The personal luxury goods market has come through the most disruptive year in recent history and emerged on the other side stronger than ever.

After reaching a global high of $307 billion in 2019, industry sales dropped a whopping 22% in 2020 only to recover and even top it in 2021, reaching $309 billion, according to Bain. By comparison, the global recession of 2008 and 2009 resulted in only a 9% drop over the two-year period.

Early on in the pandemic, the average price of luxury clothing, shoes and accessories on Farfetch, a leading global multi-brand luxury retailer, dropped but then quickly began to rise. The average selling price of luxury clothing and shoes advanced modestly but still rose, from $648 and $486 respectively in February 2020 to $653 and $521 by May 2021.

However, the price increase of luxury accessories was off the charts, rising from $456 to $633, according to data compiled by Dataweave.

For example, during the initial period following the pandemic, some 90% of Louis Vuitton bags, the brand’s cash cow, were discounted on Farfetch. That dropped to 33% in the second half of 2020 and then in 2021, not a single Louis Vuitton bag, or any other clothing, shoe or accessory item, were available at a sale price.

That luxury consumer demand grew so markedly in 2021 under pressure of pandemic restrictions in shopping and travel and in the face of rising prices provides external validation of findings in a new study by Joel-Noël Kapferer and Pierre Valette-Florence published in the Journal of Business Research.

In a cross-cultural study of luxury consumers in China, Brazil, Japan, France, Germany and the U.S., they set out to unravel price from the various motivational factors influencing luxury consumer purchases, including both intrinsic and extrinsic factors, i.e. “luxury for oneself or luxury for others.”

“Luxury for others” rose to the top and high price was the key factor in making luxury desirable. Intrinsic values like quality and sustainability didn’t make the cut.

High price drives demand

That higher price proved to be so important in driving consumer demand for luxury brands came as no surprise to Kapferer. It’s one of the anti-laws of marketing defined in his and Vincent Bastien’s seminal book, The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands.

But another finding in the research came as a surprise. “Unexpectedly, the pursuit of high quality is not a driver,” they write.

So the recent justifications used by Louis Vuitton, Chanel, Hermès and others about the ostensible reasons for price hikes, like the rising cost of goods and labor, ring hollow.

“Luxury high price is not about tangible benefits,” Kapferer and Valette-Florence write. “Price is simply not a cost or quality cue. It also is a source of satisfaction or pride. Price is value, determined as much by the value of a product or service as by the value obtained by the buyer in reflecting a personal, financial, and cultural ability to pay a lot for a non-necessity.”

Luxury brands increased prices recently not because they had to or believed they could, but to keep demand strong. “Economic theory does not integrate luxury pricing easily. After all, luxury consumers’ behavior challenges the tenets of classic economics, whereby higher prices should induce lower demand.”

The economics of the luxury market work exactly opposite, the study and recent history found. And what’s more, it applies across borders.

Purchasing high-priced luxury items satisfies consumer’s psychological needs for status and exclusivity. Through their purchases, luxury consumers demonstrate they are members of a prestigious, exclusive tribe.

“Price functions as a fee for the right to exhibit the logo of a well-known brand and co-brand oneself. The value of luxury expensiveness rests on the extrinsic benefits it provides,” they write.

Luxury has got to be conspicuous

Because conspicuous consumption is a socially unacceptable construct, Kapferer and Valette-Florence structured the research to hide it. Among the 3,200+ luxury, affluent consumers surveyed, divided about equally across six countries, they measured seven key variables:

• Status Signal
• High Quality
• Exclusivity
• Hedonism
• Sustainability
• Richness
• Expensiveness

They asked the questions: “Why do some people still strongly associate luxury with high price? What benefits do they gain from believing that luxury equals expensiveness?”

Kapferer and Valette-Florence note that theirs is one of the few studies that looks at price from a psychological, rather than an economic perspective. And further that this is one of the few studies that took into account sustainability, perceived as a driver of high cost, as a purchase motivator.

They found that high price is a major defining attribute of luxury and its value lies first in status signaling and secondarily in exclusivity. It holds across cultures and demographics, such as age, gender, income and the respondent’s perception of their relative “richness.”

Both high quality and sustainability were rejected as factors that play into consumers’ perceived value of luxury.

In other words, high price signals to consumers the value of a luxury item, whereas the values used by brands to justify their high prices – high quality, craftsmanship and sustainability –  while socially acceptable, are not nearly as important as the value of high price, in and of itself.

The implications of the research are profound. For one, prominent logos are de rigeur.

“If peers are aware of the high prices of luxury products, such products create respect, admiration and status for a consumer,” they write. “For this reason, discreet logos often miss the point. Products with such logos cannot be priced as highly as those with conspicuous logos.”

Another is by paying high prices, the consumer gains social status. “Search for exclusivity has the second-greatest impact, so people derive value from owning what others cannot own, experience or enjoy because of price barriers. In both cases, consumers define and consume luxury to raise their own social position.”

Kapferer and Valette-Florence’s  conclusion:

“Luxury needs visibility; ‘no-logo’ designs are not appropriate for an industry that requires conspicuous consumption. There is no real luxury if it is not visible.

“Luxury is like Janus with two faces, where one face is oriented to the self, searching for self-reward in the form of high quality, pleasure, hedonism and great experiences, and the other face is oriented toward others, seeking social recognition and exclusivity. Only the later is nurtured by high prices.

“The main operational implication of our research is that the luxury sector must leverage this second face to sustain its policy of every-rising prices.”

Research caveats

The researchers acknowledge that the sample of products respondent were asked to reflect upon – recent purchases of a bottle of Champagne, lipstick, jacket for men or women, shoes for men or women, and solar eyewear above a specified price point – reflect what is considered “accessible luxury,” as opposed to “inaccessible luxury,” such as jewelry, automobiles, yachts or villas.

Inaccessible luxury consumers were eliminated from the study for practical reasons. Their high-net-worth (HNW) makes them largely inaccessible for research purposes.

However, Kapferer and Valette-Florence postulate that HNW consumers’ desire for social-status signaling would not be as important to them as for the sample they studied. But their desire for exclusivity would remain strong. Further, HNW consumers likely have a stronger motivation for high quality than found among their sample.

Yet, the study’s findings have special relevance to the current luxury market. Except for certain luxury categories, the rapid growth in the luxury market has been largely attributed to the accessible, aspirational luxury segment.

François-Henri Pinault, CEO of Kering, is quoted as saying, “The number of potential customers is now around three billion people.” The number of high-net-worth individuals worldwide numbers just over 20 million, according to Statista.

Expect more luxury price increases

While the world is on edge due to Russia’s war on Ukraine and the threat of its global economic fallout, we can expect continued luxury price inflation ahead. Rising prices clearly didn’t hurt luxury brands during the pandemic.

And even if some luxury consumers are temporarily priced out of the market in the short term, luxury brands can look forward to consumer demand coming back even stronger in the long run.

In answer to Forbes.com contributor Walter Loeb’s question, “Luxury Brand Prices Rise Sharply – Will It Cut Demand?” the answer from Kapferer and Valette-Florence is an unequivocal “No.”