The Paradox of Prestige: Why Luxury Brands Raise Prices During

Economic Downturns

Jialu Xu

Guangdong Overseas Chinese High School, Guangzhou, China

Keywords: International Public Relations, Digital Media Communication, Southeast Asian Intercultural Communication.

Abstract: This paper discusses reasons that high-end luxury brands continue to raise prices during an economic slump.

The study analyzes the intrinsic motivation and reasons behind the capacity of these brands to maintain high

prices during economic downturn. By means of brand positioning, consumer psyche, supply chain forces, and

market forces, this study con-cludes that luxury brands employ their position of exclusivity and prestige to

justify their high prices. Their craftsmanship, uniqueness, and history as well as promotion generate value

per-ception and attraction to high-net worth and aspirational buyers. This study concludes that the success of

luxury brands in their high-pricing power is contingent upon the balance of ex-clusivity, consumer psyche,

and supply chain strategy. One suggestion for the high-end luxu-ry brands is to continue to spend on brand

history, craftsmanship, and digitalization, which could help maintain their customer base, market share and

profitability during an economic slump.

1 INTRODUCTION

This chapter seeks to provide a bird’s-eye view of the

research subject, paving the way for a close

examination of what appears to be the paradoxical

pricing approach being undertaken by luxury brands

amidst economic recessions. The chapter starts by

describing the prevailing global economic

environment, marked by greater uncertainty,

economic downturn, and tighter consumer spending,

especially on discretionary products and services.

Despite these adverse conditions, the luxury brands

have backed the trend by raising their prices instead

of lowering them to lure more customers or hold on

to market share. This preamble attempts to

underscore the relevance of this trend and why there

is a need to deeply examine the causes for this action.

It also presents the major themes and ideas to be

explored in the study, such as brand positioning,

consumer psychology, supply chain operations, and

market competition, paving the way for the in-depth

analysis in the later parts.

The global economy has been facing times of

increased uncertainty and recession over the past few

years that were characterized by a series of economic

challenges faced by both businesses and consumers.

This economic downturn has been characterized by

the slowdown of economic growth, high levels of

unemployment, and high levels of economic

instability have deep impacts on consumption

expenditures. The International Monetary Fund (IMF)

report shows that the world’s economic growth has

decelerated and that economic growth rates in most

of the world’s regions are negative or flat

(Gourinchas, 2022). Such a scenario sees consumers

becoming cautious in spending and tend to spend

more on essential items and fewer on discretionary

goods and services, thereby leading to low

consumption levels of discretionary goods and

services.

Despite this history of economic turmoil, one

surprising pattern is developing in the luxury goods

market. Luxury brands, the sometime poster child of

extravagance and excess, have been increasing prices

instead of implementing more modest price initiatives

(KPMG, 2024). This is particularly intriguing given

the overall economic situation. Luxury brands would

be expected to cut prices to make their goods more

attractive to more consumers or to maintain market

share, instead of which they’ve gone the other way

and raised prices in seeming contradiction to the

economic trends. Not only is this surprising but it is

fascinating enough to examine more closely to

observe the factors in play.

Xu, J.

The Paradox of Prestige: Why Luxury Brands Raise Prices During Economic Downturns.

DOI: 10.5220/0013995600004916

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd International Conference on Public Relations and Media Communication (PRMC 2025), pages 529-536

ISBN: 978-989-758-778-8

529

2 LITERATURE REVIEW

The luxury goods market operates in a unique

environment that is influenced by as broad a range of

factors as brand positioning, the attitude of the people,

the management of the supply chain, and the

competitive forces (Pedro et al., 2024). Luxury brands

are not concerned with the broad market but with

conveying the high quality and the notion of

exclusiveness. Their products on most occasions are

not just symbols of status but symbols of prosperity

and success that exceed functionality to represent

social distinction. This unique positioning is what

allows them to price higher and maintain the buyers

despite economic down times.

In addition to this, the luxury market is highly

fragmented, and each consumption segment has its

own consumption pattern. HNWIs, to cite one

example, is one of the large segments of the luxury

market and is less affected by economic conditions.

