The scarcity principle is an economic theory positing that scarce goods which are also in high demand cause an imbalance in the supply and demand equilibrium. However, it can also be applied to consumer and social psychology, and it is these applications that we will discuss in the rest of this article. The scarcity principle posits that the more difficult it is to obtain a product, the more valuable that product then becomes.
Understanding the scarcity principle
With that said, the scarcity principle states that consumers value something more if it is scarce. A similar definition was provided by author Robert B. Cialdini in his acclaimed book Influence: The Psychology of Persuasion. He noted that “opportunities seem more valuable to us when their availability is limited.”
In the context of consumer purchase behavior, the scarcity principle is a motivator. Since consumers believe the scarce product will soon become unavailable, they value it more and are more likely to purchase it when compared to a situation where the product is abundant. Armed with this knowledge, brands use the scarcity principle to manipulate consumers into purchasing their products.
Why is the scarcity principle effective?
Cialdini suggests there are two main drivers of the scarcity principle.
1 – Consumers create mental short-cuts to deal with a complex world
Otherwise known as heuristics, these mental-short cuts are used to estimate the value of an item based on its scarcity. Rare items that are difficult to obtain are assumed to be worth more than abundant items that are easier to obtain.
This heuristic is valid most of the time, but in some cases, it is invalid.
2 – Scarcity limits opportunities, which reduces the freedom to choose
For better or worse, humans evolved to react when freedom of choice is limited or reduced. This is a survival instinct stemming from the fact that the impact of a loss is more severe than the impact of a comparable gain.
As a result, consumers are always on the lookout for potential losses and are hardwired to keep their options open. Fewer options mean less freedom of choice and the risk that as resources become less available, they may not be available at all in the future.
Whenever freedom of choice is threatened, the need for the consumer to retain their freedom makes them desire the product even more. As access to a product is threatened, in other words, the consumer makes a concerted and vigorous effort to possess that product.
Examples of brands that used the scarcity principle
Let’s conclude this article by having a look at some case studies where the scarcity principle has been used effectively:
When the Wii was released in 2006, mass hysteria ensued as consumers clamored to purchase one. This continued for three years before the supply was comparable to demand.
To increase scarcity, Nintendo capped production volume over that period and advised consumers to “stalk the UPS driver” to determine when a new shipment of Wiis was about to be delivered.
The coffee chain announced the Unicorn Frappuccino in April 2017 via an Instagram post with the caption “Available for a limited time at participating stores in the US, Canada & Mexico.”
The hashtag #unicornfrappuccino was posted nearly 160,000 times in response to the perceived value of the novel, time-limited beverage.
Discount service platform Groupon is a master of using the scarcity principle to persuade consumers to take advantage of its offers.
Like Starbucks, scarcity is created because each deal is available for a limited time only. Groupon uses social proof as an extra motivator, displaying the number of consumers who have purchased the deal and rated it highly. Humans interpret scarcity combined with social proof to mean that the product must be worth having since most others appear to be purchasing it.
Online reservation platform Booking.com allows users to book a range of accommodations including hotels, apartments, holiday homes, and motels.
For applicable properties, Booking.com shows the number of rooms left with additional text highlighted in red such as “Only 2 rooms left at this price on our site” or “3 other people looked for your dates in the last 24 hours”.
Additional Case Studies
- Apple is known for creating buzz and anticipation around its product launches by limiting initial supplies. When a new iPhone is released, consumers often line up outside Apple stores for hours or even days to secure one of the first units. The limited availability and long lines generate excitement and a sense of urgency among customers.
- Tesla, the electric car manufacturer, has employed scarcity tactics by offering limited-time promotions and special editions of its vehicles. For example, Tesla has introduced “limited production” models like the Tesla Roadster Founder’s Series, which creates a sense of exclusivity and drives demand among its loyal customer base.
- Luxury Fashion Brands:
- Luxury fashion brands like Louis Vuitton and Gucci frequently use scarcity by producing limited quantities of their high-end products. These brands release limited-edition collections, exclusive collaborations, or seasonal designs, creating a perception of rarity and desirability.
