Why you buy: The neuroscience of luxury goods

The feathers of the male peacock are beautiful, but they are costly. It takes a lot of energy to grow and carry the train of feathers, making the animal vulnerable to predators. So why do they have these large tails? This seems like a perplexing, possibly counterintuitive evolutionary mystery, but there is an explanation for this phenomenon. Peacocks with larger feathers are more likely to attract potential mates, hence the large and showy plumage.

Humans are not that different to peacocks. Why do we spend money on luxury goods when a cheaper option would do the job just as well? We also partake in the phenomenon of costly displays to attract mates and signal social status. This article will explore several advances in neuroscience that have helped uncover the psychological and biological secrets as to why people buy expensive products to improve their social standing.

What is conspicuous consumption?

When customers make purchasing decisions based on the product’s ability to signal wealth and social status rather than simply for its inherent functional value, it is known as conspicuous consumption. Be it a sports car, a designer bag or just a shirt with an embroidered logo, many people display their social status by buying expensive items.

Scientists have been trying to explore conspicuous consumption for a long time. The most common research techniques to investigate consumer behaviour are surveys and questionnaires, but these have their pitfalls. Studies based on self-report rely on the participant’s ability and willingness to accurately recall and report their attitudes and/or past actions. But the problem is that when people describe their own behaviour, they often forget, misreport, or lie. The latter is especially significant in the research of conspicuous consumption and similar phenomena when one could feel ashamed of their attitudes or past behaviours.

Since humility is a virtue, many people like to think they do not flaunt their wealth and make irrational purchasing choices just to signal their high social status. Thanks to the advancement of neuroscientific research, brain imaging and physiological measurements provide a more objective technique to assess human decision-making. Thanks to these advances, researchers can explore the inherent mechanisms that facilitate conspicuous consumption.

Why do we like luxury brands?

There are a few factors that influence whether a consumer will purchase a product for its functional value rather than its social and material value: The product or brand needs to be recognisable, it has to be known as expensive, and the conspicuous consumer needs to be observed by others.

The phenomenon of people developing an affection for something that they are repeatedly exposed to is called the mere-exposure effect (Zajonc, 1968). This is the case for brands and products as well. A brain imaging study found that familiar brands activate the pallidum which is a brain region associated with positive emotions. On the other hand, unfamiliar brands activate the insula, a brain region associated with negative emotions (Esch et al., 2012). Luxury brands benefit from this phenomenon as the logos and designs are often well known. Most people can recognise the shape of a Birkin bag or the prancing horse of a Ferrari and it yields positive emotions in them.

While the positive emotions stemming from the recognisability of luxury brands could benefit value brands too, customers have other positive biases toward luxury brands. A study has found that seeing logos of luxury brands activates brain regions connected to positive emotions that are not activated when seeing logos of value brands (Schaefer & Rotte, 2007). Schaefer and Rotte (2007) have demonstrated with the use of functional magnetic resonance imaging (fMRI) that luxury brands activate self-relevant processing pathways in the brain. This suggests that customers make associations with themselves when viewing luxury brands. Schaefer and Rotte also explored what brain regions are active while seeing logos associated with value products. Value brands activate cognitive control pathways, the pathways that are responsible for evaluating actions and consequences, suggesting that luxury brands elicit emotions and associations to self, while value brands elicit pragmatic thinking and evaluation.

Conspicuous consumption gives people joy and satisfaction via the reward mechanisms in the brain. There is evidence that pictures of luxury cars elicit activation of the same reward-related brain areas that are activated by cocaine or an image of an attractive potential mate (Erk et al., 2002). Studies have shown that social rank and dominance are connected to the same reward mechanisms (Morgan et al., 2002). This connection is not a surprise as conspicuous consumption is inherently connected to social status.

We like luxury brands because they elicit positive emotions. These emotions are partly due to the mere-exposure effect and also because luxury brands activate the reward mechanisms of the brain. Contrary to value brands, these expensive brands are processed more emotionally with self-relevant thoughts rather than a pragmatic evaluation of consequences.