Their consumption pattern is relatively steady,

providing the luxury brands with a steady source of

demand. Additionally, “aspirational consumption” is

the driving force of the luxury market since the

customers are willing to spend and make concessions

to buy luxury products as a way of achieving the

lifestyle of their choice (McKinsey and Company,

2019). Willingness to splurge on luxury expenditure

even in the wake of economic downturn is testimony

to the two-way relationship between consumption

behavior and economic conditions.

Moreover, the economic downturn globally has

not affected all locations the same way. The fast

economic development and growing middle-class

populations of the emerging economies of Asia

(Beattie, 2022) with high luxury consumption

demands are examples. China Briefing indicates that

China’s luxury industry has continued to grow even as

the rest of the world has faced economic issues

because of China’s growing prosperity and shifting

consumption pattern of the middle class (Sgueglia,

2024). This economic performance disparity among

locations has provided luxury brands with the

opportunity to open new locations as well as mitigate

the impacts of slowdowns in already existing locations.

With the intricacy that the luxury market poses,

this essay attempts to analyze and explore the logic

that governs the apparently contradictory pricing

strategy of the luxury brands during the economic

recession. Through the evaluation of the various

aspects such as brand positioning, the psychology of

the consumers, the operations of the supply chain, and

the competitive dynamics of the market, this paper

attempts to give a general picture of why luxury

brands continue to raise their prices during the

economic downturn facing consumers. Qualitative

and quantitative information such as market studies,

consumer surveys, and case studies of specific luxury

brands will be employed in the study to give a

balanced picture of this phenomenon.

The primary objectives of this research are to

explore the reasons that high-end brands continue to

raise prices during a global economic downturn; to

identify factors that drive the pricing strategies of

luxury brands in a recessionary environment; to delve

into the way that high-end brands manage to sustain

their profitability despite the economic challenges

faced by consumers.

3 FINDINGS AND ANALYSIS

This chapter attempts to conduct an in-depth study of

the intricate set of drivers enabling luxury brands to

maintain and even increase their prices during

economic crises. It accounts for the dynamic interplay

among brand image and positioning, consumer desire

and conduct, supply chain control, and marketplace

rivalry, and how they work in conjunction to support

the premium price policy of luxury brands. By way of

studying the implications of status symbols, brand

heritage, consumer segmentation, perceived value,

restricted output, raw materials’ price, and

marketplace differentiation, this part attempts to

explain the underlying dynamics of the stability of

luxury brands in the face of economic downturns. It

then provides the conclusions regarding the principles

of price increases, the drivers of price policy, and the

mechanisms whereby luxury brands are able to

sustain profitability in the face of economic downturn.

3.1 Brand Positioning and Image

Luxury brands always equate to status, exclusiveness,

and desirability. At times of recession, it is even more

essential to maintain this premium status. Luxury

brands know that their unique selling point is the fact

that they are able to confer the luxury and superior

aura. Hence luxury brands prefer to aim at maintaining

their exclusiveness and not expand the market size.

3.2 Luxury Brands as Status Symbols

One of the factors that make luxury brands able to

charge high prices during recession is that luxury

brands are symbols of prosperity and success. Luxury

goods ownership is not so much the practical use of

the product as the social and psychological value it is

PRMC 2025 - International Conference on Public Relations and Media Communication

530

associated with (Becker et al., 2018). In times of

economic downturns, the luxury brands’ popularity as

symbols of status may even increase. Those who can

buy the products will feel that they achieve more and

stand out from the rest of the population, and the

consumers who would like to buy the products will

feel that the products are objects of desire. This is

supported by research that indicates luxury brands are

more desirable if associated with exclusiveness and

high status (Wang et al., 2024). Psychological

benefits from the ownership of luxury goods may

exceed the economic cost, especially among

consumers who assign high importance to social

status and self-expression. To take advantage of this

dynamism, luxury brands usually follow a strategy of

preserving distinctiveness and affirming their role as

symbols of achievement. They do so through

restricted releases, premium advertisement

campaigns, and promotions to high-end consumers

and aspirational buyers (Bacon, 2025). Through their

focus on craftsmanship, heritage, and novel design,

luxury brands distinguish themselves from mass-

market rivals and legitimize their high price points

(Wang, 2022). Not only does this maintain their

profitability in times of economic recession but also

support their sustained market position, as captured

through the sustained expansion of luxury markets in

emerging markets like China and India (ibid).

