Pricing of Conspicuous Goods: A Competitive Analysis of Social Effects
Published 2/1/2005
Author: Wilfred Amaldoss and Sanjay Jain
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Executive Summary
Social needs play an important role in the purchase of conspicuous goods. Prior research has identified the existence of two competing social needs among consumers: a need for uniqueness and a countervailing need for conformity. When consumers purchase products to satisfy their need for uniqueness, the value of the product increases as its perceived uniqueness increases. In other words, consumers might value a product less when more consumers own it. There is evidence of such behavior even in the case of products such as cookies. Recent research suggests that the need for uniqueness is an individual-level trait. An important implication of this body of research is that people could choose to buy a different product merely for the sake of being different from other consumers rather than to display their wealth or social status.
Another social need that influences the purchase of conspicuous goods is consumers’ desire to conform. Some consumers value a product more as the number of other consumers who buy the product increases. There is evidence of conformism in the purchase of books, toys, and garments. The need for conformism has also been identified as an individual trait.
In the article, the authors extend traditional economic models to accommodate social needs, such as desire for uniqueness and conformism, and examine their implications for pricing conspicuous goods. First, in the context of a duopoly, they identify the conditions in which the desire for uniqueness can increase demand among some consumers as the price of a product increases. Second, the authors show that though the desire for uniqueness leads to higher prices and firm profits, a desire for conformity leads to lower prices and profits. Third, the authors find that consumers purchase high- quality products not because of their desire for uniqueness but rather despite it. Finally, marketers of conspicuous goods might find it beneficial not to highlight the functional differences among their products when the need for uniqueness is high. In a laboratory test, the authors find support for the claim that demand for a product among consumers who desire uniqueness increases as its price increases.
Biography
Wilfred Amaldoss is Associate Professor of Marketing, Fuqua School of Business, Duke University. His research interests include game theory and experimental economics. His earlier research on strategic alliances, new product development, and behavioral game theory were published in Marketing Science, Management Science, and Journal of Economic Behavior and Organization.
Sanjay Jain is Associate Professor of Marketing, Robert H. Smith School of Business, University of Maryland at College Park. His research primarily focuses on analytical models of competition. His areas of substantive interests include pricing, promotion and new product management. His research has previously appeared in Journal of Marketing Research and Management Science.
J Marketing Research, Volume 42, Number 1, February 2005
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