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Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637

WC-BEM 2012

The snop effect in the consumption of luxury goods

Ergin Uzgoren*a, Taner Guney b
a
Department of Economics,Dumlupinar University, Kutahya P.O .Box 43000, Turkey
b
Department of Foreign Trade,Dumlupinar University, Kutahya P.O .Box 43700, Turkey

Abstract

Despite the global crisis in the world the importance of the consumption of luxury goods is not reduced. This situation makes
the examination of the various aspects of the consumption of luxury goods interesting. In this study, we primarily focused on the
definition and effects related to the consumption of luxury goods in general theoretical framework. Then one of the effects of
commodity price increases, which decreases the accessibility of the individual to increase the consumption of luxury goods,
which expresses the snop effect is studied in detail. In this study, basic elements of a consumer's consumption of goods as a
result of snop effects are taken into account, and also a monopoly firm's strategies to meet the snop goods demand is tried to be
evaluated.
© 2012
© 2012Published
Publishedbyby
Elsevier Ltd.Ltd.
Elsevier Selection and/or
Selection peer review
and/or under under
peer review responsibility of Prof. Dr.
responsibility Huseyin
of Prof. Dr. Arasli
Hüseyin Arasli Open access under
CC BY-NC-ND license.
Keywords: Luxury goods; snob effect; consumption; goods; consumer;

1. Introduction

Since mankind has been trying to please itself with the presence of fine goods for centuries, luxurious goods *
have been an intensive point of interest and discussion. When compared to the past, today some consumers have a
high income level with which they can make more discretionary consumption expenditure. Although they have
demonstrated a balanced increase within income hierarchy, they are significantly ranked at the top social classes. It
is apparent that today these consumers are willing to make rather high remunerations for luxurious goods (Husic and
Cicic, 2009: 231).
The world luxurious goods market has increased to 68 billion dollars in 2000 from 20 billion dollar level in 1985,
by demonstrating a constant growth despite September 11 th attacks and other incidents that disrupt global trade (The
Economist: 2002). For example, according to The Sunday Telegraph import of Australia in 1996 showed an increase
of 1130% in mink fur and 27.5% in diamond when compared to the previous year. The demand of Australians for
fur, diamond, champagne and caviar in particular has displayed a great increase during this period (Rees, 1997:8).
The improvement of USA economy in 1997 and the rapid increasing demand of Asian countries lead to the rapid
growth of luxurious goods market in early 2000s. The number of millionaires has increased so much that richness is
not measured with millions anymore. In 2004, there were 8.3 million rich people in the world, 7.5 million of which
had a house in USA and 425 thousand of which resided in the Great Britain (Merrill Lynch &Cap Gemini, 2005).

* -274-265-2193; fax: +0-274-265-2197.

E-mail address: [email protected]
*

1877-0428 © 2012 Published by Elsevier Ltd. Selection and/or peer review under responsibility of Prof. Dr. Hüseyin Arasli Open access under
CC BY-NC-ND license.
doi:10.1016/j.sbspro.2012.09.105
 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637 629

Additionally in the 2006 Market Research Report prepared for the Europe (Datamonitor, 2002), it was estimated that
there would be a consumer group which exceeds 27 million people who would acquire personal income more than
50,000 Euros per year in order to be spent for luxurious consumption. These data supports the significance of
luxurious goods market and its strong tendency to constant growth.

owned by individuals who consist 2% of the wealthy. Such rich people reside in North America, Europe, Japan and