3.3 Role of Brand Heritage and

Craftmanship

Another critical element that justifies premium

pricing is the heritage and craftsmanship of luxury

brands. Most luxury brands boast of the legacy of

quality and innovative thinking and attention to

quality. Such a heritage is generally expressed

through their branding and communication that

strengthens the belief that their product is unique and

superior. Customers are willing to pay premium price

for the quality and craftsmanship that the brands

represent (Steenkamp et al., 2010). A luxury brand’s

handmade leather handbag is not just another product

but a piece of art that is imbued with the brand’s

heritage of quality. Research conducted indicates that

consumers view luxury brands to be superior in

quality and exclusiveness due to their heritage and

craftsmanship and justify the premium price

(Halwani, 2019).

3.4 Marketing and Brand Strategy

Luxury brands also employ high-end promotion and

branding strategies to maintain their premium status.

Luxury brands spend millions of dollars on

advertisements, events, celebrity and influencer

endorsements to build hype and maintain mystique

(Ibáñez Sánchez et al., 2021). These activities are

even more important in recessionary situations since

brands try to stand out from the rest. Luxury brands

can price higher and maintain their margin of profit

while presenting themselves as superior and elite.

Luxury brands ought to continually invest in the

reputation of the brand to maintain their premium

status (Wei, 2022). This entails consistency of the

message of the brand, investing in high-end

promotion strategies, and presenting the product as

superior and exceptional.

3.5 Consumer Behavior and Demand

Dynamics

Luxury brands have the unique potential to influence

the actions of consumers through their brand and

advertisements. The fundamental behaviors and

drivers of luxury consumers are responsible for

explaining the high prices charged by luxury brands

in the backdrop of the economic recession scenario.

Such behaviours and drivers, like luxury brand

loyalty, segmentation, aspirational consumption, and

perceived value all bolster premium pricing methods

of luxury brands during economic slumps. Below is

the explanation of the most relevant factors

dominating the behavior of consumers within the

luxury market that include aspirational consumption,

segmentation, perception of value, and luxury brand

loyalty.

4 ASPIRATIONAL

CONSUMPTION AND SOCIAL

MOBILITY

Aspirational consumption is the prime mover of the

luxury goods market. Luxury brands are popularly

thought of among consumers as symbols of success

and upward social mobility. At the onset of recession,

the desire to achieve higher social status is even more

intense. Results of research indicate that consumers

are willing to make luxury goods purchase high order

in pursuit of the lifestyle of their choice at the cost of

cutting back on consumption in other product classes.

This is particularly true among the young consumers

and the new middle classes of the Asian continent’s

emerging economies (Aldhamiri et al., 2024). Luxury

goods among these segments are concrete symbols of

The Paradox of Prestige: Why Luxury Brands Raise Prices During Economic Downturns

531

announcing their success and aspirations to the world

outside.

Aspirational consumption theory is grounded in

the assumption that luxury brands are not merely

practical products but symbols of social distinction.

Luxury brands ownership is generally the mark of

success and achievement and allows the owner to

communicate social status and personal beliefs. One

of their studies recognized that luxury brand

ownership offers significant psychological benefits to

the consumers because the products were perceived

as symbols of superiority and exclusiveness (Akarsu

et al., 2025). This is also supported during recession

periods when consumers would seek to stand out

from others through the ownership of luxury brands.

Moreover, the rise of social media has augmented

the influence of aspirational consumption. Social

media platforms such as WeChat and Instagram

facilitate exposure of luxury items to even more

people so that the consumers feel social approval and

peer pressure. Social media consumers are extremely

vulnerable to luxury brand promotions and celebrity

endorsements that trigger consumption of luxury

items during economic hardship (Gayatri, 2017).

