Have any serious economists looked into the matter of hugely mis-priced luxury items? There are the mostly-comedic treatments (as by Veblen) but it would interesting to read a serious study. When you have something that costs (maybe) a few hundred to produce, and sell it for $35,000, what is the actual effect on the economy?
My guess: Very little. It's basically an idiotic millionaire writing out a check to an intelligent millionaire, with a little token for remembrance.
Fun fact: The results in Amazon's "Sort by Price: High to Low" are algorithmically identical to its "Sort by appearance: Shitty to Attractive":
I suspect it costs a good bit more than that to produce, though if you begin with the idea to sell for $35,000 you can comfortably budget a tenth of that for manufacture. I think when someone buys such a watch it is not because they really think it is so much better (although a few fools do) as to signal the ability to make such a purchase.
Real luxury goods are an entirely separate economy where normal economic considerations are upended in favor of status. Via business, I get copies of a magazine for rich people featuring reviews of such baubles as Versace-styled helicopters.
A lot of highly specialized manual labor goes into the production of high-end watches, and above $20K they are usually made gold or platinum, so there are higher material costs as well.
Like anything else, prices of luxury goods are determined by the market- as long as someone is buying, they are by definition not overpriced. Comments here regarding "idiotic millionaires" and the like reek of class envy.
You don't use much gold in a high end watch as it's heavy and not all that strong. Nobody wants to walk around with a 3 pound watch, and huge diamonds on watches look stupid. So it's all about restricted supply. This watch costs 200k because we are going to make 100 of them.
One of the hidden truths about high end watches is they don't keep vary good time. And they don't have high resale value most of the time.
There's a trickle down market like everything else. A used-but-not-tatty luxury item is still luxurious, and while it won't impress the already-wealthy it will carry cachet with the upwardly-mobile or the general public. Thus, you might be better off buying a used Rolls-Royce or Bentley than a new Lexus.
I was surprised to learn from Mrs Browl that there are rental clubs for luxury handbags - women who want to make a fashion statement can check out a different designer accessory for different events. This made no sense to me until I considered it from a social engineering standpoint.
I'll comment on this. I came from basically nothing, and now I do pretty well. I've seen a lot of luxury, that people from my background don't usually see. I used to think it was just capricious and wasteful.
A few years ago, one of my mentors took me on a ski trip with him and friends - I was the only person there under 30 and who wasn't a millionaire. The guys are wearing Rolexes, Cartier, Patek Philippe, nice clothing, etc. One owns a helicopter, many own boats, most own multiple cars and properties. Money made in different fields - construction, commodities, finance. There was a risk assessor/professional handicapper, my mentor was running one of the most profitable architectural firms in Dubai. Stupid money at the table I was dining at.
Another: One of my closest friends was a self made millionaire at 24. He's 29 or 30 this year. Lives in a 3 million dollar beautiful modern house with all the nicest conveniences.
When his earned income dipped from $800k/year to $200k/year a few years ago, he had to scramble to replace it. He got into a couple not-glamorous businesses, undercosted competitors, paid suppliers huge signing bonuses ahead of time to get great rates and some exclusive locations, and so on. His gym membership is over $200/month for a luxury place that's not much nicer than my $40/month gym. He spends over $1000 a year on orange juice.
But I had a realization one day - first, these fellas are spending a smaller percentage of their money on luxury goods, consumption, etc, that then average person does. Someone who makes $4k/month and eats out a $20 meal now and then is spending a heck of a lot more than someone who makes $200k/month (as my mentor was) and eats out at $200 meals every other night. The extra consumption for many of these gents fuels extra production.
When my work started to fall apart during the banking crash, I had a year of savings in the bank, and I'm quite frugal. I didn't hurry to get into anything - but if I'd had super high expenses, I would've, and I'm capable. My lower consumption meant I wasn't forced to produce right away.
Beyond that - nicer things actually are much higher quality. I try to buy clothes that are meant to retail for a lot. I look to go to Saks Fifth Avenue during Summer Sale or Winter Sale for the 80% off, or go to fashion sample sales. I tell you, $300 jeans look better, fit better, and hold up better than any $40 jeans. (And I buy my $300 jeans for $60-$120 on sale anyways). Well made watches last forever. Good scuba gear and skis last forever.
You get diminishing returns after a while, big time, but a 2010 Skyline or a Cayenne does drive a lot nicer than my 1995 J30. I'm Captain Frugal over here. I only spend a lot on quality tools, experiences, and gifts for other people. But I understand why wealthy people do. You get better quality, it pushes you to produce more. It's also a signaling thing. I have an Andrew Marc leather jacket I got for $300 that normally retails at like $1200. I remember going in to talk to a VP of Citizen's Bank, the head of that particular branch. I wanted to get a loan, and he said, "Hey, that's an Andrew Marc jacket." I said, "That's right, yeah." I look more successful. I always wear that jacket when I go to a bank.
