The Veblen Effect: How Perception and Context Control Reality

Julius Caesar, a young politician on the rise, was once captured by Sicilian pirates who demanded a ransom of 20 talents of silver, about $600,000 in today's currency. Instead of accepting their terms, Caesar insisted that they raise the ransom to 50 talents, about $1.5 million today. The pirates, bewildered by this request, ultimately agreed, and Caesar's reputation soared when word of his ransom spread throughout Rome. This is an example of what's known as the Veblen Effect, which describes how consumers perceive higher-priced goods to be of greater value simply because they cost more.

Ironically, despite our advanced knowledge and technology, the Veblen Effect continues to persist today. Many luxury brands, such as Rolex, Cartier, Bentley, Apple, Rolls-Royce, Aston Martin, Louis Vuitton, Christian Louboutin, Harrods, and Cristal Champagne, owe their success to the Veblen Effect. These products may not be functionally superior to their cheaper alternatives, but their high prices make them appear more valuable and desirable.

Caesar effectively made himself into a Veblen brand by placing a much higher value on himself than anyone else in Rome. The independent valuation of his ransom made it credible and authentic, and because he was now highly valued, his men had little trouble raising the ransom. Caesar returned to the island and freed himself, but not before reclaiming all the money the pirates had taken and executing them.

In time, Caesar became the ruler of all Rome by understanding that reality begins in the mind. The most important piece of real estate in which to stake a claim is the human mind, and you stake a claim by creating a perception. By controlling the context, you control the mind, and by controlling the mind, you control reality.

A classic example of the Veblen Effect is Johnnie Walker Double Black Scotch whisky. The basic JW Black is labelled as at least 12 years old, while Double Black has no age statement, yet it is sold at a higher price. The perceived notion that "double black" must be better than "black" drives the Veblen Effect, despite no one knowing what is so special about it.

Another example is Apple mobile phones, which have fewer features and a far inferior battery life than Android phones yet cost twice as much. It's amusing that those who don't understand technology fall for the Veblen Effect and buy Apple products, despite the higher overall cost of acquisition.

When implemented properly, the Veblen Effect becomes a highly successful and profitable marketing strategy, separating consumers from their hard-earned money while leaving them feeling good about their purchases and continually coming back for more.

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