(LuxuryInstitute, 2006). In 2004 236 thousand people in China and 61 thousand people in India have become
millionaires (Merrill Lynch &Cap Gemini, 2005). 37% of luxurious goods consumption occurs in Asia, 35% in
Europe, 24% in USA and the remaining 4% occurs in other regions (Chadha and Husband, 2006).
prepared by the Boston ConsultingGroup (BCG), world
luxurious consumption market has reached trade volume of 1 trillion Euros by growing nearly 13% in 2010.
According to this report, among luxurious expenditure; luxurious travel and accommodation is ranked first with 270
billion Euros, luxurious cars are ranked second with 250 billion Euros, luxurious technology products are ranked
third with 100 billion Euros. Furthermore, it was concluded in the report that 4 main tendencies are prominent in
luxurious goods market. According to this fact, customers want luxurious experience rather than showy luxurious
products. Luxury is shifting to developing markets. While luxurious consumption has been associated with centers
such as London, Paris, New York, Milan and Tokyo until now, today this situation is rapidly changing. Markets
such as China, Russia and Gulf Countries are becoming luxurious consumption centers. According to the report
which states that the share of Turkey in luxury market is 0.5 percent, the difference between luxury brands and non-
luxury brands is decreasing; the consumers are moving both up and down between segments (BCG, 2010).
According to a study conducted for Italian luxury goods producers federation Fondazione Altagamma by market
study company Bain&Company, it was determined that despite the problems in the global economy, the luxury
consumption sector would not encounter any significant problems. With the influence of the Asian market, China in
particular, it is estimated that the sector would grow by 10% in 2011. According to the study, it is anticipated that in
2011 the sector would grow by 29% in China, Hong Kong, Macao and Taiwan and by 25% in Asia-Pacific region
World gazette), 17.10.2011).
It is seen that the first studies in literature towards examining luxury goods consumption behavior of the
consumers were conducted by Rae (1834), Veblen (1899) and Keasbey (1903). Then, the studies, especially the ones
in marketing literature, were focused on luxurious brands, expansion of brands in particular, (Roux, 1995),
competitive management in mass marketing and luxury goods principles (Bechtold, 1991; Roux, 1994; Roux and
Floch, 1996), and measurement of reactions against the idea of luxury goods (Dubois and Duguesne, 1993; Dubois
and Laurent, 1994). Whereas in 2000s, due to luxury goods market gaining a new dimension with the unique
demand coming from Asian and Western communities, the conducted studies mainly focused on inter-societal
culture differences that affect the idea of luxury goods and luxury goods concept created by such differences
(Dubois and Laurent, 1996; Dubois and Paternault, 1997).
Traditionally luxury goods are defined as goods for which the usage or display of a particular branded product
provides prestige to its owner along with any functional utility (Grossman and Sharpiro, 1988). Deeter-Schmelz et

of store type and atmosphere, merchandise price and quality as well as branding and fashion combine to create a

offer the individual to have a well-known brand identity, enjoy high brand awareness and perceived quality.
Therefore, they assumed luxury brands retain sales levels and customer loyalty. Similarly, Beverland (2004) created
a luxury brand model with the following dimensions:
Product robustness
The value of the product for the consumer
Culture
History of the product
Marketing and
630 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637

Support
Moore and Birtwistle (2006) are critical towards this model and suggest that more details are needed in order to
build a modern luxury brand.
Vigneron and Johnson (1999) defined 5 values of prestige behavior combined with 5 significant motivations and

(1999) categorization of luxury products hedonists and perfectionists are more interested in pleasure (enjoyment,
benefit) derived from the consumption of luxury products. Therefore, they are less interested in the price than
quality, product properties and consumption performance. The price only serves as a proof of quality for these
consumers; and they know what they want and use their own consumption judgment. Veblen, snob and bandwagon
effects arise from the importance associated with the price of the goods by the consumer because a higher price
establishes a higher prestige level for these consumers. Therefore, according to Veblen, snob and bandwagon
consumers are individuals who perceive the price as the most important factor. They usually buy rare products and
emphasize their status in this way. Vigneron and Johnson explain luxury consumption according to the effects
detailed below.
The Veblen Effect (perceived conspicuous value): Since the primary aim of Veblen consumers is to impress
others, they accept price as an indicator of prestige and attach great importance to it. Therefore, they increase
their demand as the price of the product increases.
The Snob Effect (perceived unique value): Snob consumers see the price as an indicator of privilege and avoid
using popular brands in order to have an inner-directed consumption experience, i.e. the need to be the only
consumer of a product.
The Bandwagon effect (perceived social value): Similar to Snob consumers, bandwagon consumers attach less
importance to price as an indicator of prestige, but place greater emphasis on the effect they make on others while
consuming prestige brands as an indicator of prestige.
The Hedonic effect (perceived emotional value): Hedonist consumers are more interested in their own feelings
and pleasure, and therefore attach less importance to price as an indicator of prestige.
The Perfectionism effect (perceived quality value): Perfectionist consumers rely on their own perception of
product quality and may use price as a further proof of quality.
Variables and their significant characteristics effecting luxury goods consumption are shown in Figure 1. While
veblen, snob and bandwagon consumers are influenced by social values, hedonist and perfectionist consumers are
influenced by personal values.

