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The Scarcity Principle: How It Drives Our Behaviors


There are many ways in which we can be influenced. We might be persuaded by an authority figure. We might be motivated because we like and trust the individual communicating with us. We might be influenced because we feel like we owe someone a return favor. Yet, out of all the known factors that influence us on a regular basis, scarcity is one of the most powerful.


Why?


Because scarcity has driven humans since the dawn of mankind.


Our early ancestors had to contend with scarce resources, including food, water and shelter. They struggled through periods of famine and abundance. When you look at human history, you can see the driving force of scarcity as people had to fight to obtain resources essential for survival.


Evolutionary biology and economics show us that scarce resources have been at the heart of competition among humanity for centuries. Scarcity has even been associated with power. When empires and governments were able to secure access to food and water, they remained in control.


While we might not have to hunt for our next meal, we certainly don’t want something to not be easily available to us.


Let’s step back a moment.


Before we get too far into the scarcity principle, it’s important to first define it.


Simply put, scarcity occurs when an object is unavailable or restricted. Unavailability can be caused by many things ranging from a supply shortage to high demand to a time restriction. An “object” can be a good, service or even person (that will be a topic for another day).


From a business and marketing perspective this plays out as limited-time, limited edition, popular demand and limited-supply, which I will revisit later in this article.


Scarcity From a Psychological & Physiological Lens

Scarcity causes a physiological reaction in our bodies. When we are faced with scarcity, our nervous systems become engaged, and we move into a state of hoarding and greed. Our brain activity begins to change, which has been tested and observed through neurological studies. This research has measured brain activity related to scarcity and further demonstrates that scarcity isn’t a made-up influence factor. You can actually see its affect on the brain through fMRI scans.


This goes back to our early ancestors.


Our brains are hardwired for survival, which explains why we often fixate on what we don't have. When encountering scarcity, our brains shift attention to what it considers urgent. Now, here is where things get interesting. This urgency is not just for resources for our survival. It can be for just about anything.


If there is a product you want to purchase, but it's also hard to get, your brain will shift into gear and place mental energy and focus onto rectifying the decision. From our mind’s perspective, this need is now urgent.


Give it a try. Think back to a time when you tried to buy a product you really wanted, but it was out of stock. How did it make you feel? Did you spend time trying to figure out how to get that item? Did you continue to think about it?


Scarcity causes a feeling of threatened freedom to have something, which only makes us desire that item even more. No one wants their ability to choose to be taken away. It goes against human nature. Because our brains are hardwired for survival, we often think more about what we don't have instead of what we do have. If there is something we really want to buy that's also hard to get, our brains shift into gear and place mental energy and focus onto rectifying the decision because from our mind’s perspective, this need is now urgent.


Keep in mind that scarcity can cause a few things to happen from a psychological perspective. For instance, we might:


  • Place a higher value on the scarce item

  • Hyper-focus on what we can’t or don’t have

  • Simplify and speed up the decision-making process

  • Experience a fear of loss or missing out


The fear of loss, as mentioned in the last bullet, is what drove panic buying during the pandemic. At the height of the COVID-19 pandemic, when cities, counties and states were issuing stay-at-home orders and countries were enacting travel bans, people quickly began to purchase rice, beans, milk, eggs, bread, frozen food, and toiletries in mass quantities. Store shelves were bare throughout the world. Essential items were sold out everywhere as people impulsively stocked up. Shoppers began to buy things they didn’t need and to buy more than they possibly could use. This panic-buying behavior can be explained by a few different factors, but fear of loss was among the most prevalent.


The contagious spread of COVID-19 resulted in a fear of losing control. People did not feel in control of their situations, and lives, as the virus caused lockdowns and significant changes to their everyday routines. Compounding that loss of control, people began to fear not having items to survive. Heightened anxiety and fear caused people to resort to obsessive and impulsive buying.


It became apparent that there was more going on under the surface. This anxiety and fear that was leading to panic buying stemmed from perceived scarcity of quantity and time. As one team of researchers explained , the behavior turned into a self-fulfilling process. The more people bought obsessively and impulsively, the higher their anxiety became and the quicker the products sold out. During lockdowns, grocery stores had limited shopping hours and medical experts warned people about going out. This caused a perception of limited time. Empty shelves and sold-out products created the awareness of limited availability.


While the pandemic was an especially unusual time in history, it shows just how significant fear of loss can be on our purchase decisions.


Types of Scarcity in Business

So far, we have looked at the principle of scarcity as a whole and from a psychological and physiological outlook. But, let’s talk business. Scarcity is something that we see every day in the marketplace and it has been a catalyst in driving revenue. Here are just a few examples:


  • McDonald’s McRib sandwich is offered for a limited time and has built a cult following

  • An electric bike company grew to a multi-million dollar company through waitlists and pre-orders of bikes

  • The Fendi X Skims clothing that sold out quickly

  • Supreme’s drop of limited-supply products


When we think about these examples, we need to also understand that there are various types of scarcity that are used in a business setting, including:


  • Supply-Related Scarcity: This form of scarcity is caused by a distribution shortage and is often communicated through such phrases as “supplies are limited” and “while supplies last.” Supreme’s product drops would be considered supply-related scarcity.

  • Limited Edition: This is a type of limited-supply scarcity. Limited-edition, such as the product itself or the packaging, is based on the limited number of units produced and is typically a slightly modified version of the original. The Fendi X Skims clothing collaboration mentioned above falls into this category.

  • Time-Related Scarcity: This form of scarcity involves a product promotion, limited availability, or level of supply during a specified window. It includes a time restriction that results in scarcity. The McRib sandwich is an example.

  • Demand-Related Scarcity: This type of scarcity refers to a shortage caused by popularity and high demand. In other words, the demand exceeds the product’s supply. Demand-related scarcity is often indicated through such phrases as “[#] units sold” or “only [#] left” and “nearly sold out due to high demand.” The electric bike company’s wait list would be considered demand-related scarcity.


How Consumer Behavior Is Impacted By Scarcity

Wants, needs, and desires…these are all part of human nature and are also at the core of consumer behavior. The thought that a product can be here today and gone tomorrow drives most of us nuts. It’s what makes scarcity that “invisible” factor that often affects our decision making process.


We don’t want that high-tech coffee maker to be sold out on Amazon. We don’t want our time to get that deal or special item to be limited. We might not realize it, but we start to feel a loss of control. When it comes to scarcity, the only way to regain control is to get our hands on the scarce item.


Practical Application

Of course, when applied ethically in marketing messages, meaning scarcity truly exists, scarcity can be highly effective. There are many situations that can lead to scarcity naturally, such as a supply shortage or limited-edition products. Businesses also create a sense of scarcity by through promotions or sales.


When a scarcity message, such as “buy before it is sold out again!” is added to an advertisement and it is a truthful statement, it can motivate our purchasing decisions. In other words, it encourages us to act and to do so quickly.


Scarcity messages can also help us eliminate alternatives as consumers. For example, if you are on a website and don’t know which product to buy, you will be drawn to the one that is labeled “Most Popular” or “Bestseller.” These labels act as social proof, meaning other people are buying the product so it must be good.


From a broader viewpoint, the principle of scarcity can be beneficial in many circumstances, including business negotiations, social interactions, and personal situations. You can learn more about scarcity and how to apply it in my book, The Power of Scarcity: Leveraging Urgency and Demand to Influence Customer Decisions.



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