Tiffany and Co. is a luxury and jewelry retailer. In the world of business, there are three types of goods in relation to the consumers’ income. There are inferior, normal, and luxury goods. To understand the nature of the markup of the prices of the products, it is imperative to have knowledge of the inherent patterns between different types of goods and consumer behavior. As such, Tiffany and Co. is justified to charge high prices for the products. The reason behind this lies on the classification of luxury goods. Such goods have an income elasticity demand (YED) greater than 1, as indicated below.
Figure 1: The Income Elasticity Demand for Tiffany and Co. Products (BOONE, 47)
The graph above illustrates the behavior of luxury goods in relation to consumer behavior. As the consumers’ income increases, demand for the product increases; hence, a justification to the markup of the prices of Tiffany and Co.
Additionally, Tiffany and Co. acknowledges customer service as a product. The nature of customer service matches the money spend on the luxury products. The positive correlation between the markup of the prices and the customer service explains the nature of the goods. Luxury products are not similar to basic products whereby there is need to create product awareness; hence, a perfect competition. For luxury products, there exists product knowledge for the consumers, and the products are more of a want than a need. The markup of the prices is justified because the target market is defined by their ability to utilize such products. ...Show more