The Logic of Scarcity: How Entrepreneurs Can Use It For Success
In one of the previous post, we had shared how human beings lose their logic when it comes to encountering scarcity as an effective persuasive strategy. We had shared the famous cookie jar experiment to highlight the unique way our brains are wired to acknowledge and appreciate anything which is available in a limited quantity.
Now, let us understand the logic of scarcity; and gauge the effectiveness of this persuasion technique with respect to the entrepreneur who is trying to sell his product or service to a larger audience.
Social scientists have concluded that scarcity technique works because of two major reasons: Familiarity and Freedom.
Familiar = Easy = Safe
Human beings love to uncomplicated things, and make lives easier. The invention of almost all major consumer products in the last century such as toaster, gas stove, AC, cars, calculator, computers etc have been invented to mechanize our physical activities, and create an environment wherein we are required to diminish the usage of our brains .
Earlier, we invented fire and wheel for the same purpose: to enable ourselves more comfortable conditions and less danger while deriving maximum output.
And the quest continues.
Hence, in a way, we have a weakness for shortcuts. We will venture out anywhere which promises us less work, and more shortcuts. This is the reason we categorize new information as soon as they hit us. By categorizing new information, we perform less brain work when that information is required next time. Instead of re-filling our brains with new information, we simply select the category under which the information is placed in our minds, and retrieve it accordingly.
The power behind scarcity comes from this love of shortcuts and less work.
As a result of the thousands of years of evolution and preference for shortcuts, our brains are now wired to accept one fact by default: Things which are difficult to possess are typically better than those which are easy to possess. This has made us believe that the availability of any time is directly proportional to it’s effectiveness.
This whole process of categorization of information is now available inside every human being’s DNA and this is used freely as well, without any extra effort.
Hence, if a new company suddenly arrives today, and announces that a product they are offering is only ‘available for a limited’ time, our minds automatically categories under that special quote where scarce products means good products.
The notion sounds ‘familiar’ to our brains, and the action which we subsequently take (to purchase in most of the cases), sounds ‘familiar’ and ‘safe’ to us.
This is the vulnerability which smart marketers and entrepreneurs adapt to sell a product, easily, using the scarcity theory.
Freedom of Choice = 1st Priority
The second most powerful reason human beings are persuaded by the scarcity tactics is freedom.
Basically, human beings are a free animal; we tend to cringe and protest when our freedom is challenged, and consciously as well as sub-consciously, we fight the resistance to our freedom. Introducing scarcity and making a product available for a short duration of time threatens our freedom in an unprecedented way. And we resist that scarcity by going for the restricted item in an even faster manner. (source: Psychologist Jack Brehm’s experiment, titled Psychological Reactance)
Let us understand this psychological phenomenon using the Xiaomi example we had shared in the last post.
As we all know, mobile phones and other products are easily available on thousands of ecommerce portals. And this is the freedom I was talking about. We have the freedom to open any portal, choose any product, order it and get it delivered.
Now, all of a sudden, a company announces a mobile phone which is ‘only’ available on one website, that too for a limited amount of time. All of a sudden, our natural freedom is threatened, and we feel vulnerable. We feel unsafe, and exposed: Our minds go overdrive to achieve that freedom back; and what is the best way to claim that lost freedom?
Yes, you guessed it right: By purchasing that item, and if unsuccessful, then retrying it until that product is bought.
Marketing managers and entrepreneurs can’t thank enough to this scarcity principle to work wonders on their sales volume!
Practical Case Studies of Scarcity Logic In Everyday Life
The entrepreneur who is pursuing a dream of selling something which he believes in, can relate to scarcity theory to increase their business. Here are some practical case studies of scarcity in our daily life, which will help the entrepreneur to get a better understanding of this persuasion technique:
Restless 2 Year old Child
Child psychologists all over the world describe this problem as “The Terrible Twos”: wherein a child who has just completed two years and entered into the third year displays unprecedented instances of resistance to authority and control. Parents observe that they tell a child to pick up one toy, and he picks the other; the parents ask the child to eat one food, and he throws it and picks the other. The first time parents are actually baffled by this strange behavior of their child, which was not visible earlier.
What makes the 2 year old kid to behave irrationally?
The answer is threat to freedom, which translates to the practical implementation of scarcity.
The two year child has just discovered its unique presence in the world, and is aware of its individuality. They view themselves as independent, singular and separate from the social structure of which he was part till now. In other words, the two year child has experienced freedom, and hence he views every control imposed on his as a threat to his freedom.
He tries to wriggle out of this control, and by doing the exact opposite of what his parents are attempting him to do, he is working as per the thousands of years of brain wiring, and trying to achieve the freedom.
The same principle of freedom and familiarity applies to rebellious teenagers as well, who have suddenly discovered their individuality. Teenage is a period wherein the child is emerging into adulthood, and is aware of its rights and duties. Imposing parental controls on such rebel teens has proven to be waste of energy, as they don’t seem to understand logic at this point of time.
The principles of scarcity works here as well, as the teenager is looking to get that freedom and familiarity of his own individual thinking and actions, which lead him to go against the society’s wishes.
Teenage love, for instance is another example of the transformation which undergoes mentally and physically. If the teenager finds that the society is resisting the love exhibited by him, then the resolve for the love grows even stronger.
Subconsciously, the teenager is trying to claim his freedom (from parental control and rules of the society) and seeking familiarity (of his love, of his emotions and feelings). (On a side note, studies have shown that in case where parents agree to such teenage love, 2 out of 5 cases the love dies naturally as teenagers doesn’t understand the difference between love and infatuation. The topic of love, of course, will not be discussed here!)
Persuasion techniques using scarcity works very close to these two examples: By offering a product or a service for a limited time, the mind of the consumer works exactly the same way and work against the logic to fulfil his needs of freedom and familiarity.
Scarcity technique of persuasion works because we tend to forget logic and rely on our emotional outburst, which literally makes us highly motivated to satisfy our demands of freedom and familiarity.
As shared earlier, there can be both noble and wicked ways to use this persuasion technique; but one thing which I would like to remind again: A successful business transaction is the one which benefits both the parties, and both the seller and the buyer end up on the winning side.
In the next chapters, we will study more such persuasion methods and strategies, which can help you to conquer the minds. Keep reading!