Paying the price for luxury

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It went all but unnoticed, but last month saw the closure of mobile phone maker Vertu.

By Guy Cookson, Partner at Hotfoot Design

Vertu began life as a division of Nokia, before being sold to a private equity company in 2002 (Nokia retained a 10 per cent stake). The company pitched itself as “purveyors of the finest luxury mobile phones handmade by our craftsmen in England, using only the most exquisite materials and cutting-edge technology”.

The strategy seemed to work at first. The Economist published a puff piece in 2003 that began with the apparently rhetorical question, “If you can spend $20,000 on a watch, why not on a mobile phone?” and went on to note such luminaries as Gwyneth Paltrow and Mariah Carey were all Vertu customers.

The launch of the iPhone in 2007 changed everything, of course. Bejewelled exteriors and a button to call Vertu’s dedicated concierge service were nothing compared to the magical touchscreen at your fingertips Apple provided. In fact, this might just mark the moment when conceptions of what luxury actually means changed.

Although the iPhone comes in a few different configurations, the hardware and software are essentially the same whichever model you choose, and are not radically different in price.

And while undoubtedly a premium product, the iPhone is affordable enough to have sold in huge volumes – more than one billion units to date. The sheer scale of a product like that creates a strange paradox for the manufacturer.

When you know you are going to sell countless millions, it justifies investment in materials and manufacturing techniques that no one else can replicate, so it becomes possible to sell a much more advanced product – at a cheaper price – than your competitors in the so-called luxury sector.

But it also means you can only use materials and techniques that are massively scalable. This could, ironically, lead Apple to someday launch a more exclusive version of the iPhone that targets the same market as Vertu once did. In the meantime it is interesting to speculate about which of today’s luxury makers will be next to fall in the face of better technology.