Thorstein Veblen was right about the nature of conspicuous consumption, and the popularity of Apple products among modern consumers may be proof of this. Veblen’s theory of conspicuous consumption essentially states that affluent consumers attempt to signal their wealth and prestige to other members of society by purchasing the most expensive version of a good as “the possession of wealth confers honor; it is an invidious distinction.” A $250 pair of sneakers may not keep the conspicuous consumer’s feet any warmer than a $50 pair, but wearing the more expensive pair adds to their social capital by demonstrating to others that they are wealthy enough to afford the most expensive version of the good that is available on the market.
The fact that the $250 pair is publicly known to be pricier makes it more valuable to the conspicuous consumer. If it were to be sold for $150, the demand for the sneakers would be lower as the consumer would not be able to impress others as easily by owning the item. As Veblen states, “The superior gratification derived from the use and contemplation of costly and supposedly beautiful products is, commonly, in great measure gratification of our sense of costliness masquerading under the name of beauty.”
However, conspicuous consumption doesn’t apply to all expensive purchases – sometimes paying more just means that you get much more of something, or simply a better product. Instead this behavior describes the consumption of Veblen goods, which are goods not valued according to their direct usage or application, but because they are perceived as being expensive to obtain. Because of this perception, the demand for these goods actually increases as their price goes up as the higher price denotes a greater perceived status from owning the good. Yet Veblen states that upon close inspection of these goods one would “discover certain features which add to the cost and enhance the commercial value of the goods in question, but do not proportionately increase the serviceability of these articles for the material purposes which alone they ostensibly are designed to serve.”
Though Veblen’s theory had been primarily concerned with the affluent upper class of the 19th century, he also saw the potential for this behavior to extend beyond both the well-to-do and his own time. Those who are unable to afford an affluent level of conspicuous consumption are instead able to emulate the wealthy at a scale appropriate to the level of wealth they actually possess. This is most commonly seen in clothing – by emulating the style of the affluent, these individuals may be perceived by others as holding an affluent status, even if they are not actually wealthy. At the same time, society continually creates greater and more expensive forms of signaling wealth and prestige, which according to Veblen “ [again] gives rise to a new standard of sufficiency and a new pecuniary classification of one’s self as compared with one’s neighbors.”
When applying Veblen’s classification to modern markets, one potentially glaring example can be found in Apple products. While there is no debate that Apple’s products present tangible benefits as functioning laptops and smartphones, there is also an aspect of the brand’s identity that enables it to place a steep premium on the price of its products. This premium may account for the large profit margins seen with each generation of iPhone. For example, it’s estimated that 2012’s iPhone 5 only cost about $205 per unit to produce, yet sold at prices ranging from $649 to $849 per unit depending on the device’s storage capacity. While a portion of this difference is undoubtedly spent on R&D and marketing (which was $1.5 billion alone in 2015), Apple is certainly not a revenue neutral company.
In fact, it could be said that Apple’s marketing strategies have worked directly off Veblen’s theory of conspicuous consumption. Other Veblen goods like Louis Vuitton handbags often come with exorbitant costs, whereas a new Apple smartphone will typically average around $750. It’s here that Apple has really succeeded – by offering a lower price in absolute terms they make status signaling accessible to a wider selection of individuals while still retaining the iPhone’s luxurious position as the most expensive smartphone. Apple’s mainstream luxury pricing strategy has been particularly successful in China, where describing the iPhone as a Veblen good may be most precise as the iPhone’s biggest selling point in Asia is its brand prestige. For those familiar with trends in the luxury market this should not come as a surprise as nearly a third of all consumers in this market are now Chinese.
The idea behind Veblen goods may also play an important role in other dimensions of Apple’s pricing decisions. With each new generation of iPhone, Apple seeks to increase the premium that it places on the price of its flagship device. The upcoming release of Apple’s next generation of smartphones is a great example of this. While there was some speculation that the new iPhone 8 would come in at a price over $1000, it’s now predicted that the 64GB iPhone 8 will release at a price between $850 and $900 for consumers – nearly $150 more than its equivalent iPhone 7 Plus model.
By following this strategy Apply can take advantage of what many see as a bifurcated smartphone market. The high-end of this market presents evidence that people prefer higher prices, whereas in the rest of the market consumption is motivated by lower prices. This presents two choices, with a potentially obvious answer. On the one hand, Apple could release a $300 iPhone in order to obtain an estimated $100 margin and access to a wider share of the market, but doing so alienates the high-end market and associates their product with the idea of being ‘cheap’. On the other hand, Apple could simply charge $100 more for a $650 phone, receiving the same $100 margin and boosting the average selling price of their phones.
Ultimately, it’s likely that labeling all iPhone owners as conspicuous consumers is a bit unwarranted. Many people prefer the simplicity and ease of access that the iOS is known for, and for them this differentiation alone is sufficient to warrant them spending more money in order to satisfy their preferences. Instead it may be better to use conspicuous consumption to describe behavior within the smartphone market as a whole – it’s not just iPhone owners who want the newest and most expensive product after all. Yet a 2015 Gallup poll found that 54% of smartphone users only upgrade their phone when it stops working or becomes totally obsolete, and that 44% of smartphone users only upgrade when their cellphone provider allows for it, which is usually every two years. Only 2% of those polled said that they upgrade when a new model is released, casting doubt on the prevalence of conspicuous consumption in the smartphone market, at least in the United States.