- Video Game Consoles:
- Besides Nintendo, other video game console manufacturers like Sony (PlayStation) and Microsoft (Xbox) have leveraged scarcity principles during product launches. They limit the initial supply of consoles, leading to high demand, pre-orders, and often long wait times for consumers.
- Fashion Sneakers:
- Brands like Nike and Adidas use scarcity tactics for their sneaker releases. They often launch limited-edition sneaker models with small production runs. Sneaker enthusiasts eagerly await these releases, leading to quick sellouts and sometimes reselling at much higher prices.
- Disney has been known to create scarcity by “vaulting” its classic animated films. They release these films for a limited time before placing them back in the “Disney Vault” for several years. This strategy encourages consumers to purchase the films while they are available, driving sales.
- Concert Tickets:
- Promoters of live events, such as concerts and sports games, often use scarcity tactics to boost ticket sales. They may advertise that tickets are “selling out fast” or create a sense of urgency by offering early bird pricing for a limited time.
- E-commerce Flash Sales:
- Various e-commerce platforms use flash sales that are available for a short duration or in limited quantities. This encourages consumers to make quick purchase decisions to secure discounted items.
- Tech Gadgets and Kickstarter Campaigns:
- Tech startups often employ scarcity by offering early backers exclusive access to their products at a reduced price on crowdfunding platforms like Kickstarter. This limited-time offer incentivizes people to support the campaign early.
- Art Auctions:
- Auction houses like Christie’s and Sotheby’s utilize scarcity principles during art auctions. Rare and valuable artworks are put up for auction with the understanding that they may not become available again for a long time.
- The scarcity principle posits that the more difficult a product is to obtain, the more valuable that product then becomes. In the context of consumer behavior, the scarcity principle motivates the consumer to purchase.
- The scarcity principle is caused by consumers creating heuristics in an attempt to value items accurately. Scarcity also reduces freedom of choice which causes the individual to desire the product even more.
- The scarcity principle has been used by many brands to successfully market their products. These include Starbucks, Groupon, Nintendo, and Booking.com.
- Definition: The scarcity principle is an economic and psychological theory that asserts that scarce goods, particularly those in high demand, create an imbalance in supply and demand equilibrium. In consumer psychology, the principle suggests that people tend to value something more if it is scarce, leading them to perceive limited availability as increased value.
- Consumer Perception: The scarcity principle posits that consumers view products as more valuable when their availability is limited. This principle is based on the idea that the difficulty of obtaining a product contributes to its perceived value.
- Robert B. Cialdini’s Perspective: Robert B. Cialdini, in his book “Influence: The Psychology of Persuasion,” stated that opportunities seem more valuable when they are limited in availability.
- Drivers of the Scarcity Principle:
- Heuristics: People create mental shortcuts, known as heuristics, to estimate the value of an item based on its scarcity. Rare and hard-to-obtain items are often perceived as more valuable than easily available items.
- Freedom of Choice: The scarcity principle plays into humans’ innate desire for freedom of choice. Limited availability reduces options, triggering a sense of urgency to possess the product before it becomes unavailable.
- Effectiveness of Scarcity: Scarcity taps into the heuristics individuals use to make quick judgments about value. Additionally, the psychological drive to preserve freedom of choice enhances the allure of scarce items.
- Examples of Brands Using Scarcity:
- Nintendo: Limited production of the Wii console created high demand and led consumers to actively seek it, increasing its perceived value.
- Starbucks: The limited-time availability of the Unicorn Frappuccino prompted a surge in demand, driven by social media and the perception of exclusivity.
- Groupon: Groupon employs the scarcity principle by offering time-limited deals with social proof, driving consumer motivation to buy before the offer expires.
- Booking.com: Displaying the number of rooms left in a hotel creates a sense of urgency and scarcity, compelling users to make a booking.
Connected Thinking Frameworks