Supply and demand : these principles are the cornerstone of the free market. At the most basic level it’s not all that hard to understand, but when you’re a business owner navigating the ups and downs of the marketplace it can be a rough ride. In this piece I want to talk about how understanding how scarcity-that is, high demand coupled with a low supply-can work in your favour, and how not to allow scarcity to harm your business.
Scarcity can happen by accident or by choice.
Have you ever gone to a restaurant the first weekend after a five-star review came out? It can be a stressful experience! Usually the place hasn’t had time to prepare by ordering more stock and putting on extra staff in anticipation of the stampede of eager diners. Menu items run out, waiters get confused and flustered; meanwhile people are waiting in the lobby, giving your table dirty looks to try and intimidate you into eating faster.
Sometimes these things can’t be helped. Wouldn’t all owners love to suffer the consequences of a glowing review? Not always.
On the other hand, businesses will often deliberately make products or services scarce. Why?
- Scarcity creates a buzz. Creating high-profile demand for a new product is in itself a kind of marketing. Hollywood will sometimes release a film strategically this way, opening it in a small number of theatres to generate word of mouth. People lining up for hours on end for, say, the new Harry Potter book are like ambassadors for the product, attracting media attention and spreading awareness of it exponentially.
- Scarcity in itself can stimulate demand. Remember, years ago, all the publicity surrounding the Tickle-Me-Elmo doll? Christmas-shopping parents were practically rioting in toy stores because the doll was sold out everywhere. They didn’t want to see their children, who do not understand the laws of supply and demand, cry on Christmas morning.
- Scarcity can, in its own way, generate and intensify customer loyalty . The people who are willing to stand in line (even camp out in line overnight) to make sure they get the newest and hottest video game console are the kind of customers any business wants.
So, you can use scarcity, carefully limiting the supply of your product to generate interest and raising your product’s profile in the public. In many instances, if done ‘right’ you can also raise your prices. However, I do advise that you always over deliver on any product or service you design with creating "scarcity marketing campaign" which will produce long lasting results and only increase the value of what it is you do even more.
The key to doing this successfully is to appropriately manage the way your limited resource is distributed to your customers. It is crucial that you don’t alienate existing, loyal, repeat customers by making them wait in line with the rest of the masses! Not all customers are created equal, and your high-value customers should not miss out on acquiring your new product just because everyone else wants it. Be sure you award your biggest fans and early adopters with tons of extras that the masses just will not get. This in itself will only make your ‘mavericks’ spread the word even more about your business.
You can use the internet to allow VIP customers to pre-order and bypass the queue.
You have their contact information, right? If not you need to re-design your marketing and database collecting. You MUST always have all your best clients contact info on file at all times and constantly have a on-going communication with them.
Sending a notice to your VIPs offering them this opportunity will enhance their loyalty to you, while the demand created by scarcity will attract new customers. It’s the same way a successful nightclub operates: reward the regulars by allowing them to bypass the line, while making sure there’s always a line-up there so that the passers-by know that this is the hot place to be.
Artfully controlling the supply of your product to generate demand is difficult. If you try it, taking care of the people who matter most, your repeat and higher-spending customers, should be your number one priority.