The Veblen effect is an economic phenomenon which takes its name from the American economist Thorstein Veblen, who first wrote about it in 1899. It is used to explain the observation that when a product's price goes up, people often perceive it as being of higher quality and are more likely to buy it. This is counter-intuitive as traditional economics dictates that people tend to buy more of something when its price decreases.
Put simply, the Veblen effect is the notion that products which cost more are seen as a status symbol when consumed or purchased. This can be related to products such as high-end goods, luxury cars, and designer fashion items. These products may not be necessary for everyday living, yet demand for them continues to increase as people are willing to pay high prices for them as they represent status.
The Veblen effect is a useful concept of economic theory as it demonstrates how economic theory and consumer behaviour can be understood through the lens of status and status symbols. The Veblen effect is a valuable concept for marketers to understand and use because it can demonstrate how certain signals, such as price, can influence consumer behaviour.
The key to success when it comes to marketing in line with the Veblen effect is to be able to accurately identify price signals that draw consumer attention and demand. In some cases, an item may have an increased price without increased quality, and the consumer’s perception of the product may be skewed. In these cases, buyers may find themselves paying for an expensive item that does not truly offer higher levels of quality. For example, if an item of clothing is advertised as “luxury” when in fact there is no significant increase in its quality, then consumers may feel as if they have been misled and deceived.
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The purpose of marketing a product in line with the Veblen effect is to identify those products whose prices will be perceived as status symbols. Consumers should feel as if they are buying a product that accurately reflects their social status and position. Other factors should also be taken into consideration when looking to the Veblen effect. Brand identity and perception play a role in the effect’s effectiveness, so marketers must make sure that their product’s advertisement and packaging reflect the desired status.
In terms of best practices when utilizing the Veblen effect in marketing strategies, one of the most important considerations is accuracy in pricing. Inaccurate pricing can lead to a misalignment of perceived quality, and may not effectively convey the desired level of prestige and status associated with the product. Additionally, it is important for marketers to accurately target their desired audience and make sure that their product is reaching the right people of the desired social or income level.
In conclusion, the Veblen effect is a phenomenon which has been around for many years, however, it still has relevance today as luxury goods and goods with vastly inflated prices remain popular. Understanding the Veblen effect is essential for any marketer today in order to ensure that goods being advertised are being done so in an accurate and effective way, in order to preserve the expected status of the item. To this end, accuracy in pricing, accurate targeting of the right audience and the correct branding should all be considered when looking to employ the Veblen effect in a marketing strategy.