What is Scarcity?
Scarcity, also known as paucity, is an economics term used to refer to a gap between insufficient resources and the many theoretical needs that people expect to be met by the said resource. As a result, people are forced to decide how best to allocate a scarce resource in an efficient manner so that most of the needs and additional wants can be met. Therefore, all resources with non-zero cost in the process of consumption can be considered scarce to a given extent. However, in practice, what really matters is what we call relative scarcity.
Basics of Scarcity
Hypothetically speaking, if every resource on earth was abundant, there would be no need for economists. Decisions on resource allocation would not be necessary and tradeoffs would be redundant. Unfortunately, the real world does not work in such a way. Each commodity comes with a price; essentially, each resource on earth shows a degree of scarcity.
For example, time and money are characteristically scarce resources. In the real world, it is common to find someone with little of one resource or even both. A person without a job may have a lot of time but still be unable to meet his basic personal needs. An executive of a prestigious company may have a lot of money and be able to retire at any time, yet he can only afford to go for a ten-minute lunch or sleep for just five hours each night. People who have an abundance of both money and time are very few in the real world.
Scarcity in Business
Ideally, scarcity causes the value of commodities to appreciate. Why? Well, commodities that are in short supply tend to be attractive. This is a common scenario in real life because people sometimes want that which they cannot get. Because of this, marketers take advantage of the fact that people tend to perceive those things that are in short supply as valuable, to boost sales. Here are a number of tactics that make scarcity really work for marketers:
#1 Purchase countdown
A timer within a sales context implies that the sales team is defining scarcity as the key parameter. So how does it increase sales? Once a customer understands how much time she needs to make a decision, she will act with a sense of urgency. Companies like eBay use such a tactic, and it works really well because it drives that last-minute rush to make purchases before time runs out.
#2 Sale price countdown
Countdowns also work in the context of a limited time sales price. A sales price countdown is used to drive urgency and encourage consumers to make purchases before time runs out. It creates scarcity, as well as a buy now mindset, while tapping into what sociologists call loss aversion to encourage consumers to make the purchase immediately instead of later.
#3 Next day shipping
Next day shipping also leverages the power of scarcity by using countdowns. Many online companies use the tactic to let consumers know that they have very little time before they lose the opportunity to have their purchases shipped out the following day. This increases urgency on the part of the consumer and encourages her to make purchases. Companies like Amazon take advantage of countdowns to urge consumers to make purchases or else they will not guarantee next day shipping once time runs out. It works because many consumers want their purchases to arrive as soon as possible.
#4 Seasonal offers
Seasonal offers are used to create scarcity and encourage sales because seasons and holidays don’t last that long. Actually, this is the reason stores such as Starbucks offer pumpkin-flavored products during the fall. For example, at Starbucks, pumpkin-flavored drinks go for $7.81, which is slightly higher than the usual price of $6.67. So, what brings this difference? In the mind of a consumer, purchasing a seasonal drink is associated with indulgence. The consumer did not just buy a drink; she also received an additional item as well that is on seasonal offer. Essentially, a consumer goes all in.
#5 Limited stock notice
Because scarcity causes items to seem very popular, particularly for online buyers, many online sellers tend to leverage limited stock notices. When a consumer sees a product that she loves is almost out of stock, she will act with urgency and purchase it immediately. Companies like Zappos use the tactic to drive sales and encourage buyers to make purchases.
Scarcity may seem like an abstract idea, but it can be a huge driver in marketing. Scarcity is the reason why almost everyone views those things that are in short supply as valuable. In addition, while it can drive sales, it is not the solution to lagging sales. If marketers use it too much, it may lead to the opposite effect; marketers will scare away their consumers.
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