How do we overcome price aversion?

Although we have an inherent affection for luxury brands, why would we buy their products if there are cheaper options on the market? A conscious consumer would want to get the best quality for the lowest price. How come this is not the case in conspicuous consumption? It is because the price of the item signals that the consumer is wealthy. Therefore, the higher the price the stronger the signal.

There are many self-reported studies and pieces of anecdotal evidence that people rate the same item as better when it costs more. And neuroscientific research backs up that research as well, finding that people actually perceive more expensive products as better. Brain imaging studies have shown that when someone perceives the price of wine as higher, their experienced pleasantness increases as well, regardless of the quality of the wine (Plassmann et al., 2008). Perceived quality increases utility, therefore this is an example of how a higher price carries utility.

Neuropsychological research demonstrates that the recognisability of luxury brand logos carries utility too. A study has shown that the more recognisable a luxury brand’s logo, the more likely customers are to accept the high price of their products and purchase them (J. Wang, 2018). This is because the more recognisable a luxury brand is, the more likely that people will draw the conclusion that the user of the product is wealthy. This highlights the social aspect of conspicuous consumption as well.

Is it all about sex?

Conspicuous consumption could not exist in a vacuum, it only makes sense in a social context. One would not flaunt their wealth if there were no one to envy them and acknowledge their dominance in the social hierarchy. There is evidence that being observed changes customers’ behaviour.

Neuroscience research has shown that being in the company of others increases people’s tonic alertness in a resting state (Verbeke et al., 2014). Researchers have recorded the brain activity of women while viewing luxury branded products in isolation or in a group. Women in the study who were in the company of others had more late positive potential (LPP), which is a brain activity indicative of an intense emotional response. This suggests that luxury brands have even more emotional value in a social context (Pozharliev et al., 2019).

The social context of conspicuous consumption is more nuanced than simply being observed or not; it also depends on the role of the observer as a potential mate or as a competitor. Conspicuous consumption is in essence about attracting mates by advertising one’s high social status and dominance. Evolution has wired our brains based on certain drivers, one of which is reproduction. Our inclination for conspicuous consumption has developed in order to find a partner and procreate. As such, it is inherently connected to sex hormones like testosterone and estrogen.

Testosterone is linked to many hierarchical social interactions, and also has a connection to conspicuous consumption. Administering testosterone to men has increased their preference for status brands and products (Nave et al., 2018). Men also have higher testosterone levels when driving a luxury car than non-luxury cars. Saad and Vongas (2009) investigated how men’s testosterone levels change when their social status is threatened in front of a woman by the presence of a conspicuous consumer, finding that mens’ testosterone levels significantly increased. For men, testosterone plays a role in both the conspicuous consumers and those that observe them.

While research has not explored the connection of female hormones to conspicuous consumption as much as testosterone, it is seen that conspicuous consumption plays a role in relationships for women too. A study has found that conspicuous consumption in women is a means to deter competitors from their partners (Y. Wang & Griskevicius, 2014). Researchers have found evidence that the ovulatory cycle, and therefore female hormone levels, affect customer behaviour. Preovulatory women seek status goods to improve their position among competitors (other women) (Durante et al., 2014). These findings show that high estrogen levels correlate with conspicuous consumption in women.

Conspicuous consumption has evolved as a means to find mates and deter competition. As a phenomenon that is connected to reproduction, it is affected by the levels of female and male sex hormones, estrogen and testosterone respectively.

Conspicuous consumption

Much like the feathers of the peacock, luxury products and other wealth-signalling goods make people appear high-status and desirable to mates. With the help of neuroscience, conspicuous consumption behaviour can be objectively studied and eventually understood. The seemingly irrational behaviour of buying unnecessarily expensive luxury products makes more sense when brain imaging studies show how luxury brands are processed. The high price of these products serves the purpose of signalling the wealth of the consumer.