Don’t Confuse Luxury With Premium: 8 Key Differences
We pay a premium for luxury, but luxury isn’t always premium.
We pay a premium for luxury, but luxury isn’t always premium.
We often assume that by paying for a luxury item we’re paying for a premium product that will last longer than a lesser-priced alternative. However, this isn’t always the case.
Although the terms are often used interchangeably, subtle differences exist between a luxury brand and a premium brand.
Before we get into this comparison of luxury and premium brands, I have a couple of questions. Do you think BMW is a premium brand or a luxury brand? What about Rolex watches?
What is a Premium Brand?
Premium brands have a higher price than most of their alternatives on the market.
These brands are typically defined by their high price-to-quality ratio, high quality, unique features or benefits, or another competitive advantage.
Premium brands rarely receive significant discounts or stock clearances because this dilutes their value in the minds of consumers. To justify their purchase, customers must see value in the higher cost of premium-priced products.
What is a Luxury Brand?
Luxury products don’t necessarily aim to meet a specific need or solve a problem. More features do not mean value for money.
Instead, the prestige, heritage and unique nature of the brand are essential. Is it hand-made in Italy or mass-produced in a Korean factory?
The brand's identity is its point of difference rather than functionality and is often used to display wealth to indicate social class.
“The literature largely defines luxury brands based on consumer perceptions and/or managerially determined dimensions such as marketing activities and product attributes.” — Ko, Costello, & Taylor, 2019
Ko, Costello, and Taylor (2019) define a luxury brand as having five key characteristics that consumers perceive:
- High quality.
- Offer authentic value via desired benefits, whether functional or emotional.
- Have a prestigious image within the market built on qualities such as artisanship, craftsmanship, or service quality.
- Worthy of commanding a premium price.
- Capable of inspiring a deep connection, or resonance, with the consumer.
Interestingly, customers perceive high quality, but the quality of the product often does not reach these expectations.
Long-standing issues with the build quality and reliability have haunted several luxury car manufacturers.
This is part of the confusion between premium and luxury brands.
I’ll now explain the eight definitive differences between the two.
Key Differences Between Luxury and Premium
There are many key differences between a luxury and premium product or brand. This article will discuss eight differences: quality, features, positioning, target customer, advertising, manufacturing, pricing, and sales volume.
Quality
For premium brands, the price and quality of a product often align, certainly in the consumer’s mind, as the high price is often associated with high quality.
Customers will pay a premium because it is of better quality, materials, service, or process.
Luxury brands do not always mean you’re paying for better quality.
For example, a $200,000 Rolls Royce car, the epitome of luxury, is likely to have a lower build quality than a $30,000 Hyundai.
With luxury brands, it’s much more about perception and trust in the brand because of its prestige.
A website called What Car lists its 25 least reliable cars based on whatever criteria. Some of the brands on the list are MG, Jaguar, BMW, Mercedes, Tesla, Porsche, Volkswagen, Range Rover, Porsche, Land Rover, and Audi. Some of these brands had multiple vehicles.
All the brands I listed would be considered premium or luxury brands, yet the quality is not as good as it should be, considering the price.
Features
Luxury Brands don’t have to care about having the best features. Their brand sells itself due to the prestige associated with being a consumer of the brand.
Premium brands set the industry benchmarks for high-quality products with quantity and quality product features. Companies with premium brands reinvest in research and development to stay ahead of the competition and command a premium.
Positioning
Luxury brands don’t need marketing to justify their market position. Often, their brand established its market position many years ago and has built a reputation with the “elite". Or old money, anyway.
Luxury brands don’t compare themselves to the competition; their luxury tag is positioned through their long-term branding and pricing strategy.
Instead, luxury is defined by its:
- timelessness
- story
- scarcity
- prestige
However, premium brands require branding and marketing that creates a consistent image of reliability and high quality for both the product and customer service.
Premium products often focus marketing on competitive advantages they have over competitors.
Target Customer
Luxury brands aren’t consumed by price-sensitive people who don’t “appreciate” the finer things in life.
The target market for luxury brands is those consumers who like to show off their success, wealth and social class.
Premium brands target customers who are prepared to and can pay more for better quality and features.
Luxury brands should not try to broaden their appeal to pick up customers from the premium market or risk losing the exclusivity that makes them desirable to the luxury market segment.
Advertising
You’ll see very little advertising for a luxury brand. The brand sells itself and doesn’t aim for the mass market, so advertising is an expense. Why advertise to people who see no value in your brand?
Luxury brands feel more exclusive by not advertising and needing to be 'in the know".
Premium brands, however, generally have large advertising spending. A high proportion of revenue is invested back into research and development and marketing to retain market share.
Spending more on marketing can build strong brand equity; high prices are often correlated with a high level of advertising.
Manufacturing
Luxury brands target a tiny segment of the marketplace. Think 0.1% or even less of a total market. Therefore, they often don’t require mass manufacturing.
Products are often made by hand or other traditional methods to restrict supply, increase exclusivity, and offer high customizability. Because of this, it justifies the high price tag.
Making things by hand often means not one item is the same, but quality can also be compromising.
Premium brands, although they don’t produce the volumes of low-cost or mid-market brands, they still utilise mass manufacturing and economies of scale.
They are cautious about maintaining the high standards required to maintain their premium status. These brands also limit the cost of manufacture due to high R&D and marketing costs.
Pricing
Some consumers will be willing to pay extra for a premium brand because of the product quality and the high number of features. This allows premium products to be priced near the top of the market.
However, luxury brands are typically priced higher than premium brands and don’t need to justify their price point.
Premium brands cannot become luxury brands by raising their prices; the extra value of luxury products is attached to the brand itself.
Often luxury brands do not communicate their price point. Instead, prestige is the focus of marketing communications, creating desire regardless of the price.
Sales Volume
For a luxury brand to remain luxurious, it has to have limits on the volume of sales. By its very nature, it’s not accessible to everyone.
The unaffordability to others becomes part of the appeal, limiting availability to the few, and only increasing the desire for the many.
Premium brands, on the other hand, generally produce and sell a lot more products.
Research and Development costs are often high to gain a competitive advantage with a product feature. Therefore, high sales volume is required to be profitable.
Final Thoughts
We might think that we’re getting better quality because we’re paying more, but in reality, much of the price tag is for the prestige of showing off the brand to friends rather than actually getting a high-quality product.
On the other hand, a premium product means that you’re actually going to get a high-quality product.
It’s not the price tag that defines luxury. It’s the brand itself. The desire. The prestige. The fact that people are going to look and admire it. It’s wealth.
Back to my original questions. BMW would be a premium brand. They’re still achievable in price and offer many features and often high-performance engines to still provide value.
A Rolex is a luxury item. Other watches will provide far more features and functional benefits — but they’re not a Rolex.
Here’s a question.
From what you’ve read, do you think Apple is a premium brand or a luxury brand? I’ll leave that up to you.
Thank you or reading.
If you enjoyed the content, you might be interested in this article with ten rules for effective copywriting.
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