A Kelly bag by French fashion icon Hermes is reported to cost $11,200; and Hermes is not keen to serve you unless you have already spent thousands of dollars in Hermes (The Herald Sun, April 24, 2016).
Is it insane? Yes, for utilitarians who make rational purchase, juggling with price and functionality. However there ARE those who long for owning a Hermes bag. In 2015 a Hermes Birkin bag was sold for $221,846 in an auction. Another Hermes Birkin once belonged to Elizabeth Taylor was sold for $218,500 in 2011.
This is Hermes
Hermes is ranked the top luxury bag in the world. It is said that Hermes uses exotic animal skins of crocodile, ostrich and lizard; and each Hermes bag takes a single craftsman two weeks to make (Sofeminine, N. D.). A Hermes Birkin bag made from Himalayan Niloticus crocodile skin was listed for $450,000. Hermes associates brand names with Grace Kelly and Jane Birkin, targeting exclusively to the top end groups that have extreme wealth and loyalty (Bearns, 2015 ). Elegance, craftsmanship and luxury are Hermes’ image.
In contrast to general brands that favour a large market share, Hermes strategically positions itself as inaccessible. Yes, inaccessible! You can’t buy a Hermes Birkin from retailers or online straightaway. No matter how well known you are or how rich, you have to stay on waiting list for at least two years to ensure that you are on the waiting list. Here is a loyalty test that Samantha Jones from Sex and the City has to take before owning a Birkin (Darren Star Productions, 1998-2004).
Why do people stay on waiting list, wishing to pay $11,200 for a bag?
It is not a bag
Luxury brand is defined as “the highest level of prestigious brand” that contains physical and psychological values. The values are grouped into four dimensions: financial, functional, individual and social (Wiedmann et al., 2007). Utilitarians focus on financial and functional dimensions, judging from the ratio of price to utility, quality and durability.
For others, there is more than that. For instance, women were reported to use luxury goods as signals of the devotion from their romantic partners, purposing to prevent other woman rivals poaching their partners (Wang and Griskevicius, 2014).
From individual dimension, people associate themselves with the perceived personality of the luxury brand, with the other users of the brand, or with the usage of the brand, according to self-congruity theory (Liu et al., 2012). A Hermes user may perceive herself in the group of Grace Kelly, Jane Birkin and Elizabeth Taylor, satisfying her need to be beautiful and charming.
From social dimension, she may also want herself to be perceived as rich and noble. In Veblen’s conspicuous consumption theory, men and women use luxury goods to demonstrate their superiority, to display their economic power, to gain and maintain social status, or to conceal their poor social status (Veblen, 2005). The motives make the customers form positive attitude and loyalty to the luxury brand. At that level, customers set market price (Iacobucci, 2013).
Here is the price
For over-priced luxury brand (called Veblen Good), the price-demand relationship violates normal buying behaviour (i.e. price and demand are correlated reversely) (Iacobucci, 2013). As shown in the Veblen Demand Curve, increasing the price of luxury brand would trigger more demand for perceived higher quality, higher exclusivity and higher social status. Conversely, dropping the price, while attracting lower-price seekers, would lose those looking for uniqueness and exclusivity.
Now there is no surprise why Hermes sets such exclusively high price and rarity to keep off common consumers. Earning enormous unit profit, Hermes stands strong as an inaccessible fashion icon.
BEARNS, G. June 7, 2015 The Birkin Tops Our List of Iconic Celebrity Hand Baggage. The Sunday Telegraph.
IACOBUCCI, D. 2013. MM3 Student Edition, South-Western, USA, Cengage Learning.
LIU, F., LI, J., MIZERSKI, D. & SOH, H. 2012. Self-congruity, Brand Attitude, and Brand Loyalty: a Study on Luxury Brands. European Journal of Marketing, 46, 922 – 937.
DARREN STAR PRODUCTIONS, 1998-2004. Coulda, Woulda, Shoulda. Sex and the City. Warner Bros. Television.
SOFEMININE. N. D. The Story of Kelly Bag [Online]. http://www.sofeminine.co.uk/mag/luxury/d5782/s23354.html: Sofeminine. [Accessed April 30, 2016].
THE HERALD SUN, April 24, 2016. It’s Hard to Bag a Hermes. The Herald Sun.
VEBLEN, T. 2005. Conspicuous Consumption: Theory of the Leisure Class, London, Penguin.
WANG, Y. & GRISKEVICIUS, V. 2014. Conspicuous Consumption, Relationships, and Rivals: Women’s Luxury Products as Signals to Other Women. Journal of Consumer Research, 40, 834-854.
WIEDMANN, K.-P., HENNIGS, N. & SIEBELS, A. 2007. Measuring Consumers’ Luxury Value Perception: A Cross-Cultural Framework. Academy of Marketing Science., 7, http://www.amsreview.org/articles/wiedmann07-2007.pdf.