What effect does the financial crisis have on the luxury fashion market - Essay Example

It is a big question, how to make the consumers spend money on luxury item. Companies are looking forward to commence with some sort of strategies which would help them to retain their revenue and sustain in such economic turbulence. The predictions have been made that financial woes would continue for few years and will deflate consumer spending even more. (your statement)  What does financial crisis mean?The term financial crisis is largely used when the financial institutions lose a large quantity of their value.

The financial crisis is allied with banking panics, stock market crashes, bursting of financial bubbles, currency crisis and sovereign defaults. The global financial calamity started in July 2007, when around the world stock markets collapsed, and the financial institutions plunged. The governments started to release some effective packages in order to save their financial systems. The investors became frightened by the abrupt decline in the stock market, which reduces their investments in the market.

Luxury goods and the present scenarioA luxury good is a good for which the demand of the consumer increases as the income level increases. Luxury goods have always been a symbol of prosperity and wealth for ages, for the spendthrifts, who desire and enjoy buying. Owning and wanting to be the owner of luxury items such as the latest designer clothes, jewelry, watches, is a pleasure on its own. Items that comes with a heavy price tag than ordinary items and have a known brand name is identified as luxury item.

In economics, luxury goods have said to have high elasticity of demand, which means that when buyers become wealthier they would like to spend more and more cash on the luxury items. It also means that when there is a turn down in income level there will be a decrease in demand. Both income and demand are directly proportional to each other, if one increases the other rises as well and vice versa. Income elasticity of demand is not constant with respect to income, and the demand may changes at different income levels.

That is to say, a luxury good becomes a normal or an inferior good at a higher income, if we take an example of a rich person who would stop buying increasing numbers of luxury cars for his automobile collection to start collecting airplanes as his purchasing power increases. Some manufactured products, got the status of luxury item due to their quality, design and better performance as compared to the products, which are said to be the subsitute of the item. More importantly, due to an increased competition in the market, consumers are less brand loyal and would switch to another brand easily.

To retain customers, it becomes essential that the luxury item should maintain and improve the functionality, features and style, with increased durability and performance. Luxury goods tend to play a vital role of status symbol as these goods identified the purchasing power of people who own them. These goods are not necessarily only used for their quality and performance but rather used because of their hefty price, in order to display the wealth of the purchaser.