270. Scarcity: Why Does Less Available Feel More Valuable? (Refreshed Episode)

Welcome to episode 270 of the Brainy Business Understanding the Psychology of why People Buy Today's episode is all about Scarcity. Ready? Let's get started.

You are listening to the Brainy Business Podcast, where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now, here's your host, Melina Palmer.

Hello. Hello everyone. My name is Melina Palmer and I want to welcome you to the Brainy Business Podcast. Today's episode is all about scarcity. This is a term you're likely familiar with, but I'm willing to bet you aren't using it in all the ways it can be leveraged in your life and business. The term gets thrown around a lot, and people know some of how it works, but the nuance is so, so, so much more than you can imagine. This refreshed episode, which originally aired in the fall of 2018, will introduce you to the depth that this topic can have to set you up for this Friday's episode with Dr. Mindy Weinstein, author of the book the Power of Scarcity, which will absolutely blow your mind. It's so good, and there's so much depth and nuance on scarcity in a way that I've never heard anyone else talk about it. We of course can't get into all of it in the episode, so you definitely want to pick up your copy of the Power of Scarcity. There's a link in the show Notes for this episode and that one to make it easy for you. And definitely subscribe to the Brainy Business Podcast if you haven't already, so you can be sure to get that when it comes out immediately because you don't want to miss this one. In today's Show Notes, you'll also find your free Scarcity worksheet and links to past episodes and books and articles, many of which hadn't come out when the original episode aired because, like I said, it was very early on in the podcast's life. Those are all found in the app you're listening to and atthe brainy business.com 270 all right, let's talk about scarcity. In traditional economics, scarcity occurs when an item has limited availability but unlimited desire for that item. This can include natural resources like oil and water, or more abstract concepts like time. Time is a very scarce resource we all wish we had more of, and while scarcity exists in every resource in some way or another, nothing is truly unlimited. What happens when we know something is scarce? That's where behavioral economics steps in. Studies have proven that we see things as more valuable when they're less readily available. One study showed an advertisement for the exact same watch with two different descriptions. One said new edition, many items in stock and the other said exclusive limited edition. Hurry. Limited stocks. What do you think happened? People were willing to pay 50% more on average when the advertising said the watch was scarce, an exclusive limited edition with limited stock than when there were many in stock. Remember, the watch is exactly the same in both cases. This is not the first time I've mentioned scarcity on the podcast. I talked about it in episode 8 what is value? When I told you the ridiculous and I wish it wasn't true. Story of someone paying $75,000 for William Shatner's kidney stone on ebay still creeps me out. And what about stamps? Even with regular price increases, they're still worth less than 50 cents a piece of unless they're printed with errors. Did you know the most valuable stamp in the world, the British Guiana, is valued at 11 and a half million dollars? Why so expensive? It was a limited run and is the only one known to be in existence. But sorry, if you collect stamps, who cares? It's still just a piece of paper. What about the first silver dollar printed and issued by the US government? It's called the flowing hair silver and copper dollar and it sold for $10 million at auction. It was printed in 1794 or 1795 and was the first issued after the Federal Mint was established. What about the ones the next year? Looks like the 1796 drape bust dollar is valued at just $794, which is still a lot considering it's a $1 coin unless it's in certified Mint state where it could be worth as much as $60,000. Again, the range on this coin, depending on its condition of how dirty or shiny it is, is from $800 to as much as 60,000. And if it had the luck of being pressed just a few weeks or months before, it could have been worth as much as $10 million. Again, for a $1 coin, scarcity and value are closely tied together and for some reason our crazy brains think less equals more. In this case, scarcity also triggers loss aversion, which I've talked about a lot. We have a whole episode dedicated to that Episode nine, that first Behavioral Economics Foundations episode, so I'm not going to get into it too much. But when something is scarce, it triggers our loss aversion because we don't want to miss out on the opportunity. If you have not yet listened to the episode on loss aversion, I recommend checking it out. I'm not going to dig into loss aversion very much here, but as I talked about in that episode, avoiding a loss is a huge motivator for humans. Double the joy felt by a gain when combined with scarcity. That fear of regret, which will have its own episode soon, combined with an aversion to losses is a powerful motivator of action. There are tons of examples of scarcity out there, and I'm going to give some examples of big brands using this regularly to help you find ways to apply the concept in your own business. First, I have to start with Costco. If you have a membership to Costco, you likely buy all sorts of things from them and they promote stocking up on your favorite items. Not just because they're available in bulk, but because they might not be there if you come back tomorrow. This is a scarcity mindset. If you own a retail