Conspicuous
Perception Pomposity Veblen

Social
Influences Uniqueness Perception Uniqueness Snob

Social Value
Perception Harmony Bandwagon

Emotional Value
Self-Fulfillment Hedonist
Perception
Personal
Influences
Quality Value Assurance Perfectionist
Perception

Figure 1: Social and personal influences in luxury consumption (Vigneron and Johnson, 1999:8)
 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637 631

2. Snob Effect in Luxury Consumption

Even though some authors consider that Veblen effect is similar to snob effect, as explained above, in Veblen
effect the individual tends to buy more from a product, price of which has risen, in order to impress others. However
Snob effect is more complicated because Snob effect, which has been defined by Leibenstein, (1950) contains both
social and personal influences. During consumption or purchase of a brand product for prestige purposes snob effect
affects the behavior of other individuals and becomes influenced from behaviors of other individuals in addition to
social and personal factors (Mason, 1992). The behavior types as per perception and price variables of factors that
affect luxury consumption are shown in Figure 2.

Private
A
Hedonist
w
& Snob
a
Perfectionist
r
e
n
e
s
Bandwagon Veblen
s
General

Low High

Importance of Price Perception as an Indicator of Prestige

Figure 2: Prestige seeking consumer behavior (Vigneron and Johnson, 1999:4)

As also clearly seen in the Figure, the importance attached to the price is high and importance attached to being
recognized is low, in other words the emphasis is not on being the only owner of the goods in Veblen effect. Even
though other individuals own the high priced goods, the demand of the individual to such goods will not change in
Veblen effect. However in snob effect the importance attached to the price is high as in Veblen, but motivation for
being recognized is towards separation from other individuals and being the only owner of the goods. Therefore
when other individuals also own high priced goods, snob individual will decrease its demand for those goods.
In his study Leibenstein (1950) examined what kind of a demand curve a snob consumer might have. According
to the demand curve shown in Figure 3, while the price of a product which appeals to snobs is P2, the market
demand for such product is Da and the amount desired to be purchased is a. When E a is at the balance point and
when the price of the product drops to P 1, the amount of the product desired to be purchased increase according to
Da demand curve. Nevertheless, with the decrease in the price of the product, the product being consumed more in
the society would upset individuals who feel as snob. Therefore the interest of snobs to the product decreases and
their demand shifts to the left. In case the market price continues to decrease, the interest of snobs in the product will
gradually decrease and demand function will shift to the left again. In this way, with each decrease in price the
increase in the amount of product demanded will remain below the anticipated increase in demand as a result of the
demand of snobs to the product. As a result of the demand of the snobs to the product decreasing as the price of the
product decreases (Da, Db, Dc points that show the amount of product that snobs want to buy (E a, Eb, Ec
from each new price are combined the demand curve of the snobs would appear. As seen in Figure 3 the demand of
632 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637

snobs in Ds form is less flexible when compared to market demand. Snob effect occurs as a result of two factors.
The first factor: when a new luxury/prestige product is introduced, snob consumer thinks that by buying such luxury
product at that moment s/he would prevent other individuals from buying that product. This factor is also
pronounced by Rogers (1983). Second factor: occurs when a consumer that places importance on his/her status does
not see a product as a special product and refuses it. Because according to the snob consumer, this product is being
consumed by the majority of the society (Mason, 1981). These arguments are also supported by psychologists.
According to Snyder and Fromkin (1977), due to need for uniqueness, individuals may determine their consumption
behavior in accordance with such need in order to meet the desire to distinguish themselves from other individuals.

