Why Charging More for Your Product Can Sometimes Increase Demand Instead of Killing It.
By Creatives Takeover · July 7, 2026
Sometimes, a higher price creates higher perceived value.
Imagine two identical bags of coffee sitting on a shelf. Same beans, same roast, same origin. One is priced at five dollars. The other is priced at fifteen. If you had to guess which one tastes better without opening either bag, which would you choose?
Almost everyone points to the fifteen dollar bag. There is no visible difference between them, nothing distinguishing the beans inside except the number printed on the label. And yet the brain does something remarkable in that moment. It does not just guess that the more expensive coffee is probably better. In blind taste tests, people who are told a coffee is more expensive consistently report enjoying it more, even when it is the exact same product. The price does not just influence the decision to buy. It changes the actual experience of consuming the thing.
That is the phenomenon at the center of one of the more counterintuitive ideas in economics, and one that has enormous implications for how founders think about pricing their own products.
The Economist Who Broke the Law of Demand
In 1899, an economist named Thorstein Veblen published a book called The Theory of the Leisure Class, examining the consumption habits of the newly wealthy industrial class in America. Veblen noticed something that did not fit the standard economic model of the time. For most goods, demand and price move in opposite directions. Raise the price, and fewer people buy. Lower it, and more people do. That relationship, known as the law of demand, is one of the foundational assumptions of classical economics.
Veblen observed a category of goods that broke that rule entirely. For certain luxury products, raising the price did not suppress demand. It increased it. The higher price became part of the product's appeal rather than a barrier to purchasing it, because owning something expensive was, for a specific segment of buyers, the entire point. Economists now call this category Veblen goods, and the pattern itself the Veblen effect.
The mechanism behind it is more precise than simple vanity. A high price does two distinct things simultaneously. It signals exclusivity, since a higher cost naturally limits who can afford to buy, making ownership itself a marker of status. And it signals quality, because in the absence of other reliable information, buyers use price as a proxy for how good something must be. Nobody can taste-test every bottle of wine or evaluate the stitching on every leather bag before buying it. Price becomes a shortcut for judgment the buyer cannot easily make on their own, and shortcuts, once established, are remarkably difficult to undo.
Why Rolex, Not Casio, Owns the Word Prestige
Rolex has spent decades building one of the clearest real-world illustrations of the Veblen effect in action. The brand does not compete on the accuracy of its timekeeping. Modern quartz watches costing a fraction of the price are objectively more precise. Rolex competes on the meaning attached to owning one, and its consistently high price point is not incidental to that meaning. It is a structural part of constructing it. Lowering the price would not simply reduce revenue per unit. It would quietly dismantle the exact quality perception and exclusivity that make the watch desirable in the first place.
Louis Vuitton follows a similar logic with even more deliberate execution. The brand does not just maintain high prices. It periodically raises them during periods of constrained supply, reinforcing scarcity at precisely the moment demand is highest. That is the opposite instinct of most businesses, which discount when supply is tight to keep inventory moving. Louis Vuitton does the reverse because the scarcity itself, priced accordingly, is the product.
The pattern is consistent enough that researchers have needed to separate two competing explanations for why it happens. One theory holds that the high price itself is what drives demand, functioning as a direct, credible signal of wealth to anyone who notices the purchase. The competing theory suggests that hype and social proof drive demand first, which then pushes up the price in a market with limited supply, meaning the price increase is a symptom rather than a cause. Disentangling those two mechanisms with real-world data is genuinely difficult, because high prices and high demand tend to occur together regardless of which one caused the other. What is clear across both explanations is that price and perceived value are far more entangled than most founders assume when they are setting a number on a pricing page.
This Is Not Just a Luxury Goods Story
The instinct at this point is to file the Veblen effect under "does not apply to me," reserved for watches, handbags, and other categories built entirely around status signaling. That instinct undersells how far the underlying psychology actually reaches.
The core mechanism is not really about luxury. It is about the absence of a reliable quality signal. Whenever a buyer cannot easily evaluate how good something is before purchasing it, whether that is a bottle of wine, a piece of enterprise software, a consulting engagement, or a service they have never used before, price steps in to fill that information gap. This is precisely the situation most early-stage founders are in. Their product is new. It has no long track record, no widespread word of mouth, no established reputation to lean on. In that vacuum, the price you set is not just a revenue decision. It is one of the only quality signals a prospective customer has to go on.
