Business Economics

What is luxury?In economics, a luxury good is a good for which demand increases more than proportionally as income rises

Luxury?

219 USD23 000 JPY750 ml

300,000+ USD31,000,000+ JPY

iPhone 7: Luxury?

Elasticity of demandIncome elasticity of demandPrice elasticity of demand

What is Price Elasticity of Demand?% change in quantity demanded-----------------------------------% change in pricePrice Elasticity of Demand =

P

P12P

P12E > 1ElasticdE < 1Inelasticd

Q1Q2Q1Q2DDPrice elasticity of demand measures how the quantity demanded responds to a change in price

Price Elasticity of Demand

15%20%20/15 = 1.33 Ice Cream is Elastic

Price Elasticity of Demand

Price# VisitsMedical Care is Inelastic:

A small increase in price leads to a small fall in # visits demanded

Reference: The Demand for Medical Care: intranet.tdmu.edu.ua

What is Income Elasticity of Demand?Income Elasticity of Demand =% change in quantity demanded-----------------------------------% change in income

Income elasticity of demand measures how the quantity demanded changes as consumer income changesNormal goodsInferior goods

Income Elasticity of Demand

$10,000

$300,000

Value ChainPrada case

Value Chain+ Activities and Operations+ Value Adding+ Greater Value > Cost Incurred

Specifications & Quality Standard

Low internal and external production costs

Timely production Schedule

Adhere products to original design

PRADA VALUE CHAIN

PRADA VALUE CHAIN

Communications and Public Relations

Marketing trends in luxury goods

BIGTRENDS

(1) DIGITAL INNOVATION (2) ENVIRONMENT CUSTOMER(3) EMERGING MARKET(4) Satisfy HENRYs

(1) DIGITAL INNOVATION

(2) ENVIRONMENT CUSTOMER

(3)EMERGING MARKET

(4)SATISFY HENRYs

(1) DIGITAL INNOVATION

(2) ENVIRONMENT CUSTOMER

(3)EMERGING MARKET

(4)SATISFY HENRYs

LOreal_ cut greenhouse gases by 50% by 2020. (According HBR, 2016)

(b) TiffanyandForevermark certified diamonds using the independentKimberley Processas conflict free. (According HBR, 2016)

+ Eco-change in Government laws & in social norms about Environment

MARKETING IN GREEN & SUSTAINABILITY TREND

(3) EMERGING MARKETs

(2) ENVIRONMENT CUSTOMER

(1)DIGITALINNOVATION

(4)SATISFY HENRYs

Data from ASSOCHAM:The Associated Chambers of Commerce & Industry of India

(4) SATISFY HENRYs

(2) ENVIRONMENT CUSTOMER

(1)DIGITALINNOVATION

(3)EMERGING MARKETHigh earners, not rich yet+ Earn $100,000 - $250,000 a year + Save 8.5% income.+ Control 40% consumer spending(According to BloombergBusiness, 2015)MR. HENRYs?

LUXURY GOODS & HIGH-END PRODUCTS CONSUMPTION SURVEY, US 2014Source: Unity Marketing

- Team 8 -THANK FOR YOUR ATTENTION

2016. Nov. 03