What if you could make one simple tweak to your business and saw an immediate increase online sales? How would you feel?
That’s a silly question, I know. It would feel great.
In fact you would probably use it straight away. Right?
Right! Who doesn’t want to be able to increase customer desire and sales?
Before we get into the how we increase online sales, let’s get a better understanding of human behavior in order to understand how people respond to scarcity and abundance.(Photo Credit: armigeress)
Researchers Worchel, Lee and Adewole in 1975 conducted an experiment to see how people would value cookies in 2 identical glass jars. The only difference was that one jar had 10 cookies while the other had 2. The results showed that people valued the ones in the near empty jar more. It seems the scarcity of cookies had somehow affected the participants perception of value.
The result could be attributed to the possibility that people who chose cookies from the near empty jar were thinking that others know something that they didn’t and hence is the yummier choice. In reality there may be more to it.
Context is vital to increase online sales with the psychology of scarcity
Much like the above example marketers are becoming increasingly aware that context matters just as much as the product itself. The near empty jar of cookies conveys valuable information to consumers.
Joshua Bell a famous violinist decided to play a free impromptu concert in the Washington DC subway. Bell usually sells out venues like Carnegie Hall with ticket prices going for hundreds of dollars. However in the context of the subway station, people ignored one of the most gifted violinists in the world despite his free performance. Few people stopped to listen. However in the context of a music hall or theater, his music is treated like a rarefied commodity with thousands of people vying for tickets. (Photo credit)
Sendhil Mullainathan and Eldar Sharif
authors of the book Scarcity: Why Having Too Little Means So Much say that –
“Scarcity captures the mind”. It promotes tunnel vision, helping us focus on the crisis at hand but making us “less insightful, less forward-thinking, less controlled”. Wise long-term decisions and willpower require cognitive resources. Poverty leaves far less of those resources at our disposal.
Their most arresting claim is that the same effects kick in – albeit not always with such grave implications – in any conditions of scarcity, not just lack of money. Chronically busy people, suffering from a scarcity of time, also demonstrate impaired abilities and make self-defeating choices, such as unproductive multi-tasking or neglecting family for work. Lonely people, suffering from a scarcity of social contact, become hyper-focused on their loneliness, prompting behaviours that render it worse. In one sense, Mullainathan and Shafir concede, scarcity is so ubiquitous as to be almost meaningless. But the feeling of scarcity – of not having as much of something as you believe you need – is something more specific and agonising. To use the authors’ favourite metaphor, life under such conditions is like packing a tiny suitcase for a trip. It entails a ceaseless focus on difficult trade-offs: the umbrella or the extra sweater?
(Source)
So how can the principle of scarcity be used to increase online sales in a business context?
Simply by creating an environment that promotes temporary tunnel vision. As humans we generally attribute the following emotions and narrow time frames when we encounter scarcity:
- Hate missed opportunities
- Give more value to things that are rare or things we cannot have
- Love having control over circumstances
- Love instant gratification or having things happen now
- Examples of companies applying the psychology of scarcity
While Facebook is used by over a billion people today, in the early days the founder of Facebook, according to this video intended to keep the service available to college kids alone. While the scarcity strategy may not have been intentional it did work in helping increase the appeal of having and using a Facebook account in the early days.
Threadless incorporates scarcity in its live stock indicator which runs under each size available. In fact the company is known to produce just enough of its limited runs of products available so as not leave regular customers disappointed but gives plenty of warning if a t-shirt is selling fast.
Threadless does a great job of trying to keep frustration and disappointment out of its scarcity marketing by providing so much choice that it would be hard not to find something that appealed to your tastes and to email (those who sign up for the service) people as soon as a t-shirt they missed out on is back in production.
Quibb founded by Sandi MacPherson is also another example of a company that has applied the scarcity heuristic quite effectively. Quibb is an online discussion board that is frequently visited by a select number of technology professionals and entrepreneurs. Sandi MacPherson decides who gets access and who doesn’t. It is the exclusive nature of this community that appeals to people. It is a community that was designed to filter out the noise in open communities like Reddit and Hacker News whilst allowing people of noteworthy reputations to communicate with each other. The scarcity of the invites is a virtue of the service.
Scarcity can go wrong for businesses
The above are examples of the scarcity heuristic applied to increase customer desire and in turn increase onlines sales and signups. However if the psychology of scarcity is applied incorrectly it can go horribly wrong.
Mailbox and Tempo are 2 examples of just this. Both companies produced iOS apps that are productivity related and released the apps to a small group of users. However if you weren’t at the front of the line then you had to wait indefinitely before you could