The very real value of branding
As prices goes down, demand goes up. That’s the usual economic formula. We all want more for less, right? Buy one, get one free! But in the case of “Veblen goods” (named after economist Thorstein Veblen), demand goes up as prices increase.
Why? A high-priced item is often a high-status item. As I recently blogged about, fMRIs of the brain suggest that the most important factor in a buying decision is how the product will affect our social standing. We’ll actually choose status over money. It’s that important to us. And we’re willing to pay for it.
We’ll pay a lot for it, actually. Clancy Martin, an ex-jeweler writing in the June 2010 issue of Harper’s magazine, claims that an $11,000 Rolex probably costs about $300 to make. The worst case of a Veblen good he ever heard of was from a friend who worked for Tiffany: he came across a bottle of perfume that retailed for $12,000, while Tiffany’s cost was around $40.
Call that a rip-off if you like (I won’t necessarily argue with you). Indeed, the “Veblen” label tends to be used as a kind of insult, implying fake value. But Rolex and Tiffany customers aren’t just buying a watch or a perfume. They’re buying the status that those brands have worked hard to convey. And as neuroscience has shown us (and common sense before that), social currency has real value.
I bring all this up because Veblen goods beautifully illustrate the power of branding. The difference between the concrete value of that watch, scented water, or whatever and the selling price is the value of the brand.
As advertising guru Rory Sutherland notes in a rather entertaining TED presentation, “Advertising adds value to a product by changing our perception, rather than the product itself.” And we marketing folks don’t have to feel bad about that, he asserts—I love this guy—because “a change in perceived value can be just as satisfying as what we consider ‘real’ value.”
It’s true. Just imagine that Rolex strapped to your wrist. It feels kind of good, doesn’t it?