A couple of weeks ago one of my neighbors bought a brand new car – Kia Stinger. As is customary with guys I congratulated him on the new acquisition and exchanged a few words about the car. It was a very brief conversation as we were just coming home with the two kids. What was interesting was, that from all the things he could have bragged about, he mostly spoke about that it was a limited edition car. “Only 1000 like this have been made in the world,” he said. This number felt ridiculously low given there are about 180 countries, which is about 5 per country, and only in the US, there are 50 states with multiple dealerships in each one.

He didn’t brag about the fact you can start the car remotely with the key. We only found out about that on a subsequent occasion. The limited edition was front and center in his mind. He also has paid more for that limited edition car. This is an example of what behavioral scientists call the “scarcity effect”. Its main idea is that people place more value on things that are harder to get, and on things that don’t appear to be widely available.

You probably have seen the small red text saying “only 2 seats left at that price” or “only 1 room left”, you’ve seen the big yellow signs “sales ends in two days”, etc. This is the same principle. You may think this is too lame and too obvious, and you are probably right, but when this principle is used correctly it can be a powerful motivator and it can actually increase customer engagement, a sense of belonging, and loyalty. Let’s see how MacDonald’s, Nike, and others have done just that.

Behavioral scientists have found that scarcity increases desirability. As a result, limited times, quantities, opportunities and limited access to information can all motivate customers and prospects. So too the feeling that they can obtain something that not everyone else can simply because of who they are or the group they belong.

A classic experiment, that illustrates this principle was conducted by researchers from the University of Virginia and the University of North Carolina using chocolate chip cookies. Two glass jars: one containing two cookies and the other containing ten. Participants in the experiment were asked to take the cookies from either jar:

• How much do you want to eat them?
• How attractive do you think they’d be to consumers?
• How expensive do you think they are?

Despite both jars containing the same type of cookie, those from the jar with only two were consistently rated higher, indicating a preference for items perceived to be in scarce supply. The cookies in the scarcity condition were also rated more valuable than those in the abundant supply condition. Furthermore, the study showed that when cookies previously perceived as abundant became scarce, participants perceived them as even more valuable.

So, given that people place more value on things that are harder to get and not widely available, how could we use that?

There are four types of scarcity:

Time-related scarcity

 This is where you get these signs “sale ends tonight”, discount valid for 3 days, etc. However, when it’s genuine, loyal customers love  and do try to take advantage of these limited-time deals. Here’s an example from the masters in Behavioral Science – Ogilvy Consulting, which is promoting a Behavioral Science conference – Nudgestock.

You can see that the promotion of an early bird discount has been genuine.  Now that it’s sold out, there is the danger that the regular-priced tickets might sell out too. So time is ticking.   A good tactic to apply here is to keep updating customers when 70% of tickets are sold-out, then 80%, and so on.  The above is a mix of a time-related scarcity and the next scarcity variation – supply-related scarcity because the number of seats in a physical conference venue is finite.

Supply-related scarcity

The next type of scarcity is when there is a supply shortage or the supply is limited intentionally to create exclusivity or the feeling of uniqueness / being special.

In a previous blog,  an experiment involving the sale of Campbell’s soup cans was shared where customers that faced no purchase limit bought on average 3.3 cans of soup.  In contrast, those that faced a purchase limit of 12 bought on average 7.0 cans (an increase of 112% per buyer).  “Nike Drops” is another example…

Nike has teased the release of the shoe and alerted interested customers that they’d only be available through its new Nike+ SNKRS app in a specific location at a specific time of day. They have a very limited window for entry, typically between 2 and 15 minutes, and they don’t use a virtual waiting room. When the drop opens, customers rush to the Nike SNKRs app to enter the draw. Just minutes after the entry window closes, customers get notified if they’ve been selected.  There is no other way to get it. Customers have to either be in one of three designated locations when the shoe is dropped or they are out of luck. These locations are related to the story about the origins of inspiration for the shoe – be it a special and successful chef founder of a restaurant chain or a famous athlete.

