Thorstein Veblen: The Economist Who Explained Why People Buy Things They Don’t Need
Why luxury brands still owe everything to a man writing in 1899
Imagine buying a £4,000 handbag.
It carries your phone.
Your keys.
Your purse.
So does one that costs £40.
Yet millions of people willingly pay one hundred times more.
Why?
Most economists would say you’re buying quality.
Thorstein Veblen disagreed.
More than 125 years ago, he argued that sometimes people buy expensive things precisely because they’re expensive.
And in doing so, he accidentally explained luxury marketing decades before marketers even existed.
A strange observation
In 1899, American economist Thorstein Veblen published The Theory of the Leisure Class.
He noticed something peculiar.
As society became wealthier, some people weren’t simply spending money.
They were displaying it.
Expensive clothes.
Lavish homes.
Fine jewellery.
Luxury holidays.
The goal wasn’t always comfort.
It was visibility.
People weren’t just consuming.
They were performing.
Conspicuous consumption
Veblen coined one of marketing’s most famous ideas:
Conspicuous consumption.
Buying products so that other people notice you buying them.
Not because you need them.
Because they signal wealth, status or success.
Today it’s everywhere.
Designer trainers.
Rolex watches.
Supercars.
Limited-edition handbags.
Luxury isn’t always about utility.
Sometimes it’s about saying:
“Look what I can afford.”
The signal does not always need to be loud. As explored in Quiet Luxury: The Marketing Strategy of Saying Everything by Saying Very Little, understated clothing can communicate status precisely because only certain people recognise it.
The Veblen Effect
Normally, higher prices reduce demand.
Raise the price of milk and people buy less.
Raise the price of petrol and people complain.
Luxury doesn’t always follow that rule.
Sometimes increasing the price actually makes a product more desirable.
Economists now call these Veblen goods.
The high price becomes part of the appeal.
If everyone could afford it…
…it wouldn’t feel exclusive anymore.
This challenges the basic relationship between price and demand covered in The Basics of Economics for Marketers.
Luxury brands understand this perfectly
Think about Hermès.
The Birkin bag isn’t valuable because it contains magical leather.
Its value comes from scarcity.
Waiting lists.
Craftsmanship.
Reputation.
And the fact that not everybody can own one.
Ferrari deliberately limits production.
Rolex controls supply.
Louis Vuitton rarely discounts.
The product matters.
The exclusivity matters more.
That controlled inaccessibility also helps explain why some luxury brands remain surprisingly resilient during difficult economic periods, explored in What Happens to Luxury Goods in an Economic Downturn?
It’s not just luxury
Veblen’s ideas appear everywhere.
People queue overnight for trainers.
Limited-edition LEGO sets sell out instantly.
Restaurants become fashionable because they’re impossible to book.
Even social media follows the same logic.
Blue ticks.
Invitation-only apps.
Private communities.
Exclusivity creates demand.
This is partly driven by the scarcity heuristic: our tendency to perceive limited or difficult-to-obtain products as more valuable. You can read more in Heuristics in Marketing: Why Your Brain Loves Shortcuts.
What marketers should learn
Competing on price isn’t always the answer.
Some brands become stronger by becoming more expensive.
Higher prices can increase perceived quality.
Increase desirability.
Increase status.
Provided the rest of the brand supports the promise.
Simply doubling your prices won’t create a luxury brand.
A high price without heritage, scarcity, design, service or credibility simply looks expensive.
But understanding why people buy luxury brands changes how you think about value.
Price is not only the amount a customer pays.
It can also act as a psychological signal, shaping expectations before the product has even been experienced. The wider role of reference points in pricing is explored in The Anchoring Effect in Marketing.
The bottom line
Thorstein Veblen wasn’t writing about marketing.
He was studying human behaviour.
Yet his observations still explain billions of pounds of consumer spending every year.
Because sometimes customers aren’t buying the product.
They’re buying what the product says about them.
And that may be the most valuable thing a brand can ever sell.
