Are Luxury Goods Worth the Price? Labor, Status & Perception

Introduction: The Democratization of Luxury

"For more than a century, the luxury fashion business was made up of small family companies that produced beautiful items of the finest materials. It was a niche business for a niche clientele. But in the late 1980s, business tycoons began to buy up these companies and turn them into billion-dollar global brands producing millions of logo-covered items for the middle market. The executives labeled this rollout the 'democratization' of luxury, which is now a $157-billion-a-year industry" (Thomas, 2007).

This paper focuses on the question of whether expensive luxury goods made by cheap labor — rather than by Italian artisans — are still worth their price. Before forming an opinion on this question, it is important to understand why there is a demand for luxury goods in the first place. Is it because of the quality of these products? Is it because of the status symbol they project? Is it purely about fashion and accessorizing? What is the core reason behind the popularity of luxury goods, and is it purely consumer demand that motivates manufacturers to invest in them?

A considerable body of research has shown that the biggest luxury goods brands in the world — including Louis Vuitton, Prada, and others — invest in cheaper labor in developing nations. As Thomas (2007) documents: "Many luxury-brand items today are made on assembly lines in developing nations, where labor is vastly cheaper. I saw this firsthand when I visited a leather-goods factory in China, where women 18 to 26 years old earn $120 a month sewing and gluing together luxury-brand leather handbags, knapsacks, wallets and toiletry cases. One bag I watched them put together — for a brand whose owners insist is manufactured only in Italy — cost $120 apiece to produce. That evening, I saw the same bag at a Hong Kong department store with a price tag of $1,200 — a typical markup."

Many people believe it is a complete rip-off to purchase branded luxury items when those goods are produced by low-wage workers in China or India. Researchers further argue that if Chinese or Indian manufacturers can produce the same luxury items, why would anyone invest in something that costs significantly more? Thomas (2007) explains how brands obscure their production origins: "Some hide the 'Made in China' label in the bottom of an inside pocket or stamped black on the back side of a tiny logo flap. Some bypass the 'provenance' laws requiring labels that tell where goods are produced by having 90% of the bag, sweater, suit or shoes made in China and then attaching the final bits — the handle, the buttons, the lifts — in Italy, thus earning a 'Made in Italy' label. Or some simply replace the original label with one stating it was made in Western Europe."

The central argument of this paper is that numerous social factors influence consumers' preference for luxury brands despite their higher prices. The paper concludes with a letter to the editor addressed to the New York Times.

Why Consumers Buy Luxury Goods

It is important to understand the psychology of customers who prefer buying branded goods despite the premium pricing. In a study by Suk (2009), the researcher asserts that luxury goods have grown into fashionable accessories, and analyzing the purchase of luxury goods is therefore similar to analyzing fashion trends in society. Suk highlights three primary aspects that dominate the purchase of luxury goods from brands despite their higher prices:

Social Factors Behind Brand Preference

Purchasing luxury brands is widely viewed as a statement of social and financial status. This is one of the main reasons why the purchase of luxury goods from brands continues to grow. When treating luxury goods as part of fashion, Suk (2009) observes that "the most influential and widely held theory posits fashion as a site of struggle over social status. This is a view most concretely articulated in terms of social class at the turn of the century by Georg Simmel, the German sociologist, who was in turn influenced by Thorstein Veblen's classic work, The Theory of the Leisure Class."

Another major theory of fashion is sometimes described as "collective selection," a concept associated with the sociologist Herbert Blumer. According to this theory, fashion emerges from a collective process in which many people, through their individual choices among competing styles, form collective tastes that are expressed in fashion trends. The process of trend formation begins vaguely and then sharpens until a particular fashion is established. The themes of a given trend reflect the spirit of the times in which people are living (Suk, 2009).