store, it might be hard to think about copying this. Can you imagine a customer comes in and asks for something they saw and wanted yesterday or an hour ago and you say sorry, we're all sold out. Things go really fast around here. And then you don't move heaven and earth to find the item for them or make a new one because it's gone and you know that eventually they will learn just like everyone else. Of course customer service still matters. You should be helpful and friendly. But scarcity can only take effect when items are truly limited, meaning not everyone gets one. One thing Costco has that really complements their scarcity model is a fantastic return policy. This makes it so people are not scared to buy a few extra items and hope they will like them because they know they can always bring them back if it doesn't work out and they're better safe than sorry. And as I mentioned when I talked about satisfaction and money back guarantees in the It's not about the Cookie series, most people do not end up returning items or or taking advantage of those guarantees or mail in rebates. So the benefit is worth the risk for stores like Costco. And they could be for you as well if you combine this awesome return policy scarcity opportunity. Now onto one of my favorite big brands to showcase Starbucks. You might be thinking Starbucks, Starbucks. They have the same drinks everywhere every day. I can get my iced chai in the winter or the summer. If that was your response. I have three letters for you. P S L. If you are a fanatic, you know what this means and are likely celebrating the return of PSL already as it's in season, so to say, a season that seems to get longer and longer every year. But for those of you who are not huge fans, PSL stands for the Pumpkin Spice Latte, a drink made famous by Starbucks, which is now imitated in all sorts of brands from coffee creamers and pies and all sorts of things. I don't know. And even though it's hugely popular, it's only available a few few months of the year. I think it used to only be available for the month of October, maybe into November. Now it comes out as early as September 1st. You know, I'm not sure. I'm not a fan of pumpkin spice, which I know will likely shock many since I am such a fan of its spice flavors in the Chai Tea latte, I just don't get pumpkin as a liquid consumable. I'm sorry, I also can't bring myself to try the Eggnog latte, which is another seasonal item at Starbucks. If you like it, let me know on social, tell me that I'm I'm crazy and I should give it a try. Scarce items can take on a life of their own did you know the real PSL has 110,000 followers on Twitter? Yes, you can check out the Twitter handle at the real PSL on Twitter and the accounts post from August 28th of this year saying quote signing on just to say I'm back, let's catch up. In Real Life had 2300 likes, 654 retweets, and 88 replies. Have you ever had a post with that much interaction on it? Frappuccino also has its own Twitter account with 190,000 followers, which shows the power of a brand, but that will be the topic of another episode. Scarcity can create cult followings, which means other people do the marketing for you. They get excited and talk and spread the word on your behalf, making the brand bigger than anything you could do on your own. Word of mouth is a powerful thing and scarcity can be a big driver of it. Consider another Starbucks invention that took the world by storm when it was announced about, I guess now, 18 months ago. The Unicorn Frappuccino. Unlike many scarce items at Starbucks, which are usually available for a month or so, the Unicorn Frappe was only going to be in stores for five days, but sold out in many locations in less than 2. Did Starbucks do a ton of promotion around the upcoming item? A. No. A quick scroll back shows one tweet on the Starbucks account, one from Frappuccino, and a single press release on the Starbucks website saying the unicorn was available. And all those were on the day it came out, which was April 19th of 2017. Apparently the unicorn Frappuccino announcement was leaked a week or so in advance and basically broke the Internet. Starbucks has a legacy of scarce items driving traffic into its stores, including the red cups, which only come out at the holidays and are disposable, I might add. But they get people across the globe jumping to be the first to post a coveted red cup selfie online each and every year. This is also extended to items they sell in stores. A venti sized reusable cup with with a straw. This last holiday season came out with rose gold sequins and sold out almost immediately. People went crazy for it and it still can be seen for nearly $100 on Amazon and ebay. Not to brag, but my hubs got me one of these at retail, of course, for Christmas last year and I love it, though I would not have paid $100 for it. So, speaking of rose gold insanity, did you know that they came out with rose gold mini ears at Disneyland this year? Those two were selling on the secondary market for astronomical amounts and the stores in downtown Disney could not keep them on the shelves. They had a limit of 10 pairs per person to be able to buy them because they were so popular. And apparently someone would tweet about it in the morning when they saw the trucks being unloaded and they sold out almost instantly. Apparently I'm the luckiest sparkle rose gold lover in the world because my hubby also found these for me, also at retail price when we took the kids to Disney earlier this year. I am sharing a picture of myself enjoying my rose gold spoils on social media for you your enjoyment. So you can see how beautiful these sequined items items actually are. These examples from Starbucks and Disney are a combination of scarcity and availability, which