What the Idea of Luxury is Costing You
The popular notion that shelling out more for luxury items guarantees better craftsmanship, better fit or longer use doesn’t mean that’s what you actually get. There’s a fair amount of disparity between real value and perceived value, a question worth asking given that the number of luxury consumers has more than tripled in the last two decades. Moreover, CNBC reported that North America is considered the most important market for luxury product growth over the next five years.
But “luxury” products truly do run the gamut. For instance, how much value are you really getting from a $14 glass of wine versus a $9 glass? And why should you throw down $150 an ounce for a specific anti-aging cream when Neutrogena sells a $20 moisturizer? Is there any real difference between these purchases? Find out what you’re actually paying for when you purchase the following eight luxury items.
The debate on how much a “good wine” should cost varies so much by region, supply and demand, ethical practices, market fluctuation and of course, overhead costs for the vineyard. But perception plays an absolute role in how winemakers select their prices, no matter the precision of the chemistry.
As Vic Motto, a senior partner at Motto Kryla Fisher, a wine industry consulting company told The New York Times, ''If I made the best wine in the world and charged $1 for it, no one would believe it was the best. They'd say it's a great bottle of $1 wine.''
Moreover, this process continues once wine gets to restaurants. Dorothy J. Gaiter and John Brecher, a husband-wife wine critic duo, told The Wall Street Journal that Chardonnay carries a faux tax (read: unsubstantiated inflated price) because it’s so popular with American consumers. The authors point out that Chardonnays are “grossly overpriced compared to other wines” simply because restaurant owners can get away with it.
But if you’re looking to save money, the couple recommends sticking to that cheapest wine on the menu, primarily because restaurant owners are more likely to inflate the second-cheapest wine on the menu — you know, so their customers don’t look cheap!
Designer Clothes and Accessories
Lauren Sherman, editor at large for Fashionista, reported in 2013 that the prices of luxury fashion items have increased “at more than twice the rate of general inflation.” She observes that the average cost of manufacturing and selling a designer handbag, for example, constitutes about 35 percent of its final retail price.
So, what are you paying for?
Part of that price tag could potentially be going to rising labor costs (Sherman observes that private-sector workers in China, where many luxury brands have their products made, increased 14 percent in 2012, according to China’s National Bureau of Statistics). But she also notes that, “Perception and desirability play a huge role in the pricing game, too,” adding the example of Burberry, who famously raised their prices in spring of 2013.
Bloomberg News reported that the company was increasing “average prices to target demand for the most expensive luxury goods, which Bain & Co. estimates will grow faster than cheaper lines until at least 2014.” After noting that “the so-called aspirational luxury consumer,” was spending less, the company pivoted to focus not just on the “aspirational,” but the straight up rich. This strategy boded well for Burberry, as sales of more expensive products compensated for lackluster numbers in shoppers.
“There is certainly a gigantic markup for luxury goods,” Sherman says. “Part of what you're paying for is status and association. But true luxury goods are also extremely high quality. Handbags are hand stitched, clothing is handmade, shoes are hand assembled. If consumer wants to ‘buy into’ a luxury brand, she needs to make sure that the product she is buying is worth it, which means doing lots of research about quality making a purchase.“
If you’ve ever witnessed an anti-aging commercial in which a voice-over narrator announces that “studies show” that their product prevents aging, good luck ever finding those studies.
Dr. Vesna Petronic-Rosic, a dermatologist at the University of Chicago Medical Center, told the Chicago Tribune in 2011 that companies rarely publish studies demonstrating that their products actually work. What generally happens, she says, is that companies point out scientific evidence that proves that specific anti-aging ingredients perform — and then don’t share that data either.
Keep in mind also that as a consumer, you will receive no assurance as to how much of this secret anti-aging ingredient is actually in your product, and how much of it is needed to actually be effective.
ReVive Peau Magnifique Youth Recruit skin care treatment, founded by Dr. Gregory Bays Brown, costs $1,500 for four capsules that allegedly convert “resting adult stem cells to newly minted skin cells.” The key ingredient? Bio-3 Cell Renewal Complex. However, the Tribune reported that Dr. Brown confessed that "we did not do peer-reviewed studies. There is literature out there that other people have done."
Meanwhile, scientifically backed, and readily available reports on aging and skin elasticity uniformly report that sleep, lots of water, good diet, limited sun exposure, and abstaining from substances that dehydrate skin are all positive measures. While moisturizer and sunscreen are absolutely good preventative measures to take for protecting your skin, you aren’t necessarily getting any more from those ingredients in $1,500 products.
Dr. Simon Yoo, assistant professor of dermatology at Northwestern University's Feinberg School of Medicine, said it best: "Go ahead [with your expensive products], but it won't do much more than a moisturizer that is a lot less expensive. It won't be any better than Neutrogena or Cetaphil for less than a 10th of the price or a 100th of the price."
Retail Diamonds (as an Investment)
Diamonds may a girl’s best friend, but they aren’t a girl’s best investment. Due to complexity of the diamond market and a lack of transparency, diamonds are considered a very risky investment.