P
Ea
P2
Eb
P1

Ec
Da

Ed Db

Dc
e
E
Dd

De

0 a b c d,x e Q

Figure 3: Snob consumer demand curve (Leibenstein, 1950: 201)

Similarly Matsibekker (2009) stated in his study, in which he examined how a product would be sold to a
consumer with snob characteristics, that a product may become a product appealing to the snob individual by
emphasizing the personal characteristics that snobs have. In order to achieve that, a seller may adopt a rude attitude
to the extent that s/he judges the social status of an individual with snob consumer characteristics. The individual,
whose social status is judged, feels the urge to prove his/her social status by buying a product which s/he cannot
afford with his/her financial condition at that moment. Thus s/he transforms each purchase decision to an incident by
which s/he can prove his/her identity and status. This is what snob effect is (Matsibekker, 2009: 4).
Although conventional consumption surveys start from the idea that individuals buy only required goods (Tybout
and Artz, 1994), this psychological response given to seller by snob individual might be the most basic theory of the
snob effect (Brehm and Brehm, 1981). If sellers act excessively insistent while trying to convince the consumers
who give importance to their personal freedom and status, these consumers may decide not to buy the goods in order
to keep their personal freedom (Heller et al., 1973). So, the snob effect provides opportunity to an individual to
prove his/her status in exchange for the goods to be bought, by criticizing social status of the individual through
slight offences and polite rejects (Matsibekker, 2009: 4).
A symbolic need to spend within self-actualization act of an individual may be another snob behavior (Wicklund
and Gollwitzer, 1982; Gollwitzer and Wicklund, 1985; Brunstein and Gollwitzer, 1996). This is called
compensatory consumption. In marketing literature, compensatory consumption can be defined as consumption of
any goods in order to fill a deficiency in another field (Gronmo, 1988). In terms of snob individual, compensatory
consumption means buying expensive goods in order to fill the deficiency of richness and status. In this buying
process, snob individual thinks that s/he would get rich more by spending more money (Elliott, 1994; Friese and
Koenig, 1993). For snob individual, compensatory consumption for symbolic purposes can also be behavior of
 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637 633

improving the values that s/he deems as a threat for her/his status (Wicklund and Gollwitzer, 1982). Snob individual
may actualize this improvement by buying the goods which accurately define his/her status and identity (Gollwitzer,
1996).
Power of the snob effect may be resulting from the impact created upon the individual by rejecting his/her desire
to improve his/her status. This effect type is called rejection of improving status effect. In relation literature,
individuals who could response this kind of effect are defined as extremely selective people who prefer the goods
which are hard to buy, rather than conventional style individuals (Aronson and Linder, 1965; Wright and Contrada,
1986). The goods which are hard to buy are actually scarce goods. Scarcity raises the value and price of that goods
by raising its desirability level (Lynn, 1992). These goods which are harder to obtain may provide advantage to the
individual up to a certain status. Being at the top of the unending waiting lists or obtaining a goods which is
regularly advertised and can be obtained only by a few elite people can be given as examples. Individual attaches
higher importance to and have more respect for this kind of goods. Apart from other status improvement
components; when snob individual is rejected for a hard-to-obtain goods, s/he largely responds to this (Matsibekker,
2009: 9). Who rejected snob individual for a hard-to-obtain goods is the seller of that goods and this rejection is the
heart of the snob effect. If a consumer shows interest for a high level goods but cannot decide to buy, seller can
approach to the consumer as a guiding friend. The seller, who learns about the consumer as the conversation
progresses, may politely reject the consumer by saying that the goods is in a price range which cannot be afforded
. If the customer is still interested in the goods, the seller,
who actually intended to sell the goods, may sell the goods to the costumer by reducing its price to the lowest price
possible. Because that goods has become a goods which gives a self-actualization feeling when it is purchased in the
eye of the snob costumer. Snob individual thinks that his/her social status is improved when s/he purchases a goods
which is actually unreachable for him/her. On the other hand, s/he would have made an expense in order to improve
his/her social status, which is under pressure, even more (Rowe, 1990).
Performed researches have showed that product supply limitation increases the value given to the product by
costumers and affects their brand choices (Verhallen, 1982; Lynn, 1991; Pantzalis, 1995). According to Solomon
(1994), while the goods with limited supply have higher values, the goods which can be easily found in the market
are less desirable due to this characteristic. In the study carried out by Verhallen and Robben (1994), it was
determined that the most significant effect on consumer demand to make individuals see a goods as popular,
expensive and unique is product scarcity. Pantzalis (1995), in his study where he used expanded Bass model,
examined the effects of goods with limited supply on two consumer groups. These groups are consisted of
consumers with snob and bandwagon characteristics. In the study, it was deduced that the effects of brand
prevalence on these two groups were connected to each other and the differentiation between two groups became
clear according to social or cultural reasons. In another study (Coelho and Mcclure (1993)), for a monopoly firm,
two different consumer groups were used and the snob effect in demand of the status goods was examined. In the
model where consumption of a group does not affect another, markets are dividable and retail sale is applied;
marginal costs are the same for each consumer group. Since it is not possible to purchase a goods from a market and
to sell it in another, monopoly firm can make price discrimination. For this reason, monopoly determines a fixed
price for each consumer. As it is also seen in Figure 4, the price in the market where the second group is included is
higher than the price in the market where the first group is included.
If stocking a goods increases purchasing amount, the snob effect should be included in the price discrimination.
Suppose that two different consumer groups are divided into two parts as the first stage consumers and the second
stage consumers. These first stage and second stage consumers may be the consumers within Group 1 or Group 2.
The snob effect is between the first stage consumers and the second stage consumers. While the first stage
consumers increase the amount of a goods that they purchase, the marginal value of that goods would gradually
decrease for the second stage snob consumers. For this reason, consumption amounts of these two consumer groups
come.
Since trading cost is not high in some retail sale markets, organizations such as night clubs tend to restrict
entrance of their customers in order to keep their fashionableness. Since fashionable goods are a social status symbol
for their consumers, being able to enter these night clubs with restricted entrance is important for individuals. While
634 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637

