Luxury and Value
Luxury and Value, two words that rarely go together, unless we are talking about ALV or Added Luxury Value. Coke, Hugo Boss, Nike, Hermes, Louis Vuitton, Google, Supreme, Off-White, Balenciaga, Apple. What do they all have in common? They are all top trusted brands today, whether in fashion, technology, or lifestyle. Kylie, Glossier, Huda Beauty, Sweat (with Kayla), Jeffree Star Cosmetics, Skims, Beats (by Dre). What do they all have in common? They are trusted up and coming brands created by your favorite influencer.
What is very interesting about these brands is that the actual value of the item is way less than what the perceived value is, or what the sale price is. In other words, you are paying a premium to buy the brand.
Culture Rules Luxury
What does that mean? For example, Sotheby’s recently sold a limited edition of 200 pairs of Louis Vuitton and Virgil Abloh Nike Sneakers; the smallest size, 5, sold for $352,800. Most of the value is attributed to ALV or Added Luxury Value. All of the brands above are able to generate significant ALV on all of their products. This collaboration was extreme in its ALV since the actual retail cost of a pair of Nike Louis Vuitton sneakers might be between $1,000 and $2,000.
What accounts for this massive Added Luxury Value? The difference with “regular” Louis Vuitton Nike sneakers and the ones that sold for over a quarter of a million dollars is one thing: Virgil Abloh. The story that Abloh brings as well as his untimely death catapulted the sneakers into the stratosphere.
The story told by Dr. Dre through the speakers manufactured by Monster Inc. but known as Beats by Dre provides a high ALV, eventually leading to a $3 billion sale to Apple. Likewise, the stories brought about by Jenner, Kardashian, and all of the other influencer brands help to take an otherwise normal product and bring a healthy ALV to it.
Is there a way to estimate Added Luxury Value? It’s been a near impossible calculation for financial wizards. Accountants invented “goodwill” but its value is basically a “plug,” that is, a number that makes the numbers balance, so not something that is directly calculable. However, outside of the math, it looks like ALV is a combination of popularity, story, craft, appeal, and history.
Art is Luxury
When we look at art, we can see that outside of the cost of canvas, paint and stretcher (all less than a fraction of 1%), the most expensive works of art follow these intangible mathematics: Da Vinci’s Salvador Mundi, Picasso’s Les Femmes d’Alger, Jackson Pollock’s No 5, Roy Lichtenstein Masterpiece, Klimt Portrait of Adele Bloch-Bauer, Munch The Scream.
How does this relate to you? Any products you sell will have to carry a mark up over the actual cost of goods sold. What accounts for this mark up? The Added Luxury Value. Or in other words, YOU! What makes Coke any different from store brand soda? The fact that it is Coke, the polar bears, the feel good, the brand! Nike is different from any other sneaker because of the swoosh, Jordan, Oregon Track, the legend, the brand! Why is someone willing to pay more for your product? You: your brand!
Create Your Luxury
If you are an influencer, most likely some subset of the population has heard your story, and likes the craft and appeal of your product. That and the notion that things can go ‘viral’ pretty easily leads to the major tenets of driving Added Luxury Value.
How do you increase your ALV even higher? It’s a fine formula with no discernible inputs that lead to certain outputs, meaning that even if you were famous, it doesn’t mean that people necessarily want your fashion, art, or NFTs. However, it’s a good bet that these toggles will increase your ALV in some way, shape or form. The best thing to do is continue to build your brand, tell your story, and construct an appeal and the ALV will come!
Do you have any experience with building a brand? How would you calculate your added luxury value (ALV)? Is there a formula we are missing? Let us know by dropping us an email!