Finally, some expensive things mean you know everyone in the room will be of fairly high caliber. I don't like haughty places so much, but actually, the really exclusive nightclubs have much friendlier people in them to strangers than run of the mill less restricted places. People know that by virtue of being in, you're probably alright.
Eh, I'm rambling. Long story short, I used to think the way you did. But there's some legit reasons to spend lavishly on certain things, and you might actually wind up closer to your goals if you do. Certainly if you produce at a high level, intelligently increasing your consumption can at times make you wealthier than being ultra-frugal and hoarding. I'm only recently learning this lesson.
I own an IWC that also doesn't cost anything resembling 35k --- I understand why people value them, and appreciate the engineering, but it's still not one of my prouder purchases (although it's far --- far --- FAR --- from my least proud purchase.)
An IWC or Patek doesn't cost a few hundred dollars to produce, although I'm sure the real spread is horrific. Most luxury watches don't cost $35,000, either --- mid-4-figures is a more realistic estimate for the "BMW 3 Series" tier of watches.
I am reminded of Joel Spolsky's observation (http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...) that there's no software priced between about $1,000 and $75,000, because anything that costs above $1,000 has to be approved by multiple layers of corporate bureaucracy, which means you need a salesman to schmooze potential customers into giving up that loot, and it's going to cost you $50,000 just to make each sale.
(Joel wrote that five years ago, so I assume the numbers have shifted around a little, and he doesn't really talk about SAAS pricing models. But the general idea is sound.)
I laughed when I saw the title...anyone remember this scene from "Trading Places"?
Fifty bucks? No, no, no. This is a Rouchefoucauld. The thinnest water-resistant watch in the world. Singularly unique, sculptured in design, hand-crafted in Switzerland, and water resistant to three atmospheres. This is the sports watch of the '80s. Six thousand, nine hundred and fifty five dollars retail! You got a receipt? Look, it tells time simultaneously in Monte Carlo, Beverly Hills, London, Paris, Rome, and Gstaad. In Philadelphia, it's worth 50 bucks.
I think the most important lesson here is buried deep into the article - "Mr. Brücker was never disdainful of customers - in fact, he championed the need for better, more thoughtful service that makes the customer sense caring and quality - the stuff of luxury.
"You’re selling pure emotion," he said."
The rest is tips and tricks - interesting and useful perhaps, but by focusing on them the article comes across as scummy sales instead of the ongoing relationship that is essential (and very profitable!) in the $35,000 Watch market.
I know I'm supposed to feel class envy when reading about watches which are more expensive than salaries I have recently worked for, but I've got to admit fascination with the linen glove treatment. The psychology of putting the old watch between two new ones and having a wingman distract the wife is very amusing.
Now if I could just figure out a way to do that for software which costs a thousandth as much.
This sort of makes me want to put on my best business suit, walk to the luxury jewelry store I pass on the way home from work, and take some notes on their tactics.
I think part of the point is that the products are high margin enough to promote that level of individual attention. If guys selling $5 watches spend that much effort per watch, it'd never pay off.
Carrying that over to software, these techniques would be most useful for the $100k per seat packages rather than the $5.99 packages. Although software is rarely sold on the notion of romance, so I don't know how sustainable these methods would be.
How do you go about finding someone good to fix an obscure Swiss watch when you are living in a city that is not in your country? The issue is - once you hand it over for service there's no particular reason for you to get it back except for the honesty of the repairer. How do you guage this? Or is it better to freight it back to manufacturer?
Very interesting piece - learned a lot. This part was the most insightful to me:
Mr. Brücker looked the part of a luxury customer, wearing Car Shoe moccasins and an IWC Big Pilot watch, which has shock absorbers to help it keep time under rough flying conditions. He used PowerPoint to impart what he calls the “macaroon technique,” referring to the sandwich-like French macaron pastry. This can be applied to most any product (including, presumably, a Xerox machine) and goes something like this:
“Madam, this timepiece (or diamond or handbag) comes from our finest workshop and it has a value of $10,000. If you buy it, your children are sure to enjoy it for generations to come.”
That pesky number is sandwiched between the product’s more romantic benefits. “We sell luxury—it’s an emotion,” Mr. Brücker instructed.
This is the line that stuck with me as well. Mention of children is a very clever technique; it removes the guilt of spending the kids' college money or inheritance; it makes shopping feel like an investment.
A friend of mine has been shopping for a nice watch with the expressed purpose of being able to pass it to his son one day as a family heirloom. So what seems a "clever technique" to you might actually be "being aware of your customer's needs". Of course if you're determined to stay cynical, one could argue that my friend just fell prey to their ingenious marketing message.
I'm sure the Acer serves your needs perfectly well. Have you ever considered that other people's needs are different from yours?
If you're interested in the box, you lack any real meaning in your life. Real beauty is in the mind.
Let me rephrase what you just said: to have any real meaning in your life, you have to be completely uninterested in physical appearance. So if I have a passing interest in design, architecture, or art, my life lacks meaning?