Articles from Cass Knowledge

Wanting what we can’t (always) have – how companies are using product scarcity to drive consumer demand

Scarcity, in economics terms, can be defined as the gap between limited resources and limitless “wants”. Scarcity compels people to decide how to allocate resources in order to satisfy their basic need and as many additional wants as possible.

Scarcity typically has negative connotations. In business it may be associated with mismanagement of supply. Yet, we see that it has positive associations too. In fact, it can be a tool.

The use of scarcity to improve a product’s market performance is an increasingly used marketing strategy, and it has caught the eye of both academics and practitioners.

Psychological studies show that consumers can be influenced by scarcity. By creating a temporary product scarcity – intentionally or not – a product provider can stimulate customer interest, leading to improved market performance. The Chinese company Alibaba’s national ‘shopping carnival’, known as Singles’ Day, is a notable example of strategic scarcity in action. For this event, a wide range of products are heavily discounted for a limited period of time, with some offered only in limited quantities. It has achieved headline-making, record-breaking day sales.

Singles’ Day is just one of an increasing number of cases where companies implement marketing strategies aimed at limiting supply in order to stimulate market demand.  Another example is the annual release of new iPhones, particularly during the model's early years when long queues formed outside Apple stores. They recognise that product scarcity can influence price, product popularity, and purchasing behaviour.

Academic research on the effective use of product scarcity has been patchy, however. The paper The Use of Product Scarcity in Marketing therefore presents a systematic review of what research there is in business and management journals.

This research identifies four theories behind the use of product scarcity in marketing. These are:

  1. Commodity theory. This states that any commodity will be valued to the extent to which it is unavailable.  Product scarcity engenders the feeling of satisfaction consumers experience when they own things others do not – a measure of their uniqueness from which they derive gratification.
  2. Conformity theory. This explains how people align their beliefs and behaviours to group norms. Those consumers with a greater need for conformity value a product by the number of people buying it. Sometimes scarcity occurs simply because demand cannot be met, and this scarcity accelerates demand. The reason for this may be consumer need for conformity – consumers tend to buy a scarce product because they see that others have already purchased it. An example of this would be empty shelves in supermarkets triggering consumer purchase intentions. (It should be noted that uniqueness and conformity represent two competing consumer needs – the need to differentiate from others and the need to assimilate. Therefore, product scarcity works differently in the context of different consumer needs).
  3. Consumer desire to avoid future regret. Product scarcity can require consumers to make a choice - buy now or take the risk that the product won’t become unavailable. Therefore, the purchase is made not for a product’s utility but because the consumer is concerned they won’t be able to buy it in the future.
  4. Reactance theory. Psychological reactance occurs when people feel that their behavioural freedom (here, their freedom to choose products) is threatened. In other words, when their choice of a product becomes limited, consumers can become increasingly motivated to obtain it.  This theory can be useful in explaining demand for restricted products, such as pirated media.

These theories work individually in some scenarios, and they can also be integrated to better understand some specific examples of product scarcity. Together they constitute the foundation of scarcity strategy – also known as “Hunger Strategy” - by explaining why product scarcity can be relevant and useful to marketing. They suggest that inefficient supply can agitate consumers, causing their focus to narrow, their emotions to rise, and their cognitive processes to often become suppressed by “brain-clouding arousal”, which further influences their product evaluation and buying behaviours.

Additionally, the researchers have developed a conceptual framework that describes the key factors of product scarcity and how they influence both consumers and the market. The framework indicates that the use of product scarcity in marketing depends on a combination of consumer characteristics, types of scarcity, and types of product, which result in different impacts on consumers.

Finally, the paper suggests paths for future research to take, such as:

  • addressing the practical needs of firms in understanding product scarcity;
  • guiding the implementation of scarcity-based strategies; and
  • measuring, monitoring, and predicting the level of product scarcity and its impact during implementation.

The paper The Use of Product Scarcity in Marketing by Professor Feng Li of Cass Business School, in collaboration with Dr X Shi and P Chumnumpan, can be obtained by request at City Research Online. It has been accepted for publication in European Journal of Marketing.