Most of us were taught a simple rule in economics: when prices go up, demand goes down. Yet Thorstein Veblen, an American economist, spotted something different. He noticed that for certain goods, the opposite happens. Higher prices make people want them more. Think about it. A luxury handbag, a sports car, or even an exclusive wine vintage becomes more desirable precisely because it is costly. Veblen called this “conspicuous consumption” – buying not just for utility, but to send a signal about who we are.
We see it every day. Hermès’s famous Birkin bag is not just leather and stitching, it is a status symbol. Customers happily wait on lists, pay eye-watering sums, and proudly carry them because the high price is part of the appeal. Luxury brands like this have turned scarcity and prestige into an art form, and their loyal buyers play along willingly.
So what does this mean for leaders, founders, or CEOs?
We may not all be selling handbags, but the psychology that drives those buying decisions is the same psychology that influences our customers, our partners, and even our teams.
Here are three ways the Veblen effect shows up, and how you can put it to use.
1. Price as a signal
When we buy, especially in areas where we don’t have full information, we often use price as a shortcut for quality. If you’ve ever chosen the more expensive bottle of wine on a restaurant menu, assuming it must taste better, you’ve fallen for it too. Academic research confirms that higher prices can increase demand, because people see them as proof of status and reliability.
In business, the same is true. A SaaS provider offering a premium tier at a higher price may look safer and more robust to a cautious CIO. A consultancy that charges more may feel more credible to a board looking for reassurance. The trick is that price has to be backed up with visible proof – think service guarantees, expert support, or trusted accreditations.
2. Scarcity and access
We are wired to want what we cannot easily have. Scarcity drives urgency. That’s why limited editions, seasonal launches, and capped membership numbers work so well.But scarcity only builds value if it’s authentic. If a company constantly shouts “last chance” then quietly restocks, customers soon stop believing them.
Professionally, this might look like offering a fixed number of pilot slots per quarter, or limiting a leadership coaching programme to a certain cohort size. Personally, you’ve probably felt the pull of “only 3 seats left at this price” when booking a flight. Scarcity shapes buying behaviour because it signals value and priority.
The key for leaders is to be consistent. Protect your integrity by making the rules clear and sticking to them. When you do, scarcity becomes a positive part of the buying story rather than a gimmick.
3. Costly signals in leadership
In nature, signals that are expensive to fake – like a peacock’s tail – are the most persuasive. Rory Sutherland, the behavioural economist, often points out that the same is true in business. When leaders put time, energy, and resources into something, people notice.
That might mean writing a research-driven report instead of a glossy brochure, or turning up in person for a client review instead of sending an email. These choices cost more, which is exactly why they persuade more. They show seriousness. They prove value. They make people more likely to buy in, whether that’s a product, a service, or your leadership vision.
Practical plays you can try
Create a premium tier, priced higher, with benefits that are costly for you to fake. Customers will recognise and value the difference.
Swap heavy discounts for added extras that reinforce quality, such as training or extended support.
Use authentic scarcity. Offer onboarding in defined cohorts, cap slots, and stick to the cap.
Match your signals to your audience. Some buyers want subtle proof like certifications and uptime reports. Others want overt proof like testimonials and big-name logos.
Invest in communications that feel expensive in effort. Beautifully produced proposals, independent audits, or even personal time from senior leaders all send strong signals
A note of caution
Not every product or market responds to Veblen dynamics. Even in luxury, we’ve seen consumers push back when price hikes run too far. The lesson isn’t “charge more and they will come”, but rather to treat pricing and signalling as tools. They can create desire, but they only work if the value matches the promise.
As Warren Buffett neatly puts it,
“Price is what you pay, value is what you get.”
The Veblen effect plays on the first half of that line. It’s your job as a leader to deliver on the second.
If you design the signals well, you’ll find that premium pricing can build trust, scarcity can create momentum, and costly signals can persuade customers and colleagues alike. In the end, people rarely buy just the product. They buy the story, the status, and the signal behind it.