is going to be the topic of next week's episode. That's essentially capitalizing on something popular and becoming part of the craze. Rose gold is hot right now, but it goes in and out of fashion. Unicorns rocking the Internet. But not every attempt is a winner, and that's okay. If you're going to take a shot at incorporating scarcity, know that not everything will cause an uproar of epic proportions. Sometimes there will be duds. Starbucks has had a lot of other special frappuccinos, including the Crystal Ball, which came out earlier this year. And was really not exciting to people. Definitely not the same as the unicorn of the year before, but they have a lot of winners and it's about that search for that thing that's gonna be able to fuel its own fire and your overall brand that people are just gonna latch onto and go crazy over when it's scarce. And remember, it doesn't need to be anything super expensive either. Starbucks's red paper cups probably don't cost them that much more to make than the white ones, but people love them and if they were available year round they would not have the same appeal Scarcity matters. And yes, you can use scarcity even if you do not sell physical products. In some industries, like real estate, scarcity is implied. After all, at the end of the day, every house is unique. However, it's good to have a reminder for people to ensure their subconscious brain understands the skill, scarcity and the need to act quickly. There are some words you can use to help trigger scarcity in the brain of your consumer. I'm going to list them here for you now, but they're also on the free worksheet. Here is the not exhaustive list Limited time, extended, custom, handcrafted, one of a kind, closeout sales or everything must go and last chance. These terms can be added to more than just products, but services as well. Remember from earlier in the episode, time is a very valuable commodity and you have a limited amount of yours to give. Instead of saying you are I'm very busy, but I'll work to squeeze someone in. There's often value in holding firm on hours. Think of a doctor's office or massage therapist or dentist. When their time is booked, it's booked, even if you have to book two or three months out. If you say instead to your clients, I have one spot available on my calendar next week, would you like to book that? Now the mind starts to get a little scared and doesn't want to lose the new opportunity. Especially make sure. Just like we talked about last Week on episode 13 about mindset, you need to say it with confidence. If you're waffling or it doesn't sound like you're quite sure that maybe you'll make an exception, it's not going to have the same effect. So you have to be firm in saying that that's the only spot that's available or whatever it is. And if you do a promotion or discount, make sure it's short term and remind people when it ends. Similarly, you can limit the quantity available if you're selling tickets to a workshop or a class for example. Set a limit and stick with it. Let people know that is all there is and once they're gone, they're gone. When's the last time you booked a flight online? Have you noticed their messaging that says hurry, only two tickets left at this price. That's scarcity in action and the same thing I'm recommending for you in your service based business. If you do not sell a product yourself, you can still use Scarcity by putting on a contest. As with anything, the important thing is to know what the goal is. What do you gain from it? Are you looking for a social media following word of mouth email addresses? Be clear that you know the intent before you go through the process of setting up a contest. When I ran the marketing department at Verity, which is a highly regulated financial institution, I still found ways to use Scarcity. We gave away gift cards for a night out on social media to promote our credit card with dining rewards and gain followers. We gave away $100 every day for a month through random drawings for people who opened accounts during a new member promotion. We gave away $5,000 via random drawing for people who applied for home equity line of credit during a specified time and many more. Now here's my disclaimer. Of course, everything we did complied with gambling laws. Check the laws in your own state before you go down any sort of contest path. These can work really well for you, but there are a lot of rules and you need to make sure that you play the game okay. There are so many examples of scarcity it would be impossible to capture them all today. However, I chose this time of year for this episode for a reason. The holidays are full of scarcity examples. As I mentioned earlier, there are special holiday editions of treats including pumpkin spice, eggnog and gingerbread lattes. At Starbucks. Retail is put on promotions. Black Friday is full of scarcity examples. Lots of special offers that get people excited to come into the stores, and the big toy of the season changes from year to year, but the tactics are pretty much always the same, whether it's Cabbage Patch Doll, Furby, Nintendo, or Tickle Me Elmo. Back in 1996, when the world went crazy for Elmo, it was said that the laughing dolls were going for as much as $1,500 on the resale market because there weren't any available in stores. Look around and see just how often this is used and you will be amazed. And also check to see which offers seem enticing and which seem off putting. It's easy to sound like a cheesy infomercial when you're using scarcity. So take a step back and don't get too over the top. Think exclusivity rather than cheesy sales tactic. And speaking of using scarcity in an exclusive fashion, I want to end this episode with an example of probably the most