What are luxuries? Definition and examples

Luxuries, or Luxury Goods or Services, are things that are not essential, but which we believe make life more pleasant.

Consumers like luxuries and are willing to pay high prices for them. Luxury foods such as caviar contrast with staple or essential foods like bread or potatoes in the US and UK, tortillas in Mexico, and rice in China and Japan.

The Cambridge Dictionary has the following definition of luxury goods:

“Expensive things, such as jewelry and make-up, that are pleasant to have but are not necessary.”

Luxury goods are also known as Superior Goods or Veblen goods. If they are bought to impress others, keep up with the Joneses, and enhance one’s status, they are called positional goods.

Luxuries have a high elasticity of demand – they are more sensitive to changes in the economic environment than other products and services. When their prices or people’s incomes change, demand for luxuries moves up or down to a greater degree.

The economic environment refers to all the external factors in the economy that influence consumer and business buying habits. Therefore, it also affects the performance of businesses.

As far as most of us are concerned, luxuries include:

First class air travel.
Having a butler.
Owning Rolex watch.
Traveling in a limousine.
Owning a yacht.
A Ferrari in the garage.
A governess to look after our children.

If the price of, for example, a mega-luxury Caribbean vacation falls by 10%, demand tends to increase by more than 10%. The first thing people cut down on when they have less income are luxuries.

Luxuries contrast in this sense with necessities, such as milk or bread, which consumers demand in similar quantities regardless of how much their incomes may grow or shrink.

As luxuries are considerably more expensive than other goods and services, they are bought by people with a high disposable income more frequently than those further down the socioeconomic ladder.

The Economist explains luxuries as follows: “Goods and services that have a high elasticity of demand. When the price of, say, a Caribbean holiday rises, the number of vacations demanded falls sharply. Likewise, demand for Caribbean holidays rises significantly as average income increases, certainly by more than demand for many normal goods.”

If you place the word ‘little’ before ‘luxury’, the meaning changes significantly. Little luxuries are the simple things that can make us happy – a little thing that makes us feel good. For one person it might be a hot bath, for somebody else a massage, a quiet evening watching TV with a drink and chocolates or a cigar, or perhaps a giant sundae as a special treat.

Luxuries – luxury services

Luxuries do not only include goods, but also services. Examples include using a limousine service to travel, flying first class, having a butler or servants in your household, going to an expensive hairdresser, or paying for private lessons when your child falls behind at school.

A number of financial services, such as what brokerage houses offer clients, may be considered luxuries – luxury services – by default because people in lower-income brackets hardly ever use them.

Etymology of the word ‘luxury’

According to the Online Etymology Dictionary, the word luxury has undergone several meanings in the English language over the past 700 years. In the 1300s it meant ‘sexual intercourse,’ in mid-14 century its meaning included ‘sinful self-indulgence, lasciviousness’. By the end of the 1400s, the meaning expanded to ‘sensual pleasure’.

The word originated from Old French Luxurie, which meant ‘debauchery, lust, dissoluteness (indifferent to moral restraints)’.

In 12th-century Modern French, the word evolved to Luxure. The French word originated from Latin Luxuria, meaning ‘delicacy, profusion, extravagant living, excess’.

From the 1630s, its meaning in the English language shifted to ‘habit of indulgence in what is choice or costly’. By 1704, it was used to express ‘sumptuous surroundings’.

In 1780, ‘luxury’ meant ‘something choice or comfortable beyond life’s necessities’. It was not until 1916 that it was used as an adjective, as in ‘a luxury hotel’.

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Luxuries – Veblen Goods

Veblen goods are luxuries that go against the economic laws of supply and demand. Their demand correlates positively with price – the more expensive they are, the more people want them, the cheaper they are the less sought after they become.

Examples of Veblen goods are jewelry, wines, certain brand watches, designer handbags, luxury cars – which are in high demand because of the very high price asked for them.

Their expensive prices make them desirable as status symbols, by way of conspicuous leisure and conspicuous demand.

When people buy a $30,000 Rolex watch, they usually intend to let others know that they have one. If Rolex suddenly slashed the prices of its super-luxury watches, demand for them would probably decline, because they would lose that status power.

The consumption of Veblen goods in an economy is a function of the Veblen Effect – goods desired because they are over-priced.

The term was named after Thorstein Bunde Veblen (1857-1929), a Norwegian-American economist and sociologist, who was famous as a witty critic of capitalism. He identified conspicuous consumption is status-seeking mode in his book The Theory of the Leisure Class (1899).

Luxuries for the masses

The ‘democratization’ of luxury goods has brought with it some new categories within the luxury market. Today, we have accessible luxury or mass luxury.

Marketing professionals specifically aim those goods and services at the middle class. They often refer to them as the ‘aspiring class’ in marketing campaigns.

As luxuries spread further down the socioeconomic ladder, defining the term has become more difficult.

In 2013, the Chinese government prohibited luxury goods adverts on its official state TV and radio channels. Despite this move, seen as a bringing up-to-date of the old and generally unsuccessful sumptuary laws, adverts for luxuries abound in China (in non-state media).

Your necessities are my luxuries

Sometimes what is a necessity for one person is a luxury for another. Imagine a couple – Tom and Mary. Tom is one of New York’s top brain surgeons, and Mary is an extremely successful dentist. Their combined income exceeds $500,000 annually.

For them, having a car each is a necessity, so is going abroad on vacation each year, paying somebody to help them look after their two young children, and arranging nice birthday parties for them.

Peter and Pauline, another couple, live very differently. Peter has a very bad back and had to give up his job as a bus driver. He now works part-time answering the telephone in a travel agency nearby. He cannot work full time because of his back.

Pauline cleans offices full time. They also have two young children. Their joint income is approximately $22,000 each year.

For Peter and Pauline, having just one car is a luxury. They never go abroad on vacation. Whatever time off from work Pauline manages to get she spends at home. Birthday parties for their children are very simple and inexpensive events.

For Peter and Pauline and their kids, going anywhere on vacation is a dream, and having somebody help them look after their children will never happen. For them, many of Tom and Mary’s necessities are luxuries.

Inferior and normal goods

Inferior Goods

These are products for which demand declines when people’s incomes rise. For example, as soon as most of us can afford it, we stop using public transport and move around in our own vehicle. Public transport is an inferior good – as incomes rise, demand for it declines.

Normal Goods

These are products for which demand increases when incomes grow. However, demand for luxury goods rises faster than for normal goods when incomes increase.

Video – What are Luxuries?

This interesting video, from our sister channel on YouTube – Marketing Business Network, explains what ‘Luxuries’ are using simple and easy-to-understand language and examples.