As you can imagine this very limited window of opportunity creates some problems – stiff competition, people trying to game the system by paying some to queue in their place of using bots, while many genuine customers miss out often. So Nike has thought of a way around these challenges.

Nike uses an exclusive access system that gives exclusive product availability to customers who continually miss out. Nike CEO John Donahoe explains: “This approach sends personalized purchase offers to members based on their engagement with SNKRS, past purchase attempts, and other criteria, using data science to drive digital member targeting. For example, 90 percent of the invites for the “Off-White Dunk” shoe went to members who had lost out on a prior Off-White collaboration over the past two years.”

This strategy involves a different approach to fairness. Nike adapts their definition of fairness to give back to loyal customers who are failed by randomization. This gamification, exclusivity, and effort to get to the shoe creates a special feeling. Here’s what Ron Faris, general manager of the Nike NYC Digital Studio and SNKRS app says: “What we want to try and do is bring a product, a story and an experience together to create something that builds magic and emotion for consumers to get extra hyped up before a shoe drop.”

As a result, for many people these aren’t just shoes anymore, they’re status symbols…. “Like a Rolex, for your feet”.  You can read more on Nike Drops in this Article.

Demand-related scarcity

 Demand-related scarcity is where people know or expect that something will be in high demand and want to make sure they get out there and get something. An example is the Bored Ape Yacht Club (BAYC) NFTs.

The BAYC represents a collection of 10,000 ape NFTs, each with varying fur types, facial expressions, clothing, accessories, and more. Each attribute has a rarity component, which makes some much more valuable than others. On any given NFT’s page, its properties will be listed as well as the percentage of NFTs in the collection that share the property. Usually, anything under 1% is considered rare. For instance, out of 10,000 apes, only 46 have solid gold fur, making these particularly valuable.

When the club launched, in April 2021 those tokens were sold at an initial price of $190-$200. A year later, in April 2022, when NFTs were at their hottest, people were reselling those on eBay and other auctions and the entry price for BAYC NFTs was $400,000. Nowadays, the prices have dropped to about $40k-50k (tied to the Ethereum cryptocurrency price).

Limited-edition scarcity

Limited Edition scarcity is a spin on supply-related scarcity. It could be a service bundle or something that comes for a limited time. This is where the limited and exclusive offer creates a sense of uniqueness and feeling part of a specific community. With some companies, you can pay for a membership that grants you early access to hard-to-get items (e.g. Play Station 5 at its launch). When creating scarcity – they create a community,

Consider this example from McDonald’s. For a limited time, while supplies lasted last autumn McDonald’s offered a limited edition Happy Meal. Only this time, it wasn’t designed for kids but for adults. McDonald’s reimagined its Happy Meals as a nostalgia item for adults and each meal came with one of several toys that the older generation would recognize from their youth. This made customers feel like McDonald’s understood their generation while those nostalgic toys became collectibles. And then… people started selling them on eBay…

One of the reasons why scarcity has such an effect on people’s behavior is because it’s related to Loss Aversion, which we discussed in a previous blog. Robert Cialdini,  author of “Influence: The psychology of persuasion” says that “as opportunities become less available, we lose freedoms and we hate to lose the freedoms we already have.”

Another illustration of this is rom Marriott Bonvoy.  Consider this  “rare and not-to-be-missed” offer for 10% savings on villas with only three days to claim this “once-a-year offer”.

There are many more examples of this principle being used by companies which we discuss in our training sessions but the above should be enough to get the basic idea.

A note of caution when using the scarcity principle. Be authentic, genuine and ethical.  If you say you have 200 tickets left, when in fact they are 600 or that it’ll be a limited 2-day sale but then extend it and run it again next month you lose credibility and damage the brand in the long term. But when customers know it’s legitimate, it creates excitement and the truly loyal customers won’t want to miss it.