A founder pricing a new B2B tool at a fraction of what established competitors charge is not just being generous. They are quietly telling every prospective buyer that the product is probably worth a fraction as much, whether or not that was the intended message. Underpricing does not just leave money on the table. It can actively suppress demand among the exact buyers who would have paid more, because those buyers read the low price as a signal that something is missing.
Where This Breaks, and Why That Matters More
None of this means charging more is a universal solution, and treating it as one would be a serious misreading of the research. The Veblen effect describes a specific psychological dynamic that operates most powerfully in categories with genuine information asymmetry or meaningful status signaling. It does not mean every product improves by becoming more expensive.
Commodity goods with easily comparable quality, transparent alternatives, and price-sensitive buyers behave according to the ordinary law of demand almost every time. Raise the price of a product that customers can easily benchmark against five visibly similar competitors, and demand will fall the way basic economics predicts. The Veblen effect requires either genuine exclusivity, a real quality difference the buyer cannot easily verify independently, or a social signaling function that a commodity product simply does not carry.
The distinction that matters for founders is not "should I charge more." It is "does my buyer have a reliable way to evaluate quality without relying on price as a signal." If they do, standard pricing logic applies, and undercutting competitors can still work as a strategy. If they do not, and this is true for a large share of early-stage B2B products, creative services, premium consumer goods, and anything sold on trust rather than easy comparison, then price is doing more communicative work than most founders realize, and pricing too low can be quietly self-defeating.
What This Actually Looks Like in Practice
Consider two founders launching comparable premium consulting services into the same market. The first prices aggressively low, reasoning that a lower number removes friction and makes the decision easier for a hesitant first-time client. The second prices at the high end of the category, reasoning that their ideal client is not looking for the cheapest option but for the option they can trust with something important.
The second founder is not simply betting on vanity. They are betting on a well-documented psychological pattern: in the absence of other strong signals, buyers use price to infer quality, trustworthiness, and seriousness. A consulting engagement priced noticeably below the market rate does not read as a bargain to a sophisticated buyer. It reads as a red flag, an implicit admission that something about the offering does not warrant a full-price conversation. Meanwhile, a premium price paired with genuine substance behind it does the opposite. It pre-qualifies serious buyers, filters out the price-shoppers who were never going to be a good customer anyway, and gives the product room to actually be worth what it costs.
This is not a suggestion to price arbitrarily high without substance behind it. The Subdial's research into Veblen goods makes a useful distinction here: a Veblen good is priced high specifically for exclusion, while genuinely well-made goods are priced high because of real underlying costs, superior materials, and durability that justify the number. The founders who get pricing right are not the ones inflating a price with nothing underneath it. They are the ones who understand that price is read as a signal, and who make sure the signal they are sending matches something real.
Five Things Worth Taking From This
Price is a message before it is a number. Every price you set is quietly telling your buyer something about quality, exclusivity, and confidence, whether you intend it to or not. Choose that message deliberately instead of by accident.
Underpricing is not always the safe choice. In categories where buyers cannot easily verify quality independently, a lower price can suppress demand by signaling that something is missing, rather than making the decision easier.
Know which category your product actually falls into. Commodity products with easy comparisons behave according to ordinary demand curves. Products sold on trust, exclusivity, or unverifiable quality behave differently. Price accordingly.
Scarcity and price increases can reinforce each other. Louis Vuitton raises prices during periods of constrained supply rather than discounting. That is a deliberate strategy, not an accident, and it is available to more categories of business than most founders assume.
A high price without real substance is fragile. The Veblen effect works because expensive goods are often, though not always, genuinely better made. If you raise your price without the underlying quality, positioning, or care to justify it, the signal eventually collapses the moment a customer actually experiences the product.
The next time you are staring at a pricing page trying to decide between two numbers, remember the coffee bags. Nobody could taste the difference between them. The only difference that mattered was the one printed on the label, and it was enough to change how the coffee actually tasted in someone's mouth. Your price is doing something similar to your product right now, whether you have thought about it that carefully or not.