Scarcity is not just an economic principle. It is a psychological principle and one that subconsciously drives many decisions. Scarcity has such a powerful influence on people that it causes them to wait in long lines for hours on end and experience anxiety when they can’t get their hands on a sold-out product or get into a popular restaurant.
There are reasons scarcity is so powerful, all of which are supported by psychological research. From a business lens, understanding how to apply scarcity ethically can lead to significant growth in revenue.
There are various types of scarcity, including demand-related, supply-related, time-related and limited edition. While all scarcity types can lead to more sales, demand-related scarcity has a unique feature: It causes a sense of urgency.
Demand-related scarcity is a supply shortage caused by popularity and causes customers to perceive the value of the scarce item higher, take mental shortcuts and experience fear of loss.
Reason #1: Scarce Products Are a Value-Based Indicator
People value something more when they think it is unavailable or hard to get. This is based on a 1968 theory that still holds weight today among researchers. The commodity theory, which focuses on the psychological effects of unavailability, explains that consumer products that are hard to find tend to be viewed as more valuable. In other words, people desire those items more.
The Stanley Adventure Quencher is a great example. This 40-ounce tumbler went viral on TikTok and other online platforms. So much so, that the product continuously sold out. This led to people paying up to $180 for the $40 tumbler on the resale market. Because the tumbler was hard to find, it was viewed as more valuable.
Reason #2: Scarcity Results in Mental Shortcuts
Scarcity leads to quick decisions and mental shortcuts. People assume that many buyers wouldn’t purchase a bad product or service. Therefore, the product or service must be good. It’s why an out-of-town visitor will pick a crowded restaurant over one that is empty: The food must be delicious.
The human mind is constantly looking for shortcuts because of the countless amount of information that must be processed every day. For this reason, people rarely engage in deep information processing for each piece of data they come across, but instead tend to use rapid mental shortcuts to direct their behavior and attitudes. Scarcity is one of these shortcuts. Consequently, someone will choose a scarce item over another. That person will no longer evaluate the available alternatives and instead will quickly choose that which is viewed as scarce because of the perceived value.
Reason #3: The Idea of Scarcity Leads to Fear of Loss
Not only does scarcity cause people to make a quick decision, but they also act because of the fear of missing out. According to a psychological concept known as loss aversion, individuals feel greater pain when they lose something than they feel happiness for gaining the same thing. Fear of loss impacts purchase decisions, leading to more sales.
The fear of loss is what has helped travel websites experience success. When searching for a Phoenix hotel on a popular travel site, several of the hotel listings will include the number of rooms left, which subtly communicates that the customer better book soon or they’ll miss out. Amazon does the same thing by showing how many units are left of a product. This shows high demand and the risk of missing out.
How Businesses Can Use Demand-Related Scarcity to Drive Sales
There are many ways businesses can successfully use the power of demand-related scarcity, including incorporating demand “labels,” waitlists and number of units sold.
Identifying a product or service as “Most Popular” or “Bestseller” will show that other people are buying the product and there must be a good reason. Along the same lines, businesses should let customers know when an item has been restocked, which not only shows high demand but also ignites that fear of loss.
Creating waitlists for services and products is effective in showcasing high demand. Car companies, golf clubs, private schools and even apartment complexes have been known to use waitlists. Depending on the type of product, customers might even be willing to pay just be on the list.
In an e-commerce environment, showing how many units of a particular product can be especially useful in indicating popularity.
Showing high demand for products and services can lead to more sales, if it is done ethically and honestly.
Mindy Weinstein, Ph.D., is the founder and CEO of Market MindShift and was named in 2019 as one of the top women in digital marketing globally. She is the author of THE POWER OF SCARCITY: Leveraging Urgency and Demand to Influence Customer Decisions (being released this month by McGraw Hill), in which she reveals the psychology behind scarcity, how scarcity affects our brains and decision-making, and how companies can use it to successfully and ethically market their products and services. Along the way, she shares fascinating case studies, findings and interviews with current and former executives from brands such as McDonald’s, Harry & David and 1-800-Flowers.com.
