How the Veblen effect makes luxury brands desirable?

Can a higher price make a luxury product even more desirable?

In most markets, rising prices tend to dampen demand. Nothing surprising there. In luxury? Things are not always quite so simple. Scarcity, prestige and social status can turn price into something more than a number. Sometimes, into part of the attraction itself.

Strange? Perhaps. This phenomenon has a name: the Veblen effect.

What is a Veblen good?

Definition and economic anomaly

Economics usually tells us something rather simple: when prices rise, demand falls. With a Veblen good? This rule is completely turned on its head! Completely. The price rises. Yet desire does not necessarily diminish as a result.

In fact, it is sometimes quite the opposite.

In the world of luxury, a price is rarely just a figure on a label. Why? Because it says something about the product itself. Few people can afford this product. And even fewer manage to become its owners. That’s when the magic happens! What should have been an obstacle then becomes an integral part of its appeal.

This is the true power of exclusivity in the luxury sector. A very high price then becomes synonymous with rarity, prestige and access to a world deliberately closed off to the general public. In Veblen’s theory, price does not merely reflect value. In some cases, it helps to create it.

The sociology of conspicuous consumption

Thorstein Veblen was not solely interested in price. What interested him above all else? What our purchases actually reveal about us.

A watch tells the time. A handbag is used to carry our belongings. From a purely practical point of view, neither of these items needs to cost a fortune to fulfil its function perfectly.

Yet some do!

Because consumption is very often a social signal.

Key Veblen good examples in the luxury market

The most interesting examples of Veblen goods have one thing in common: having the necessary money does not always mean being able to buy the item in question. Indeed, in the luxury sector, scarcity can act as an additional barrier, on top of the price.

Haute horology: the prestige of Rolex and high jewelry

Is the simple fact that a Rolex tells the time enough to explain its appeal? Of course not! Accuracy matters, of course. As do craftsmanship, heritage and reputation. But that’s not all! Availability appears to be another factor, and a far more decisive one at that. The brand itself acknowledges that demand can outstrip its production capacity. The result? Certain models are extremely hard to come by.

Consequently, having the means to afford a coveted watch does not necessarily mean being able to buy it straight away.

That changes everything.

Designer fashion: absolute exclusivity of the Hermès Birkin

When it comes to the Hermès Birkin? Simply having the means is clearly not enough. The main challenge with this item is not, in the end, its price. No. It’s finding one to buy! You may not be aware, but this item is sold exclusively in Hermès boutiques. This highly coveted bag may therefore simply not be available when a customer asks for it. The reason? High demand, of course, but also the artisanal craftsmanship. Hermès leather goods require months of work and carefully selected materials.

Frustrating? Perhaps. Desirable? Undeniably so.

This is luxury exclusivity at work: the price acts as a filter. Rarity acts as yet another filter.

Supercars and fine art: Veblen mechanics in collector markets

Supercars and works of art take scarcity to an even greater extreme. To understand this phenomenon, one must first and foremost understand what truly drives collectors. For collectors do not simply buy an object; they buy scarcity itself.

A limited-edition Ferrari may be produced in only a handful of units. A work of art? By definition, it is unique. Its provenance, moreover, can enhance its appeal and market value.

Competition inevitably intensifies. Prices soar. Desire? It generally soars with them.

The direct link between the Veblen effect and conspicuous consumption

What is conspicuous consumption?

Buying solely to satisfy a need? Not according to Veblen! For him, consumption could also serve another purpose: to showcase one’s wealth and social status. This is what is known as conspicuous consumption. Mind you, the object itself is, of course, important. However, the message it conveys is just as important.

A rare watch on one’s wrist or an instantly recognisable handbag can thus say, without a word: "I have access to things that few others can afford".

How the Veblen effect fuels this behaviour

So, does a higher price really make an object better? Not necessarily. More desirable? This is another matter.

This is where the Veblen effect comes into play. When part of the pleasure lies in owning something that is out of the reach of most people, it seems obvious that price has another role. It draws a line between those who can buy and those who cannot.

Crossing that line becomes part of the appeal.

Paying more is therefore no longer simply a cost. This is part of the message for some consumers.

The modern shift: subtler signals of luxury status

But does status still need to be obvious? Not necessarily.

The codes of luxury are now more discreet. A logo can speak loudly, while a particular cut, material or watch reference may only be recognised by those who really know what to look for. In quiet luxury? The message is still there. It has simply changed its audience.

Clearly: less visible to everyone, but much more meaningful to a privileged few. For luxury professionals, the challenge is therefore no longer simply to recognise these signals. No. It is to understand how they shift from one market and culture to another. Want to explore these dynamics in greater depth? The MSc In Global Luxury Brand Management offers the opportunity to do just that.

Veblen effect vs. standard luxury pricing

Price as an indicator of quality and prestige

Can a luxury brand simply raise its prices to become more desirable? Certainly not!

A high price may suggest exceptional craftsmanship, quality or prestige. But ... suggestion alone has its limits. If the product fails to deliver, the spell can quickly be broken.

One thing must be clear: Veblen theory does not make price a magic wand. The price must remain credible in relation to everything surrounding it: the product, the experience and, ultimately, the brand itself.

Maintaining brand equity through absolute scarcity

Sell more or remain rare? For many luxury brands, the answer is not always obvious.

Why? Because too much availability can weaken the exclusivity that made a product desirable in the first place. The opposite extreme? Growth may suffer.

The challenge is therefore not to manufacture frustration. Far from it. It is about controlling access without allowing scarcity to feel artificial.

In luxury, scarcity works best when there is a reason to believe in it.

Master luxury brand management at Sup de Luxe

Decode the luxury consumer mindset

Price, rarity, status, emotion... Luxury consumers rarely respond to just one of them.

Understanding why a customer desires an object is therefore just as important as knowing how to market it. Sometimes? The obvious answer is not the right one. Learning to read what lies behind that desire? That is precisely where the Bachelor in Luxury comes in.

Discover our MBA Luxury Brand Marketing & International Management

Theory is useful. Putting it to the test? Even better.

Sup de Luxe’s MBA Luxury Brand Marketing & International Management combines luxury marketing and brand strategy with real business cases and regular contact with industry professionals.

The objective? To understand the codes of luxury, certainly. But above all, to learn when to follow them, when to question them and how to turn them into relevant strategic decisions.