Each product category has a theoretical quality scale ranging from 1 to 10.
A luxury product is a product at upper range of this scale.
There is a luxury version of every product category. People care more about quality for some products more than others. For example, the luxury handbag market is larger than the luxury toothpaste market.
Price increases super linearly to quality. A 9.5 bottle of wine can be 2-3 times more expensive than a 9.0 bottle, rather than just 5% more expensive.
The higher prices of luxury items are in part due to the smaller market of individuals willing to pay for marginal increases in quality. This smaller market necessitates higher prices to offset fixed costs. Additionally, higher prices can be attributed to the income effect, as individuals willing to pay for higher quality tend to have higher incomes and exhibit more inelastic demand. Lastly, pushing the limits of quality asymptotically towards a 10.0 requires superlinearly increasing marginal costs. Consider the high labor costs of tailoring a suit, or serving Omakase.
Certain companies, such as Chipotle and Tesla, offer high value per dollar by increasing quality without significantly increasing prices. These companies have captured gigantic market share.
Many groundbreaking consumer products come about create a new luxury version of an existing product category. Nike for shoes, Apple for phones, Starbucks for coffee. They push the boundaries of quality past what was previously thought possible.