of the battered Camry showed no change (or sometimes a dip) in hormone levels. "In other words, just put a guy in a Porsche, and his testosterone levels shoot up, whether people him watch or not," says marketing professor Gad Saad, the study's lead researcher.
What about luxury labels? Surely they have a psychological trick or two up their sleeves to draw customers? If you've ever given in to the charms of a 'limited edition' range, you know the answer. Marketers know the secret behind extreme attraction - scarcity.
When something seems less easily available, we attach more value to it. When luxury brands launch limited-edition collections (often with a higher price tag than usual), they're sending out a very powerful and persuasive message - these items are unique, they are not for everyone, and you have only one chance to own them. This same 'exclusive' card is also played using waiting lists. The case of the Hermes Birkin waitlist is legendary, and Ferrari has a famous mantra of making one less car than in demand.
The bottom line is that luxurious bags and shoes and cars mean more than just expensive goods to the human mind. Most of them are intuitive buys, appealing to a much deeper need, a subconscious desire to feel important, as prized as the prize purchased. Ironically the people who have easy access to these items, don't view them in the same way we do. Reuters.com recently interviewed honchos of swanky companies and asked them to define 'luxury'. From the CEO of upscale department store Saks, to the co-founder of designer gown rental service Rent the Runway, the CEO of Swiss luxury watchmaker Parmigiani Fleurier, the answer was unanimous: time is the most 'limited edition' item today, making it the ultimate luxury.