You are undoubtedly familiar with the law of demand in economics, which states that as price goes up, demand goes down. For example, if the price of a particular TV brand goes up, more customers are likely to suspend their purchase of that TV or find a less expensive alternative.
The law of demand is based on a rational market where consumers act rationally. And that, in a nutshell, is one of (if not the) biggest limitations to economic theory: Humans do not always behave rationally. In fact, there’s a strong case to be made that most purchasing behavior is based more on emotion, albeit with post-purchase rationalization, than rational consideration of factual information – but that is another post!
One of the most interesting examples of nonrational purchasing is the Veblen brand.
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Now, you may not know the name, but you will undoubtedly recognize what it is. The Veblen brand is named after the economist and sociologist Thorstein Veblen, who famously said that the accumulation of wealth does not convey societal status, but that the “evidence of wealth” does. He coined the phrase “conspicuous consumption” to describe this evidence.
Accordingly, and in direct opposition to the law of demand, a Veblen brand is characterized by consumer demand that increases (rather than decreases) as the price increases!
What would cause consumer interest in a brand to increase as its price increases, you ask? It happens, simply put, because a Veblen brand is purchased because of the price, not in spite of it. Veblen brands are brands that are purchased for signaling status. They are brands that are popularly recognized as more exclusive and relatively expensive, which is why they convey and confer status.
Consider why people aspire to wear a Rolex watch on their wrists. As watches go, Rolex is not a particularly luxurious brand to the watch cognoscenti, who would consider the brand to be premium at best. Without diminishing the quality of a Rolex watch (Veblen brands invariably are high-quality), compared to the top-end watch brands, Rolex is more of a mass-produced and technically much simpler product at a comparable price point. However, owing to extensive brand image campaigns, large swaths of the population who aspire to higher socio-economic status have come to think of the Rolex brand as a symbol of success, wealth and “upper-classness,” thereby making Rolex a Veblen brand. Ironically, those who already reside there hold a decidedly more pedestrian image of Rolex and would look upon the Rolex buyer as lacking an element of sophistication.
Similarly, Rolls-Royce and Louis Vuitton are Veblen brands because they exhibit visual cues that instantly communicate status. They are often purchased precisely for the public recognition of status conveyed by those visual cues – be it a large chrome grille with the “Spirit of Ecstasy” hood ornament, or bags that sport a tapestry of the letters “L” and “V.”
The lesson to branders is this: If your brand is of reasonably high quality and relatively expensive, you can leverage consumer desire to express evidence of their success or affluence through the use of distinctive visual brand cues and status-implying image campaigns.
Which Veblen brands can you name? Which have you used to signal status?