widespread example of scarcity in the world. Have you ever bought, received, coveted, or worn a diamond engagement ring? I'm guessing about 99% of the audience is saying yes to that question. Did you know that diamonds are not really all that rare? Or that diamond engagement rings, especially with large, spectacular center stones, were not popular until the early 1940s? Or that the slogan of A diamond is forever was essentially created to ensure people would never try to resell their diamonds but hold on to them forever and not disrupt the market? I have linked to a fascinating article from a 1982 issue of the Atlantic in the Show Notes, which outlines the this whole story. I'll talk about it a lot more next week because it's about availability even more than scarcity. But these two concepts worked together to make diamonds what they are today. Very much like how relativity and anchoring and adjustment work together. Scarcity and availability are another peanut butter and jelly sort of concept grouping. And in case you haven't listened and Anchoring and Adjustment and relativity were episodes 11 and 12 on the podcast. You should check those out there in the Show Notes. I'm going to read for you the first paragraph of that article as it just really sets the stage. It makes it so obvious how this works, it's crazy. Okay, the Diamond Invention As a side note, notice they call this the diamond invention. Whoa. Okay, the Diamond Invention the creation of the idea that diamonds are rare and valuable and are essential signs of esteem is a relatively recent development in the history of the diamond trade. Until the late 19th century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil and the entire world, production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange river in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered. Diamonds had little intrinsic value, and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become, at best, only semi precious gems. The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds. The instrument they created in 1888 was called De Beers Consolidated Mines Ltd. Incorporated in South Africa. And yes, they mean that De Beers over the next hundred years, De Beers owned and controlled over 90% of the world's diamonds. Through a carefully crafted mix of controlling price, available inventory and strategic advertising, they completely changed the world. It's an amazing story and many of the tactics used would not be tolerated today. However, they the lesson remains scarcity is a tactic that works, especially when combined with availability, which as I said, I will dig into next week and if you read the article before then, awesome. As a side note, it's quite lengthy but definitely worth it in my opinion. However, if you don't want to take that time, just tune into next week's episode and I'll give a lot more details on what they did and why it worked. Based on what we know today about the subconscious brain and how it makes buying decisions. Essentially on the scarcity piece, they were able to realize very quickly that if there were so many diamonds available, they wouldn't have any value to them. Again, think back to the episode on value, which I did a few weeks back. So if there's not enough value, they need to control the supply supply that's available to keep demand high. We're getting back into basic economic theory here. So they were able to hold back. So if they had a year where there were a ton of diamonds that came out of the mines, they didn't necessarily leak them all into the market. They would hold them back for times when they needed that supply and then let it out. But over time, after this article came out several years later, then the the diamond market has really shifted in that other players have come into the mix and this, this recap from the Atlantic goes into other countries discovering diamonds and De Beers trying to buy them out from Russia and Australia and Israel and it's really just a fascinating story. But all the lengths they went to to make sure that they were able to protect the investment that they had and keeping their not scarce resource looking as though it was actually scarce. So what got your brain buzzing as you learned about scarcity today? For me, I really like concepts that have more to them than what they seem where if you care enough to dig a little deeper and keep learning, which I know you do, since you're here, you can make some slight tweaks or be a little more intentional than your competition and see huge results. As I've said already, scarcity is one of those concepts we all know, but few of us really know you know. And hopefully this episode gave you some insights into the depth of Scarcity. But trust me, we're barely scratching the surface in preparation of what is to come with Dr. Mindy Weinstein Dean when she's here this coming Friday in episode 271 to share about her work and the book the Power of Scarcity. In the meantime, if you're wanting to dig deeper on scarcity and already have your copy of what your customer wants and can't tell you, go ahead and flip to chapter 10 to read a little more about this concept and how it applies in business. There's a link to both our books as well as your free Scarcity worksheet and related past episodes like my conversation with Dr. Bob Cialdini about his book Influence, all waiting for you in the show notes@the brainybusiness.com 270 and just like that, episode 270 on scarcity is done. Join me Friday for a brand new episode with Dr. Mindy Weinstein to talk about the power of Scarcity. It's going to be a lot of of fun. You don't want to miss it. Until then, thanks again for listening and learning with me, and remember to be thoughtful.

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