the number of the costumers who enter these night clubs increases, the value of that goods decreases in the eye of
snob individuals. Therefore, increasing the current supply reduces the demand in the future.

P1 P2
Group 1 Group 2

P2*

P1*

MC1 MC2

MR1 D1 MR 2 D2

0 Q1* Q1 0 Q2* Q2

Figure 4: Two different consumer groups and price discrimination (Coelho and Mcclure, 1993: 605)

The snob effect may increase the cost for monopoly seller at the first consumption stage. When production
amount of Q1
When MC1, which is the first stage total marginal cost, is expressed as below; MC p1 indicates the marginal cost of
the production at the first stage and dR2/dQ1 indicates the decrease in the profit at the second stage due to the
increase in sale at the first stage. In fact, the decrease in the profit stated in dR2/dQ1 expression is a decrease in the
present value and preferred in terms of easy expression. Along with increasing interest rate, the current value
decrease would increase (Coelho and Mcclure 1993: 605).

MC1 = MCp1 - dR2/dQ1 (1)

Equation (1) expresses that while the first stage production amount increases, the first stage total marginal cost
would also increase and the profit at the second stage would decrease for this reason.
This effect is shown in Figure 5. According to the Figure, the first stage equilibrium production Q 1** is lower than
Q1* where there is no snob effect; P1**, which is the equilibrium price, is higher than the price level where there is no
snob effect. During pricing, monopoly firm knows that when it reduces the first stage production amount, the second
stage sales amount would increase. Then, the snob effect causes marginal income and marginal cost differentiation
between two consumption stages; because the snob effect is, in fact, the price increase at the first stage raising the
amount of demand at the second stage. Ceteris paribus, increasing demand cause an increase in the sales amount as
well. In other words, just like upward sloping demand curve, price increase of today turns into sale increase of
tomorrow. In this case, it is expected that monopoly firm would determine the first stage sale price as P 1** (Coelho
and Mcclure 1993: 606).
Pantzalis (1995) showed that the brand privilege is one of the factors which positively affect the prestige goods
demand. In addition to this, he stated that when high level brand supply is limited, this limitation turns into a status
symbol transfer. According to Groth and McDaniel (1993), recognizing brands as privileged or unique is related to
their production costs. According to these authors, privilege of having a brand position is that brands have higher
prices than other goods. For this reason, they assert that prestige pricing strategy should be determined in marketing
of high quality and luxury goods. Aislabie and Tisdell (1988) showed the price levels which can be determined by a
monopoly firm according to flexibility of goods demand when such firm release its new product to the market.
 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637 635

