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August 23, 2010

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Aka Giffen Goods. I'm not sure which term came first though.

Chris: As I understand it, there's a slight but significant difference between Veblen goods and Giffen goods. With Giffen goods, the rising price is the only factor affecting desirability, whereas with Veblen goods the concepts of conspicuous consumption and snobbery also play a role.

Here's an article about Veblen goods and Giffen goods:
http://www.lesjones.com/2009/09/23/word-of-the-day-veblen-goods/

This is a great post and makes a good point. I have a friend who told me that after he finished dental school he worked for a couple of years ina clinic. After that he opened his own and was having a very difficult time getting new patients. He was offering all sorts of cheap pricing, but could not get anybody to come in.

He was given some advice that he should raise his prices drastically. He increased his prices by a multiple of 3 (!), and suddenly business was booming.

he explained to me that while everyone wants a deal, if you are cheap they think the quality is bad so they don't bother. If you are expensive they think the quality is great and they thought he must have been the best dentist in town.

It is all a matter of perception.

With diamonds it is the same. You sell it too cheap and people will think it must have flaws or deficiency's that they just don't see. Raise the price and you will have people interested. They might ask for a discount, but they will at least come in as a potential customer.

You want them to believe you are giving them quality (you should be giving them the quality they expect and are paying for but what they perceive is the point right now), and if the price is too cheap they will think there is some sort of scam or a quality issue and will stay away.

Thanks for the post.

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