Most consumers psychologically prefer original designs — that is, branded luxury goods — over copies from other manufacturers, feeling that copies are of lesser quality or lack the class associated with a recognized brand. In relation to this, Suk (2009) argues that "some observers assume that the trendy articles are copies: either the exact same article purchased from the same producer, or else a close copy of most elements of the original's design. But such copies play only a limited role in the rise and fall of trends. Participation in a trend — by a consumer or a designer — does not necessarily or usually entail copying."

Conclusion and Letter to the Editor

JP also reflects on what the concept of the luxury brand has evolved into in today's world: "The term 'luxury brand' gets thrown around a lot today, and as someone in the branding business, I can attest that every brand secretly covets this moniker as a way to charge more for products and services around the world and dupe the masses into even more consumption. Yet, somewhere along the way, I think we lost sight of what true luxury is and we bought into a lot of superficial hype about what constitutes luxury" (JP, 2010). Many consumers agree with this view, while others maintain that luxury goods represent legitimate personal expression and self-presentation. The fundamental question — whether the price is worth satisfying a particular preference — remains open.

This is where the perception of the human mind becomes central. A consumer who perceives luxury goods as an essential signal of quality and lifestyle will invest heavily in them, regardless of where they are made. A consumer who believes that well-made copies, available at a fraction of the price with only marginal differences in quality, represent a smarter purchase will choose accordingly. The impact of these competing perceptions on both the luxury industry and the broader economy is significant and ongoing.

Distinguishing branded luxury goods from their alternatives, and understanding why consumers prefer them despite higher prices, reveals the complex social and behavioral fabric underlying purchasing decisions — and the extent to which consumer perception can be shaped and manipulated. The author's own view leans toward supporting the purchase of genuine branded luxury goods, on the straightforward grounds that the brands are the originators of the designs: being an originator carries intrinsic value that a copy cannot replicate.

The luxury goods industry has become a fast-growing phenomenon as more and more people become status- and appearance-conscious. Proper accessorizing has taken on increasing importance beyond mere physical appearance, and the rise in social activities has reinforced the association between a luxurious lifestyle and the right impression — an impression that, for many consumers, is inseparable from luxury goods themselves.

There is considerable debate over whether expensive luxury goods produced with cheap labor are still worth their price tags. Before reaching a conclusion, it is worth asking why demand for luxury goods exists at all. Is it the quality of the products? The status they project? Fashion and self-expression? The biggest luxury brands in the world — including Prada and Louis Vuitton — have been documented investing in inexpensive labor in developing nations, raising legitimate questions about whether their pricing reflects craftsmanship or simply brand mythology.

Perhaps the most important factor to consider is the role of consumer perception in sustaining the luxury goods market. Those who perceive branded luxury goods as an expensive but status-conferring purchase will continue to buy them; those who do not share that perception will not. Many consumers also justify premium pricing on the grounds of product quality, whether or not that belief is empirically supported.

The conclusion, in simple terms, is this: luxury is a relative term, defined entirely by the cultural and personal perceptions of individuals. This is precisely what makes any argument about its worth so complex — it involves the social and behavioral dimensions of how ordinary people form, hold, and act on their perceptions, and how readily those perceptions can be influenced.

James, G. (2010). Made in China = Piece of Junk. Sales Machine. Retrieved November 1, 2010, from http://www.bnet.com/blog/salesmachine/made-in-china-piece-of-junk/12336

JP. (2010). A made in America story — since 1905 | J.W. Hulme Co. The Salvage Yard. Retrieved November 3, 2010, from http://theselvedgeyard.wordpress.com/2010/09/25/a-made-in-america-story-since-1905-j-w-hulme-co/

Suk, J. (2009). The law, culture and economics of fashion. Stanford Law Review, 61(5), 1147+.

Tiara. (2010). How do copycats affect small fashion lines? College Fashion. Retrieved November 1, 2010, from

Thomas, D. (2007). Made in China on the sly. The New York Times. Retrieved November 1, 2010, from http://www.nytimes.com/2007/11/23/opinion/23thomas.html