4.1 Consumer Segmentation and

Diverse Spending Patterns

Luxury brands target broad segments of consumers

each with their own expenditure pattern and drivers.

HNWIs represent one of the largest segments of the

luxury market and are not so responsive to economic

downturn. Their expenditure pattern is steady and

creates luxury brands a steady source of demand.

Recent research discovers in a report that HNWIs

continue to spend on luxury goods as a way of asset

preservation and status expression regardless of

overall economic trends (Hope, 2025).

In addition to HNWIs, the luxury market is also

driven by the emerging middle class of the

developing economies. These consumers have a huge

urge to buy luxury brands and are willing to spend a

significant portion of their income to do so. The

growth of the middle class of countries like China and

India has spawned the generation of luxury

consumers who regard luxury products as a way of

expressing their new-found prosperity and social

standing (Luan et al., 2019). China’s luxury market

has continued to record high growth rates driven by

the increasing purchasing power of China’s middle

class, according to Bain & Company’s report (Lannes

et al., 2024).

Their consumption behaviors also tend to differ

from that of their high net-worth luxury counterparts.

HNWIs may adore luxury and heritage while their

new middle-class counterparts are driven by social

approval and aspiration to emulate the rich. This

group of consumers is highly susceptible to trends

and advert communication of the social status of

luxury ownership. Luxury brands that emphasize the

social status that one will acquire from one’s brands

or the experiences that one will acquire are more apt

to connect with this segment of consumers (Gupta et

al, 2023).

4.2 Perceived Value and Brand Loyalty

Perceived value is another fundamental factor that

guides the behavior of the luxury market’s consumer.

Luxury items are high priced because the consumers

hold the belief that the items are of higher quality than

the mass market goods (Mundel et al., 2017).

Perceived value is created from the heritage of the

company, craftsmanship, and rarity. Luxury brands

had succeeded in maintaining high perceived value

through their uniqueness and distinction from others.

Luxury brand loyalty is also among the factors

that influence luxury consumption behavior. Luxury

brands command the loyalty of consumers who pay

the premium even during economic downturns.

Luxury consumers would remain loyal to the brands

even if the cost increased (McKinsey Company’s

report, 2025). Loyalty is founded on trust, heritage of

the brand, and emotional connect of the consumers

towards the brand. Luxury brands have been able to

achieve this loyalty through constant quality, high-

level service to the customers, and customized

experiences.

One of the principal causes of high loyalty of the

luxury segment is the emotional bond that the buyers

feel with the brands of their choice. Luxury brands

invest enormous amounts of money in building the

unique brand personality and purchasing experience

that resonate with their target (Waran et al., 2023).

Hermès and Rolex are two brands that are identified

with craftsmanship and heritage, and this resonates

with the sense of pride and ownership in the minds of

the buyers (Ko et al., 2017). The emotional bond is

not merely to the product but to the brand’s values,

history, and the experiences created from the

consumption of its products.

Moreover, luxury brands promote loyalty through

exclusive experiences and tailored services. Luxury

brands reward loyal customers with tailored services,

limited edition items, or special events. These not

only make the customers satisfied but also give the

feeling of belonging and exclusiveness to the

customers. According to research at Deloitte (Faccioli

PRMC 2025 - International Conference on Public Relations and Media Communication

532

et al., 2023), luxury brands that offer personalized

experience can retain customers and command

premium prices.

4.3 Supply Chain Dynamics and

Market Competition

The luxury brands’ ability to price their commodities

higher even during economic downturn is also

contingent on competition in the market and the

dynamics of the supply chain. Luxury brands have

unique supply chain policies under which it is easy

for luxury brands to manage their commodities and

prices (Seo and Buchanan-Oliver, 2015). These

strategies not only reinforce the exclusivity and

desirability of their products but also align with the

brand positioning strategies discussed earlier, and

thus further supporting their status as symbols of

prosperity and success. The subsequent section

discusses the leading factors that facilitate luxury

brands to uphold their luxury levels through

controlled production, raw material price, and market

distinction.

