The Veblen Effect

Mrs. Neetisha Bende

10/4/20233 min read

The Designer Jacket in your closet, the Iphone bought on EMI, Jordans worn only on dates, all seem dreamy, doesn’it? But paisa kaha se laoge?

It is estimated that products/assets bought on loan or EMI, are majorly bought by the ones who can’t really afford it. Spending your earnings on things which are 1.5X your salary seems alright, only if you want to spend your whole life working in a cubicle to repay each penny. Agar Middle Class se ho, toh Middle Class ki tarah kharcha karo, kaha Ambani banane nikale.

The Law of Demand states that with a decrease in price, the demand will increase. A Veblen Good is a Market Anomaly, which deviates from the same above mentioned law.

36% of India’s population is willing to spend more on products, if the price increases. Brands like Gucci, BMW always targeted the High Networth Individuals but when did the execution shift from HNIs to Credit Customers? The worth of a person now depends on the amount he wears on himself.

“She has her own driver”

“They gifted us a freaking Television”

“Bought a house in Bandra”

“Local train se kaun jayega, let’s call a Uber”

Products and Services are now available to different customers with different ranges of income, due to the wide availability of credit. Hence, more costlier things are available to everyone. Does it make sense? In a country, dominated by a poor population, where the “Cheap Mentality” prevails in every household, will a Veblen Good work? Obviously, it does not, because in reality it does not make any sense. The major implications, though, are on Copyrights and Misrepresentation. The same watch that you buy from Titan, is the same watch that you find on a roadside stall. No one will come across the difference between the two goods. If it took 50k to produce the original watch, it only took 5k to produce the duplicated watch (let’s ignore the accounting stuff here). So with a lower range of income, a 5k watch would make more sense and EBIT or Earnings Before Interest and Tax which should have been higher by a certain percentage would certainly be lower (Yes, including the accounting stuff here). Companies can’t afford to have a bad quarter.

The reality prevailing behind the Veblen Effect, it’s like standing on the edge with a cliff on either side. It leads to unnecessary financial burden at the consumer's side and loss of producer welfare, but at least the candidate who blew all his internship money on a Raymond Tie could gain some confidence at his job interview.

Consumer psychology:

Kabhi notice Kiya hai kaise- ‘Buy one, get one free’ turns into ‘buy two, regret later’?

Aur to yeh online shopping, where you spend hours choosing the perfect product and yet you end up buying a toaster that doesn’t fit your bread!

Bohot impulsive hote hai consumers, hai na?

Isiliye to- a well-researched shopping list and a skepticaleyebrow raise are his secret weapons. Lekin sare consumers itnesmart hote toh aur kya chahiye hota....

Let’s dive deep into their psychology which primarily aims to evaluate and understand them and the decision-making process.

Consumer psychology is where ‘want’ and ‘need’ engage into a never-ending wrestling match and ‘impulse’ is the referee who occasionally takes bribes!

It’s like a friend, who convinces you to get dessert after a huge meal. You know, you shouldn’t but it’s just so convincing!

Why is it important ?

Certainly, it’s a key challenge for the marketers and business owners. Research on their behaviour is concerned with understanding how purchase decisions are made, who buys certain products, and how’re they consumed.

Also, developing a good relationship with the target audience is essential for brand management. Aur yeh brand management kebande qafi smart hote hai, they create strategies to covert a suspect to prospect, prospect to buyer, buyer to customer, and customer to brand advocates.

But, it’s also like the secret sauce of marketing. It’s what makes you buy a burger and then think- ‘Wow, I really needed that burger!’

This entire scenario of consumer psychology only highlights the ‘impulsive buying of consumers’ which is obviously never-ending and later filled with regret.

Knock knock.

Who’s there?


Impulse who?

Impulse bought this joke, and now I regret it!

To summarise,

Consumer psychology is comedian at the marketplace comedy show. First, it makes you laugh and then it makes you buy things you don’t need. What a joker!

Jago grahak jago!!