The Veblen effect in luxury: high prices boost brand appeal

Named after the economist Thorstein Veblen, who coined the term “conspicuous consumption”, the Veblen effect is at the heart of luxury markets, where exclusivity and status matter as much as the product itself. This phenomenon calls into question the basic principles of traditional economics, which asserts that the more expensive a product is, the less people will buy it. Let's take a closer look at the mechanisms of the Veblen effect...

Understanding the Veblen effect

Definition and origin of the concept

The Veblen effect is an economic phenomenon that overturns the traditional logic of supply and demand. Introduced at the end of the 19th century by the American economist Thorstein Veblen, this concept expresses a paradox: the higher the price of a good, the more desirable it may become for certain consumers. Contrary to traditional theories, according to which a high price reduces demand, the Veblen effect underlines a reality that is specific to the world of luxury: price is also a social marker.

In this context, the pricing strategy adopted by a brand does not simply serve to cover its costs or maximise its margin: it becomes a communication tool, a marker of exclusivity, and a powerful lever of attractiveness. A high price suggests rarity, superior quality and, above all, belonging to a restricted circle. This is why the Veblen effect is also known as the ‘snobbery effect’.

Link with conspicuous consumption

The Veblen effect is closely linked to the notion of conspicuous consumption, another fundamental concept developed by Veblen himself. It refers to the tendency of certain individuals to display their social status through outward signs of wealth, and in particular through the purchase of expensive goods. In the case of luxury goods, this consumption is not just about indulging oneself, but also - and sometimes above all - about standing out from the crowd.

We can see that the behaviour of consumers of luxury products does not respond solely to criteria of functionality or need. Price becomes a tool of distinction: wearing an expensive handbag or a limited edition watch signals success, purchasing power and knowledge of the codes of luxury.

How do luxury brands apply the Veblen effect?

High price strategies and exclusivity

In the world of luxury, the Veblen effect is not an accident, but a perfectly conscious strategy. The big houses cultivate high prices not only to reflect the craftsmanship of their products, but also to maintain a sense of exclusivity. Price becomes a social sorting tool, a means of maintaining a symbolic distance between the brand and the general public.

Some brands go so far as to control supply to reinforce this scarcity: waiting periods, limited editions, or products only available in certain hand-picked boutiques. The more difficult a product is to obtain, the more desirable it becomes - a psychological mechanism reinforced by the Veblen effect.

This pricing strategy also enables luxury brands to protect their image. Lowering prices would be seen as a loss of prestige. Conversely, keeping prices high, or even raising them regularly, can reinforce the brand's aura, provided that the perceived promise is up to scratch.
 

Consumer perception of value

In the Veblen effect, consumer behaviour is based as much on perception as on reality. A high price suggests not only superior quality, but also a symbolic value: that of a product that few can afford, and which says something about the identity of the person who owns it.

This perception of value is closely linked to the brand universe: the storytelling, the history, the ambassadors, the design of the boutiques and the exclusivity of the events. Everything contributes to creating a strong imagination, in which price becomes a pillar of prestige.

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 Case studies: luxury brands that have used the Veblen effect

Louis Vuitton and the strategy of rarity

Louis Vuitton combines a strategy of high prices with controlled rarity. The LVMH group brand never runs sales or promotions, in order to maintain a constant sense of exclusivity and preserve the perceived value of its products. In addition, certain pieces are deliberately produced in limited quantities, with waiting lists in certain boutiques. This control of distribution, combined with a steady rise in prices, feeds the idea that owning a Louis Vuitton bag is a privilege, particularly for new consumers seeking social recognition.

Rolex: when high prices become a competitive advantage

The Swiss brand is cultivating a strategy of calculated scarcity: the most sought-after models, such as the Daytona or the Submariner, are difficult to find in shops, generating demand that outstrips supply. The result: the price of these watches explodes on the resale market, sometimes reaching double or triple the original price. Consumer behaviour is influenced by the perception that these products, as well as being rare, are long-lasting investments.

Hermès and the success of the Birkin: the power of exclusivity

The Birkin bag by Hermès is without doubt the best example of the Veblen effect. This legendary model is not directly available in shops. You have to be a loyal customer, and sometimes wait months, to have a chance of buying it. The price of the Birkin - which can exceed 10,000 euros, or even much more depending on the materials used - is as much a social marker as an indicator of exclusivity. But it is above all the rarity organised by the brand that fuels desire. Each Birkin becomes a coveted piece, a symbol of status and of belonging to a restricted circle.

Limits and criticisms of this strategy

Risks for brands

While the Veblen effect can be positive for brands by increasing the desirability of products, it is not without danger. A poorly calculated high-price strategy can end up excluding part of the customer base, in particular the younger generations or consumers looking for more accessible, more committed luxury.

One of the main risks is overpricing that is out of touch with perceived reality. If the price goes up without the experience, quality or innovation following suit, brands can lose credibility. Added to this is a form of weariness: by playing on scarcity, some brands can give the image of elitist luxury, out of step with society's new expectations.

Consumer reactions to high prices

Consumer behaviour is changing, and with it the way in which high prices are perceived. While the Veblen effect is still working for some profiles looking for conspicuous consumption, others - particularly among new consumers - are increasingly questioning the real value behind the price.

Movements are emerging around top-of-the-range second-hand luxury goods, and local crafts that are valued for their transparency and responsible approach. In this context, a high price is no longer always an advantage: it must now be explained and justified.

Brands that fail to take this dimension into account run the risk of being criticised for their opacity or lack of commitment. At a time when values count as much as prestige, the Veblen effect must form part of a coherent and assertive global strategy if it is to remain a lever of attraction... and not of rejection.

Understanding the Veblen effect not only helps to explain certain consumer behaviours, but also provides valuable information for formulating marketing strategies and economic policies. As the world continues to evolve, the study of the Veblen effect will continue to offer innovative insights into the dynamics of consumption and the global economy.