Luxury and Premium

Weekly I/O#74

Premium purchases offer enhanced functional benefits at a higher price, while luxury purchases symbolize the buyer's ability to afford items beyond practical necessities.

Book: The Luxury Strategy

Here's a quote from The Luxury Strategy that encapsulates the difference between luxury and premium goods:

"Premium means pay more, get more in functional benefits. Luxury is elsewhere: it signals the capacity of the buyer to transcend needs, functions, or objective benefits."

You pay for a premium because it provides more utility. On the other hand, you pay for luxury precisely because it adds no additional utility, which other people know. Therefore, it symbolizes that you have the wealth to afford non-essential extravagances.

Consider the car industry as a more tangible example. Brands like BMW and Lexus exemplify premium. They offer cars that deliver superior functionality and utility at a higher price. In contrast, Ferrari is a luxury brand. Many things about Ferrari are way worse than a Toyota in terms of practicality and functionality.

However, opting for a luxury car broadcasts a message. It's not a premium choice to upgrade from a Toyota to a Lexus for better functionality. It showcases one's abundance of wealth and a particular level of taste, even if it means compromising on certain functional aspects.

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