19 January 2015

How retailers use the principle of scarcity to influence our purchasing patterns

In the run up to Christmas I found myself logging on to the website of a well-known online retailer on a daily basis.  They had a fantastic deal on for the latest must-have gift for 8 year old girls.  But curiously they had no availability, either for collection from one of their stores or for delivery.  So why would they have a special deal on, yet no availability? What was going on? It made no sense!

Or did it?  Why would retailers have a deliberate policy of heavily advertising a toy on TV, promoting it on their website, and then under-stocking it.  Thinking back a similar thing happened last year.  And the year before…

Given how sophisticated retailers are at analysing consumer behaviour, they couldn't keep making the same mistake, so this must actually be a deliberate strategy.  But why?  There doesn't seem to be any logic in promoting but not stocking the most sought-after gift.

What they are actually doing is using a very powerful influencing tool – that of scarcity.  The more difficult something is to get, the more we can end up wanting it.  We are all too familiar with more blatant versions of this tool: “Sale must end Friday!”, “Only 4 flights left at this price!”, “Limited edition available for a short time only!” and so on.  Adverts on TV implore us to buy now, before the sale ends, and despite knowing in our heart of hearts that the sale won’t end, we find the deal harder to resist when we think they might run out.

But as easy as that is to recognise and understand it doesn't fully explain what is going on when the desired product or service is not available at all.  To understand that we need to reflect on what actually happens when we find we can’t get what we really want, because it is in such short supply?  What did I do this Christmas?

In the run up to Christmas my little girl wrote her letter to Santa and on it specifically included this particular toy. To increase her chances of getting it she also “mentioned it” in passing to me, her mum, her grandparents… naturally I wanted to make sure it was under the tree on Christmas Day. Yet I couldn’t find it anywhere.  So I found something else. Something better to make up for the disappointment.  So the retailer had my money, but despite my efforts my daughter still wasn't going to get the one present she really wanted.

We’re now well into the New Year and guess what – that treasured toy is available.  January is traditionally a hard time for retailers as consumers cut back on their spending.  Hence the sales.  But this toy isn’t in the sales.  It’s at full price, and kids are spending their Christmas money on it, and parents and grandparents are falling into the trap of buying it to make up for not being able to get it for Christmas.  This principle doesn’t just apply to gifts for children (although admittedly with the added pressure from them this makes it an even more effective approach).

So the retailers have not only made the sale in December, when they were pretty much guaranteed to, but they have also managed to boost demand post-Christmas as well by cleverly manipulating the scarcity principle to ensure we continued to buy in January that which we couldn't get hold of in December.

And the beauty of it is, even when we know it’s happening, we still can’t resist the lure of that deal.  Get it while you still can!