Businesses implement scarcity tactics to manipulate human behavior.
Have you ever bought something you didn’t need just because it was on sale? Did you ever fight with your siblings because your parents bought them something you didn’t have? Have you ever done something that other people told you not to do? We’ve all been there. What you may not know is that the concept of scarcity was at play in all the above instances. Let me show you how this works and how you can apply the same principles to your business.
What is Scarcity?
To put simply, scarcity is the condition of having insufficient resources to cope with demand. When we are faced with limited resources, we strive to make effective use of them in the process of making important decisions.
The way to love anything is to realize that it might be lost.
— G. K. CHESTERTON
So how does it affect me?
Scarcity increases our focus of attention to the problem at hand, by increasing cognitive processing of relevant information to make effective usage of resources and stabilize the value perception. But it can cause myopic and impulsive behavior, focusing on short-term over long-term gains. It weakens cognitive function which can lead to substandard decision making.
Psychological Reactance Theory:
‘Reactance is unpleasant motivational arousal that emerges when people experience a threat to or loss of their free behaviors’. (Steindl et al, 2015)
So, when a product or service which is generally easily available becomes scarce, this perceived ‘threat’ to our freedom to have it makes us crave it significantly more than before.
When we see something which we want to become less available, we get physical anxiety. This is worse when there is direct competition. The focus narrows and emotions rise making it difficult to feel calm. Opportunities appear more valuable to us when availability is limited.
The idea of potential loss plays a significant role in human decision making. People seem to be more motivated by the thought of losing something than by the thought of gaining something of equal value. We prefer avoiding a loss than pursuing gains. The FOMO(Fear of Missing Out) is directly associated with this.
GoPetplan.com tries to convince the user to buy a one-time cat insurance policy instead of paying multiple expensive bills showcased.
In a study on how to apply loss aversion to health campaigns, pamphlets urging young women to check for breast cancer through self-examinations are significantly more successful if they state their case in terms of what might be lost (e.g., “There is potentially a lot to be ‘lost’ by failing to spend just five minutes each month carrying out self-examination”) rather than what might be gained (e.g., “There is potentially a lot to be gained by spending just five minutes each month carrying out self-examination”).
Another unpleasant emotional state that may influence our buying choices is anticipated regret. In other words, the feeling we experience when we imagine what it would be like if the decision we are currently making is the wrong one.
Strategies that companies use to influence consumers’ decisions:
In time-limited offers, the user needs to decide before a set deadline- this adds a sense of urgency to the decision-making process.
The most common real-life scenario is waiting until the last minute to complete projects/study for exams. In such cases, focus and attention levels increase and so does prioritizing.
Flipkart indicates the count-down timer showing when the discounted price ends, which influences the user to grab the product deal before it expires.
Coupon expiry dates, Prime day sales, Big billion days.
This is considered more powerful than time-limited scarcity, as availability depends on popularity or supply and is therefore unpredictable.
This can be of the following types:
(a) Limited Supply:
Items with limited supply are valued and desired more.
Oil prices soar in countries like India due to limited supply, whereas the opposite is true in countries like Kuwait, Saudi due to availability.
Amazon showcases “only 2 left in stock”, representing a product’s diminishing availability thus influencing the user to make the decision quickly.
The popularity of an item represents the social proof that it must be good and valuable and triggers us to grab the deal.
Worchel, Lee, and Adewole (1975) asked people to rate chocolate chip cookies. They put 10 cookies in one jar and two of the same cookies in another jar. The cookies from the two-cookie jar received higher ratings — even though the cookies were the same! Not only that but if there were a lot of cookies in the jar, then a short time later most of the cookies were gone, the cookies that were left received an even higher rating than the cookies that were in the jar where the number of cookies didn’t change. [From Neuro Web Design by Susan Weinschenck.]
Myntra is used to showcase “18 people added this item to their cart” in their product page which informs the user that the product they are viewing is popular and might get over soon.
(C) Limited Supply and Popularity:
This is more effective than the above two. Not only do we desire an item when it is scarce, but we also want it, even more, when we have to compete for it.
Stamps and antique pieces are quite valuable because they are unique and cannot be easily supplied. People then outbid each other to possess the item which makes the value of the item increase significantly.
Similarly, movies will get auctioned for digital streaming and satellite rights by multiple companies outbidding each other, paying hefty amounts to acquire the rights.
Booking.com showcasing “only 6 rooms left” along with “6 people are looking at this moment”.
When access to certain information is limited, it is perceived as having higher value because of exclusivity, especially when it’s bound to social status.
Priority pass membership provides access to special airport lounges which include free complimentary food, alcohol, Wi-fi, and discounts on shopping.
One Plus implemented an invite-only sales strategy which helped them create a great buzz in the market. People ‘lucky enough’ to be invited felt more privileged. This resulted in over 25 million visits to the site and close to a million sales in less than a year after launch.
Richman’s International Millionaires Club, VIP passes and clubs
4.Ban or Censorship:
When anything interferes with our prior access to some item, we desire it more and want to have even more than before.
The ‘Romeo and Juliet’ effect highlights that the greater the parental disapproval of a relationship is, the more that relationship intensifies.
The UK high court ordered its ISPs to block the pirate bay website but paradoxically this resulted in a record amount of unique visitors traffic.
5.One-of-a-kind Special Events:
‘Now or never’ scenarios. We seek to experience ‘once in a lifetime opportunities’, because of their unavailability later on.
Reliance Jio provided great introductory offers in India at the time of its launch which attracted a lot of customers.
In Kanchipuram, the idol of Aththi Varadar is available for darshan once every 40 years for only a few days. Lakhs of devotees visit the temple to experience this once in a lifetime opportunity.
Amazon celebrated its 5th Anniversary in India by providing a good amount of cashback to customers on spending a minimum amount.
The joy is not in experiencing a scarce commodity but in possessing it.
Cool, but what happens when we are presented by multiple scarce items?
Rebecca Ratner and Meng Zhu researched how scarcity affects choice when multiple consumer products are displayed at once. They found a clear pattern that scarcity polarizes preference. “When people perceive a bunch of items to be scarce, they choose relatively more of their favorite item,” Ratner says. “They become less exploratory. They focus on their leading option.” When this is the case, customers rank their favorite items higher.
How about fake scarcity?
Fake scarcity refers to manufacturing scarcity when there isn’t a shortage. For example, businesses regularly run sales campaigns claiming that it runs for a limited time only. When people notice this pattern, companies lose credibility and risk losing business.
How to deal:
- E-commerce sites deal with this by providing discounts on selected categories for a sale and other categories for a different sale, thus running sales frequently.
- We can also deal with this by adding a product with another product which the user intended to buy and offer it for a limited period.
Many companies use psychological manipulation to entice users and influence their decision to maximize profit. Understanding how scarcity works allow us to be aware of such tactics and be prepared as consumers.
What type of other human behavior have you observed around you? I would love to hear all about them in the responses. Thanks for reading! If you found this article helpful, send some 👏👏👏 to help others find it too! This will tell me to write more of it!
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