4.4 Limited Production and Exclusivity

Luxury brands use limited production methods to

guarantee exclusivity and control the products. With

the production of limited amounts of products, luxury

brands create the perception of scarcity and shortage

among customers. The scarcity heightens the

perception of demand and allows brands to price their

products at premium levels. Luxury brands that use

limited production methods can sustain superior

profits alongside keeping their premium positions

(Deloitte, 2023).

Limited production also allows luxury brands to

control the supply chain. With the limited production

of items, brands can ensure that whatever is produced

is of high quality and made with the best

craftsmanship. Control of the supply chain allows

luxury brands to uphold their luxury status and charge

high prices. An example is luxury fashion brands

Chanel and Dior that always introduce limited-edition

lines that are produced in small quantities (Matić and

Pandža Bajs, 2022). The limited-edition items not

only create the illusion of exclusiveness but are also

able to uphold the brand’s reputation of quality and

craftsmanship.

In addition to this, limited production strategies

also prove to be effective in controlling the

consumers’ expectations and generating anticipation.

By releasing the products in fewer quantities or via

the process of limited release, luxury brands can

create hype and build anticipation among the

consumers. Not only does it improve the demand, but

the price of the product does too. With the research

shows that, luxury brands that are successfully able to

control the consumers’ expectations via limited

production and limited release can hold their

premium price (Elgebali and Zaazou, 2023).

4.5 Raw Material Cost and

Manufacturing Cost

Raw material and production cost also affect the price

of luxury brands. Luxury brands use quality raw

material and pay high wages to expert artisans to

produce their products. Such expert artisans and

quality raw material are costly, and the price of the

product is also high. Production cost and raw

materials are high nowadays, and it has put pressure

on the price (Voyer, 2025). Luxury brands are able to

shift the cost to buyers because of their high status

and loyal buyers.

Luxury brands prefer to source raw materials

from high-end vendors who are quality- and

exclusivity-conscious. Luxury leather goods brands,

for example, would source leather from tanneries that

are so recognized to produce high quality and

craftsmanship (Akkan, 2024). Luxury jewelry brands

would similarly prefer to use high-cost gems and

metals that are rare and of high quality. Through their

emphasis on the quality and exclusivity of the raw

material, luxury brands are able to place the price of

their products at the upper bracket and maintain their

luxury status.

Also, luxury brands tend to spend more on

sustainable and ethical procurement, increasing the

cost of production. The buyers, according to research,

increasingly worry about the social and

environmental impact of the goods they buy. Luxury

brands that emphasize ethics and sustainability can

stand out among their competitors and attract socially

conscious buyers (McKinsey Company, 2023). Not

only does this stress on sustainability build the brand

reputation but also justifies premium pricing since

buyers pay extra to buy items that speak to their

values.

5 MARKET COMPETITION AND

DIFFERENTIATION

Differentiation is essential in the very competitive

luxury market to maintain the premium status.

Luxury brands distinguish on the grounds of

The Paradox of Prestige: Why Luxury Brands Raise Prices During Economic Downturns

533

innovative designs, high quality, and excellent

service. Luxury brands premium price and maintain

profitability based on these differences.

Market competition also affects the luxury brand

price strategies. Luxury brands compete over scarce

high-end buyers. Luxury brands increase prices to

make consumers believe that the brands are of higher

quality. Luxury brands that increase prices are

generally regarded as exclusive and prestigious and

therefore increase the market and demand (Pedro et

al., 2024).

Luxury brands differentiate based on innovative

technology and craftsmanship. Luxury fashion brands

spend large amounts on research and development to

create unique and timeless designs that differentiate

their brands from the competition. Luxury car brands

differentiate based on engineering quality and

innovative technology to make the experience of

driving superior (HarmonyHub, 2023). Through

differentiation on the basis of these differences,

luxury brands are able to charge premium prices and

hold premium positions.

