Luxury Goods

The luxury goods industry has been enjoying double-digit growth, even amidst an economic crisis. While this is partly thanks to growth in the BRIC markets, it is also due to the increasing social role of luxury goods manufacturers in the developing world. Customers have refrained from some purchases, but they haven’t necessarily skimped on luxuries. In other words: Shop at WalMart in the morning, but put on Armani in the evening.  

For luxury goods, the value of the benefits attached to the product is higher than the product value. Customers seek quality, authenticity and a brand history. As a consequence, some luxury goods possess the rare characteristic of positive price elasticity: the higher the price, the higher the demand.

What’s more, there is often no correlation between the cost of a luxury good and its price. If plastic is trendier than leather, it may be more expensive.

A particular challenge for industry players lies in coping with the increasing level of globalization in the luxury market. Their international pricing strategies must pursue the following goals:

  • Maximize value extraction but limit arbitrage opportunities (re-imports) and limit price complexity management
  • Plan for tax/refund effects (which range from 5% to 20%)
  • Account for differences in parity purchasing power and currency over/under-valuation

At Simon-Kucher, we have developed strong expertise in the luxury goods industry, especially in terms of international pricing strategy, product mix strategy, value-based customer segmentation, and channel mix optimization including the Internet.

Project examples:

  • Optimized international price differentiation per product category and country to increase profitability
  • Developed international pricing and product mix strategies based on local willingness-to-pay, on local brand value perception and on local luxury behavior
  • Revised price and product portfolio strategy between the Internet and retail network
  • Identified new growth levers, quantified potential demands and distribution channels in emerging countries

Selected clients

  • A. Lange & Sohne
  • Maserati
  • Porsche