Veblen Effect VS Snob Effect

Understanding the Veblen Effect

The Veblen effect refers to the phenomenon where the demand for a product increases as its price rises, contrary to the usual economic principle that higher prices lead to lower demand. Simply put, it's the idea that "the more expensive, the better it sells!"

Why does the Veblen effect occur?

• Conspicuous consumption: The desire to display one's wealth and social status by purchasing expensive goods.
• Scarcity: Higher prices often imply greater scarcity, making the product more desirable to those seeking exclusivity.
• Perceived quality: The belief that expensive products are inherently superior in quality.

Illustrative Examples

• Luxury handbags: High-end brands maintain their exclusivity and luxury image by setting high prices. Consumers purchase these bags despite the cost, to showcase their wealth and status. Demand often increases as prices rise.
• Fine wines: Expensive wines are consumed on special occasions or to elevate one's perceived sophistication. The higher the price, the greater the perceived quality and scarcity, driving demand.
• Premium cars: Luxury cars symbolize social status and success, beyond their performance and design. The desire to flaunt wealth and achievement sustains or even increases demand, despite the high price tag.

Is the Veblen effect always negative?

• Positive aspects:
  • Companies can increase profitability by setting higher prices.
  • Consumers can derive satisfaction and boost self-esteem through their purchases.
• Negative aspects:
  • It can encourage overconsumption and hinder rational spending.
  • It can exacerbate income inequality and create social discontent.

Key Takeaways:

• The Veblen effect describes the phenomenon of demand increasing with price.
• Conspicuous consumption, scarcity, and perceived quality are key drivers of this effect.
• Luxury goods, fine wines, and premium cars are common examples.
• The Veblen effect has both positive and negative implications.

Note: The opposite of the Veblen effect is the Snob effect, where demand for a product decreases as it becomes more popular or affordable.

728x90

Understanding the Snob Effect

The Snob effect is the phenomenon where the demand for a product decreases as its price falls or it becomes more widely available. It's the idea that "if it's common, it's undesirable."

Why does the Snob effect occur?

• Desire for differentiation: The desire to stand out from the crowd and possess unique or rare items.
• Conspicuous consumption: The desire to display wealth and status by owning exclusive goods that others cannot easily afford.
• Psychological satisfaction: The pleasure derived from owning something that others cannot easily obtain.

Illustrative Examples

• Luxury brands: High-end brands strive to maintain exclusivity by keeping prices high and limiting production. If they lower prices or mass-produce, their perceived exclusivity diminishes, potentially leading to decreased demand due to the Snob effect.
• Limited edition products: The scarcity of limited edition items drives demand, even at high prices. However, if these items are mass-produced or re-released, their scarcity diminishes, and demand may fall due to the Snob effect.
• Trends: Trends change rapidly, and when a particular product or style becomes popular, many people adopt it. However, as it becomes more common, it loses its uniqueness, and people may seek out new trends, illustrating the Snob effect.

How can the Snob effect be used in marketing?

• Emphasize scarcity: Launch limited edition products or offer VIP marketing to create a sense of exclusivity and stimulate demand.
• Build a luxury image: Use high pricing, elegant design, and premium services to cultivate a luxury image and offer differentiated value.
• Lead new trends: Continuously develop new products or services and stay ahead of trends to maintain consumer interest.

Key Takeaways

• The Snob effect describes the phenomenon of demand decreasing as a product becomes more affordable or common.
• The desire for differentiation, conspicuous consumption, and psychological satisfaction drive the Snob effect.
• Luxury goods, limited edition products, and trends exemplify the Snob effect.
• While the Snob effect can be used in marketing strategies, over-reliance on it can have negative consequences.

Note: The Snob effect is the opposite of the Veblen effect, where demand increases with price.

728x90