Rohin Dhar, CEO and Co-Founder of Priceonomics, observed in 2013 that a diamond is technically a “depreciating asset masquerading as an investment.” He wrote in The Huffington Post, “When you buy a diamond, you buy it at retail, which is a 100 percent to 200 percent markup. If you want to resell it, you have to pay less than wholesale to incent a diamond buyer to risk their own capital on the purchase. Given the large markup, this will mean a substantial loss on your part.”
Dhar’s claims are backed up by the famous Edward Epstein 1982 piece in The Atlantic on the trials of selling a diamond. Deborah L. Jacobs at Forbes also underscores that, “Unlike gold, which has a quantifiable melt value, resale prices for diamonds have no one objective measure, making it easy for inexperienced sellers to become confused and overwhelmed.”
Having said that, diamonds sales are projected to increase in certain parts of the world (with an estimated increase in demand). But results are yet to be to seen.
Eyeglasses From a Brick and Mortar Store
Anyone who has ever had to purchase glasses knows that you will pay through the nose for lenses and various anti-scratch treatments — and that doesn’t even include (often pricey) frames.
A 2012 Consumer Report survey of 19,500 readers determined that consumers can save as much as 40 percent by purchasing eyeglasses online, such as Glasses.com or WarbyParker.com (which offers single vision glasses for under $100). Of course, you have to wait for them to arrive in the mail.
The survey also concluded that when you shell out for a walk-in optical store, such as LensCrafters, what you’re really paying for is expediency in having your glasses crafted. (LensCrafters, while deemed to be the fastest place to get glasses was also the most expensive). Independent optical shops and those within doctor’s offices received high ratings for merchandise quality, customer service and satisfaction — so you’re potentially paying for those perks as well.
Meanwhile, Costco Optical received the highest score for overall satisfaction among all participants, with lower marks in frame selection. Not surprisingly, those designer frames will cost you.
When you purchase a luxury automobile, the price tag (or lease payment) is really only the tip of the iceberg in terms of your expenses.
CBSNews.com compared the gas, insurance and repair costs of an entry-level Mercedes-Benz C250 (priced at about $35,900) and a popular midsize sedan, the Toyota Camry XLE (priced at about $23,061). The outlet determined that said Mercedes costed an average $450 more a year in gas (don’t forget luxury cars often require premium gasoline — cha-ching!) and $500 more a year in insurance costs. And those costs don’t even include additional maintenance costs (luxury vehicles often need more specialized services) as well as repairs that go beyond the standard checklist.
But while you may be paying for maintaining the exclusive brand of car (echoing the drive for designer clothes), Forbes reported that, “Premium cars offer the most advanced safety options and best entertainment technology on the market, not to mention some of the plushest interiors and most options for customization.”
Consider also that Consumer Reports 2014 awarded the “best overall” title to the Tesla Model S electric luxury sedan (priced at $89,650), specifically for “exceptional acceleration, handling and ride, a ‘versatile’ cabin in a car ‘brimming with innovation,’ plus a 225-mile driving range and as fast as 5-hour charges.”
Jake Fisher, senior automotive engineer from Consumer Reports told Forbes in 2009 that he doesn’t think a fancy name is enough to incentivize a luxury purchase, saying ,“I think [luxury automakers] have to differentiate with something that is really, truly functional or safety-oriented rather than the argument that ‘I’m buying this kind of car because I really want it.’”
An iPhone vs. Other Smartphones
Sometimes it seems as though everyone has a smartphone. In fact, most Americans now do. A report from the Pew Research Internet Project determined that as of January 2014, 58 percent of American adults had a smartphone. Additionally, Forbes reported in January of 2014 that one in four Americans with smartphones had an iPhone, leaving other brands like Blackberry, HTC, Motorola, Samsung and LC in the dust — which certainly reflects what I see on my morning commute.
iPhones present the ultimate chicken or the egg, as given the increase in smartphone offerings, it can be difficult to ascertain whether Americans predominantly own iPhones because they’re innately better — or simply because they are iPhones (which retail for hundreds of dollars depending on your provider and particular contract).
Both Forbes and Yahoo! News announced respectively that the faster processor, lighter weight and smaller camera of the highly-anticipated iPhone 5 weren’t really worth the costly upgrade (also hundreds of dollars). Nevertheless, Apple’s launch of the iPhone 6 in September 2014 (after offering both iPhone 5s and iPhone 5c models this past year) is anticipated to be the biggest launch the company has ever seen (Apple is projecting sales of 50-60 million units before the end of 2014).
But Forbes recently deemed the new Samsung Galaxy Alpha, also due out September 2014, a worthy competitor to Apple’s iPhone 6 — boasting comparable weight and size, screen dimensions, camera and battery life.
Prices for both the iPhone 6 and Samsung Galaxy Alpha are currently unconfirmed (Forbes estimates $199 on contract and $649 contract-free for the iPhone). However, Samsung is expected to “undercut” Apple’s price as a head-to-head competitor. Looks like you might be able to get those same, fancy smartphone capabilities for less!