What is luxury? Even among luxury brands, there is no consistent use of the term. Some brands prefer to label themselves as “premium” as they are uncomfortable with the term “luxury,” while others use price points as an indicator of luxury. However, using price points as a defining factor is inadequate, as high prices are just one attribute of luxury. Additionally, relying solely on price does not provide guidance for managers on what to do next.

A better approach to defining luxury is to focus on creating extreme value for clients. Luxury can be defined as the ability to create this value. The brand needs to take the perspective of the client, and if an individual client feels a strong connection to the brand compared to others in the same category, extreme value has been created. This results in a non-linear willingness to pay.

Research conducted at Pepperdine University’s luxury strategy center supports the notion that desirability is created through the anticipation of a psychological shift across dimensions such as attractiveness, perceived expertise, and the feeling of being protected in a social setting. It is, therefore, more useful for brands to focus on a set of psychological facets buyers anticipate being enhanced through their purchase, as well as the trigger for this anticipation, rather than solely on status.

To create desirability, the brand story is crucial. Brands need to have a unique and authentic story that describes precisely the one thing the brand should be remembered for. This is essential in creating extreme value for clients in a highly competitive environment. Yet, over 90 percent of brands do not have such a story, and this is a significant misconception. In luxury, the story is what creates extreme value, and without it, there is nothing, regardless of whether brands label themselves as premium or luxury.