Newly-coined millionaires and billionaires around the world are increasingly looking for ways to differentiate themselves – and the best way to do that is through luxury brands.

People’s perception of brands can be stacked like a pyramid, according to HSBC Managing Director Erwan Rambourg. Luxury brands can range from the most accessible ones such as Starbucks, to ultra-high-end ones such as Graff Diamonds. This is the Luxury Power Ranking:

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“Most premium-goods purchase would correspond to ‘esteem needs’ that include the search for self-esteem, confidence, achievement, and respect by others,” Rambourg writes in his new book, “The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun

In other words, people use luxury brands to differentiate “social status”.

 

Luxury as Necessity

 

In recent years, the need to show off wealth has actually become more important to people than the actual wealth itself. “Because brands bought are actually more important than the level of money earned,” Rambourg continues, “luxury is no longer a goal as such; it has become a necessity.

Brands near the top enjoy a higher prestigious. Brands also gain affluence when more people buy them.

However if too many people buy them, brands can lose its exclusivity appeal to the super-rich buyers. This is what’s called the French Paradox.

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The French Paradox

Imagine bottles of classy French wine. “If you go from not drinking at all to drinking one glass of wine a week, you’ll live longer”, says Rambourg. “But if you keep chugging the bottle, there’s a point where drinking more starts to leave you with a shorter life.

The same thing applies to luxury brands. “A bit of awareness is good for the development of a luxury brand as consumers flock to it; too much and consumers might start to lose interest.

Both Gucci and Louis Vuitton are suffering this problem. They started out as affordable luxuries. But as more people bought them, their appeal wore off. For example. Louis Vuitton is now commonly seen as a “brand for secretaries” in China.

 

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If you’re in the business for the long term… you don’t milk a luxury brand”, Rambourg warns, “that is probably the safest way to see it eventually disappear.”

You can read more about luxury brands and China’s new uber-rich class in the book The Bling Dynasty
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