Your friend invites you to a wine tasting.
As the waiter greets your table, they slip a piece of paper in front of each of you.
The paper shows a list of the wines you’re about to try. It has their name, a brief description, and the price.
You immediately notice that one of the wines is almost $40 more per bottle than the rest.
You pretend to know what you’re doing by swirling the cheaper wines, taking a sniff, and then a sip.
Your friends, and you, nonchalantly agree that you like them.
You follow the same protocol for the expensive wine, except this time the aftermath is different.
Everyone immediately reacts with, “Wow, that’s really good.”
The waiter asks what you all liked about it in comparison to the previous wines, yet oddly nobody can find a good answer.
What made everybody like the more expensive wine more?
In today’s edition of Why We Buy, we’re taking a look at Veblen Goods – how higher prices make us want and like products more.
Let’s get into it…
The Psychology of Veblen Goods 🧠
In his book The Theory of the Leisure Class, economist Thorstein Veblen found that people love to buy expensive products as status symbols.
These products are known as Veblen Goods because the demand for them increases as their price increases.
The more expensive a product becomes… the more people want to buy it.
Expensive products become status symbols which people use to signal their wealth to others.
We all know that luxury items send a message to others, but it turns out that how we experience a product also changes based on the price.
Inside Your Buyer’s Mind 🧐
Dan Ariely, Professor of Psychology and Behavioural Economics at Duke University, asked survey participants to rate the pain of two electric shocks.
The first shock was the control.
Prior to the second shock, participants were given a painkiller.
Some participants were told the painkiller cost ten cents. 61% of these participants said the second shock was less painful.
Other participants were told the painkiller cost $2.50. 85% said the second shock was less painful than the first.
The same product created an entirely different physical experience—the only thing that changed was the perceived price.
Said another way, when buyers believe that something is expensive, their experience with the product changes.
How To Apply This 🤑
Alright, so how can we apply this right now to sell more?
Raise your prices
It seems counterintuitive to raise your prices to sell more products, yet there are products in your home that inspired you to pull out your credit card by doing just that.
A popular example is the diamond industry. De Beers positioned diamonds as the jewel of choice for engagement rings. They switched the messaging of diamonds from being a commodity to a luxury item that lasts a lifetime.
By associating diamonds with weddings, a (hopefully) once-in-a-lifetime event, they’ve continued to charge a massive premium. Even when most diamonds don’t hold a resale value.
Don’t exhaust your discounts
If you discount your products too much, you’ll train buyers to wait for discounts.
They won’t see your products as a luxury anymore. They’ll just wait for the cheaper price.
Worse – you could drive buyers towards competitive products that are discounted when yours aren’t.
Charge premium prices to work with premium people
Ready to work with a high-quality team or clients? Look at your pricing to make sure you’re conveying a message that attracts them.
Pricing too low can make prospective employers think you’re not experienced. Use the psychology of Veblen Goods to complement your resume by strategically thinking through your pricing.
Use salary websites to ballpark salaries for your role, so you’re making an educated decision around compensation.
The Short of It 💥
You don’t need to be the cheapest option on the market to win.
Brands create a legacy by doing the opposite.
And they manifest a positive customer experience…without changing a thing about their product.
That’s the psychological power of Veblen Goods.
Until next time, happy selling.
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