Why do people pay thousands for a handbag?

07 December 2018

By Alicia Melis and Daniel Read

Outrage flew across social media when it emerged that upmarket fashion label Burberry had burned more than £28 million of clothes, handbags, shoes and cosmetics.

“This is just disgusting, there are so many options available to donate or recycle unsold stock,” wrote JDA on Twitter.

Another tweet from Paula Owen said: “This is utterly appalling. What waste in the name of snobbery @Burberry you should be ashamed of yourselves.”

While Muhammad Lila echoed most people’s sentiment across social media: “So let's be clear:  Rather than letting poor people wear their clothes, Burberry burns/destroys them instead.”

The backlash prompted Burberry to backtrack and announce it would end the practice with immediate effect, but as insiders revealed this is common practice in the high fashion industry.

And the reason they do it? Luxury fashion brands have long realised that people have a strong desire for scarce goods. This preference is so strong that, seemingly paradoxically, revenue and profits can be increased by selling fewer goods at higher prices than selling more goods at lower prices. For example, there are luxury handbags that sell for thousands of pounds, with Hermes' diamond-studded handbag priced at an astonishing $1.9 million.

We wanted to find out the origins of this preference, why are people so attracted to scarce items and prepared to pay so much for them?

Is this preference something we learn as we grow up? Or is it an adaptive predisposition we exhibit from a young age, and even share with other species?

We know that many 'biases' that people display are also displayed by non-human animals, suggesting that these apparent biases reflect some underlying evolutionary advantage.

Our results suggest that the preference for scarcity is learned, and not inherited. We believe this is partly motivated by strategic considerations such as a fear of missing out, and also likely due to a desire to feel special and to signal exclusivity.

We devised an experiment that could be used to test for scarcity preferences in both chimpanzees and young children aged four and six.

Testing on chimpanzees, humans’ closest living primate relative is an important and often used arena for evolutionary theories about our cognitive biases, and would let us know if the scarcity preference was more likely to have evolved during our common evolutionary history and so has important adaptive reasons behind it.

The test saw the children and chimps given the choice of a wrapped good from a pile of identical boxes or from a pile containing just a single similarly wrapped box.

We introduced a competition condition as well. In chimpanzees we increased competition by letting two other chimps choose right after the participating chimpanzee. For children, we had two 'rival' puppets choose right after the child.

The main result was there was no evidence for scarcity bias in chimpanzees and children aged four, but we did find six year-old children showed a preference for the scarce good, especially in the presence of competitors.

In adulthood, people choose scarce goods for different reasons. For example, the rarity of luxury products can symbolise exclusivity, status and power. Scarcity in this case is a valued property of the good in itself, since it means that not many people can have it, allowing those that have the rare item to feel special and unique.  

We didn’t expect this explanation to apply to chimpanzees or four year-old children, since chimpanzees do not hold property and it is only at later ages that humans starts caring about reputation.

The results are consistent with this explanation, since only six year-olds exhibit the scarcity bias and the rewards used, stickers, could symbolise exclusivity if nobody else had them, just as luxury goods do.

Related course: Behavoural Science in Practice

Another possibility is that there is a scarcity heuristic; ie something is rare because everybody wants it, which tends to be a good indication that it is a good product, like a popular car sells out because it is a good car.  

We expected this heuristic to emerge only in humans (for chimpanzees it is hard to imagine situations in which scarcity would correlate with quality) as they become more experienced with market forces and when they can infer high demand behind the scarcity reason.

In this study scarcity was not due to increased demand, but to supply restricted by the experimenters (us) so it is unlikely this explanation played a role.

Finally, people preferring scarce goods may be acting strategically, trying to maximise variety or based on a fear of missing out, especially in the presence of competitors and other buyers.

For example, take the case of a music fan who wants the complete set of Rolling Stone vinyl LPs and there are only 10 examples of Let it Bleed left and hundreds of the Sticky Fingers album available. They want both but can only afford one.

It makes sense to buy Let it Bleed first, as it might sell out quickly, and then go back for Sticky Fingers later. The results fit well with this explanation, because it was mainly in the competitive condition when  six year-olds showed the scarcity bias.

Choosing the scarce item to avoid losing it in the presence of competitors implies thinking a couple of moves ahead, and we know from other studies that such planning skills are absent in chimpanzees and undergo a major shift in children at around five years of age.

One way to decide between these two reasons, whether it is strategic thinking or a desire for uniqueness, is to repeat the experiment using utilitarian goods like a fork and to see if we have similar results.

If the effect is found again then it is a strategic choice, because if it is about being special by having something unique then it would not be displayed for something like a fork. If it is not repeated then we can say children at six are expressing this luxury effect.

Then it might pay for high fashion brands to start burning their unwanted children's clothes as well.

 

Alicia Melis is Associate Professor of Behavioural Science and teaches Behavioural Economics and Foundations of Human Sociality and Co-operation on the Undergraduate programme.

Daniel Read is Professor of Behavioural Science and teaches Behavioural Sciences for the Manager on the Executive MBA and Executive MBA (London). He also lectures on Emotions in Business and Strategic Games on the Undergraduate programme.

Follow Daniel Read on Twitter @danielmabuse

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