Moreover, luxury brands prefer to distinguish on

the basis of superior service to the customers. Luxury

brands provide unique experiences in the way of

bespoke services, VIP events, and personalized

assistance. These efforts not only lead to higher levels

of customer satisfaction but also generate a sense of

loyalty and exclusivity among the customers. Study

discovers that luxury consumers tend to remain loyal

to brands that provide superior service to the

customers and personalized experiences (Gupta et al.,

2023).

5.1 Further Analysis

The study finds that luxury brands can increase prices

during a recession because of a chain of interrelated

factors. First, luxury brands are status symbols,

exclusivity, and desirability. Their capacity to create

social differentiation and psychological satisfaction

makes them of immense worth to consumers, even

during economic decline. The status symbol appeal of

luxury brands is more attractive during times of

economic decline, with consumers who can afford

them trying to reaffirm their success, and aspirational

consumers seeing them as symbols of success.

Second, the quality and craftsmanship of the

luxury brand justify the high prices. Buyers are ready

to pay extra as luxury brands are synonymous with

quality, rarity, and art. Such a heritage is reinforced

by ongoing branding and marketing that attach value

to luxury items.

Thirdly, the luxury market’s unique consumption

pattern has applicability. The HNWIs are strongly

insulated from the economic cycles and represent a

relatively steady source of demand. Second,

aspirational consumption also provokes consumption

among the aspiring middle-class consumers in the

developing economies, where luxury consumption

becomes the prime way of achieving social mobility

and self-expression.

5.2 Factors Driving Pricing Strategies

in a Recessionary Environment

Luxury firm price decisions during recession are

driven by brand strategy, consumer psychology, and

market dynamics. Luxury brands are more interested

in retaining their high-end reputation than in

maximizing market share so that the products are

exclusive and in high demand. Luxury brands ensure

exclusiveness through limited production policies

that build a perception of scarcity and need among the

consumers.

Supply dynamics also come into play. Luxury

brands control the quality and price of what they

produce through tight controls over raw materials and

manufacturing processes. Better quality inputs and

expertly trained personnel lead to higher prices, and

restricted production makes the product scarce and

desirable.

Competition within the market and digitalization

also support the luxury brands’ pricing strategy.

Luxury brands can price high through differentiation

from the market in the form of innovative styles,

quality, and high-quality customer experience.

Luxury brands use e-commerce and digital

communication to reach more people while

maintaining control over price and brand.

5.3 Sustaining Profitability Despite

Economic Challenges

The reason that luxury brands are still able to make

profits during the middle of economic crises is that

these brands hold a unique position and desirability

among people. These brands are symbols of status

and success, and even during hard times are in high

demand. Affluent consumers’ loyalty and aspirational

purchasing on the part of the rising middle-class

consumers make it a good pool of demand.

Also, luxury brands’ ownership of the supply

chain and production processes allows them to

maintain high levels of quality and support premium

prices. Limited production strategies generate

scarcity that raises the demand and maintains high

PRMC 2025 - International Conference on Public Relations and Media Communication

534

prices. Digitalization and e-business further facilitate

luxury brands to connect straight to the customers,

maintaining their premium reputation and price

control.

6 CONCLUSION

The result of this research has significant implications

on the dynamics of luxury brands’ long-term

profitability and premium price realization during

economic recessions. In the answer to the three

research questions, this conclusion synthesizes the

main findings and provides the overall understanding

of the phenomenon. Luxury premium brands’ ability

to price higher during economic downturns is based

on the latter’s unique market position, consumer

appeal, and savvy supply chain and program

management. Luxury brands don’t sell products but

sell status, exclusiveness, and the feeling of achieving

it. Luxury brands enjoy the backing of loyal buyers,

would-be buyers, and a controlled supply chain that

ensures quality and scarcity. As the world economy

keeps struggling with the challenges of uncertainty,

the luxury brands should remain dynamic and

responsive. By still investing in brand history,

craftsmanship, and the digital realm, luxury brands

will hold leading positions and remain profitable. The

implications of this research bring to the fore the

necessity of understanding the behavior of the

consumers, market trends, and branding position

while weathering economic storms. Luxury brands

that know how to nurture these aspects in harmony

will continue to thrive even during economic

downturns.

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