Question

Illustrating with luxury brands, identify the economic indicators most relevant to
producers of luxury: (a) air travel; (b) hotels; and (c) wines. Then, consider how
luxury consumers respond to economic stimuli according to Engel’s Law.

(International marketing Unit)

Answer 1

Generally, luxury brands have following indicators affecting them:

a. Price elasticity of demand(Ped): demand is elastic, as prices increase demand decreases.

b. Income elasticity of demand : As income increases, demand increases for them and as income decreases, demand goes down.

c. Complements : As given in example above, if demand for air travel goes up then demand fr hotels and wine will go up as they all act as complements to each other.

Engel's law states that : As income of household increases, the percentage of income spent on food decreases while the proportion spent on other goods (such as luxury goods) increases.

hence when economies are booming then luxury good producers are better off but during recession they are worse off as people will go for inferior goods or simply give up luxury goods.

Customers are very sensitive to prices of these goods too as luxury goods ae consumers less and are costlier. Ped is greater than one in this case.

also income elasticity is greater than one as they are luxury.