For luxury-goods maker Louis Vuitton, price is a critical part of its marketing strategy. However, unlike most other companies, demand for Louis Vuitton products tends to rise with price increases. This is because its target market focuses on prestige-sensitive buyers— those who purchase products that signify prominence and status. These types of products carry an air of exclusivity because they demonstrate to others that the buyer has enough money to afford them. Louis Vuitton has targeted the elite since its founding in 1854 when it began selling luxury luggage to the rich. Today, the company sells leather goods, handbags, trunks, watches, and other accessories. 

It would be a mistake, however, to assume that Louis Vuitton products are completely price inelastic. While demand for its products may increase as the price increases, this will occur only to a certain level. Afterward, demand will begin decreasing. Luxury brands like Louis Vuitton also face a constant balancing act. While they can price their products top dollar to attract the elite, this market is relatively small. On the other hand, there are many prestige-conscious customers willing to pay higher prices for Louis Vuitton products but who cannot afford a $50,000 price tag. In order to reach these consumers, it must develop products that are priced lower but still carry enough prestige that consumers will desire their brand. Darla Thomas, a researcher into luxury brands, describes this pricing strategy as “a delicate balance of selling to the masses while still remaining exclusive to the rich.”

Questions for Discussion

1. Are Louis Vuitton products price elastic or inelastic? Why

2. What type of factors do you think most affect Louis Vuitton’s pricing decisions

3. Generally, what should happen when Louis Vuitton raises its prices? Why is there a limit to how high it can increase its pricing