P1

MCp1 dR2/dQ1
P1**
P1*

MCp1

MR1 D1

0 Q1** Q1* Q1

Figure 5: The first stage monopoly pricing (Coelho and Mcclure, 1993: 606)
Monopoly firm, while determining pricing strategy for its new product, accepts that it would face with a different
demand curve in the market. The first demand curve is demand curve of the self-centered. These individuals are

decisions of consumption. Other demand curves are demand curves of snob and bandwagon individuals. In Figure 6,
the demand curve shown with ABG is a combination of snob and bandwagon demand. In ABG associated demand
curve, while AB section indicates snob demand, BG section indicates bandwagon demand. In terms of flexibility
value, demand curve of the self-centered has a higher value than snob demand and lower than bandwagon demand.
For this reason, it is not seen in the associated demand curve.

$
A

P1
MC1

J P0
MC2

H G
MC3
K

0 x1 x2 x3 x4 x5 Q

Figure 6: Associated demand curve (Aislabie and Tisdell, 1988: 79)

Monopoly firm takes its decisions according to these two demand curves while creating pricing strategy. For the
firm which intends to increase its profit to maximum, the associated demand curve derived from two demand curves
is ABG curve. With this curve, the firm makes its marginal profit to be obtained from sale price of each goods
maximum. The associated demand curve is given in Figure 6. As it is seen, the associated demand curve makes an
angle at B point. Marginal income curve of this demand curve is shown with AHJK. Considering three different
636 Ergin Uzgoren and Taner Guney / Procedia - Social and Behavioral Sciences 62 (2012) 628 – 637

marginal cost curves that the firm may face with, different strategies towards ensuring profit maximization could be
evaluated.
MC1 curve intersects with AH marginal income curve and it is the highest marginal cost curve. The price level
where the profit is at maximum for the monopoly firm is P 1 where AH marginal income curve intersects with MC1
marginal cost curve. What makes the profit maximum at this price level is the firm managers adopting snob
consumer oriented marketing strategy in product marketing. As a matter of fact, if marginal cots curve of a product
is at a level as high as MC1, the only way to make profit from marketing the product is to benefit from the snob
2 and MC3 curves, where marginal cost curve is lower, intersect with the marginal income
curve shown with JK and the firm can make its profit maximum by benefiting from bandwagon consumer behavior
(Aislabie and Tisdell, 1988: 79).

3. Conclusion

Luxury consumption goods have attracted individuals

discussed in researches of economists and in studies where demand for luxury goods is examined, reasons and
components of this demand is examined. Among these studies where demand for luxury goods is generally named
as prestige seeking behavior, Vigneron and Johnson (1999) stated that demand for luxury goods consists of five
components. These components are veblen effect, bandwagon effect, hedonic effect, perfectionist effect and snob
effect.
In his study, Leibenstein (1950) examined what kind of demand curve the snob consumer has. According to this,
the snob consumer increases his/her purchasing behavior because s/he deems the increase in luxury goods prices as
a prestige element. The retail seller, who knows this behavior pattern of the snob consumer, would apprehend better
how s/he makes a luxury goods
the only owner of the goods leads to expensive luxury goods to be purchased by the snob consumer. A luxury goods
with limited supply creates the same effect on the snob consumer as well. A monopoly firm which produces a luxury
goods may increase its marginal income by considering the snob effect while making price discrimination. On the
other hand, monopoly firm which will release a new product to the market should know while making pricing
strategy that it would appeal only to the snob consumer at a high marginal cost due to inelastic structure of the snob
consumer demand. Hence the firm, even though marginal cost of its new product is high, may obtain profit by
selling this goods to the snob consumer.

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