The two sides of the scarcity effect

The two sides of the scarcity effect

The concept of scarcity has been used a lot in the behavioral economics and marketing worlds, especially since the release of the book Scarcity in 2013.

Yet there are two sides to this same term that describe different behaviors and reactions.

I feel it’s important to know these two different sides, so we don’t mix them up in our own work.

What is scarcity?

Scarcity (noun): is the state of being scarce or in short supply. With synonyms being shortage, lack, want, insufficiency, etc.

Bottom line, scarcity means there’s not enough of something.

However, the field of behavioral economics has two separate definitions of scarcity that will bring us to the meat of this topic.

Scarcity (the heuristic): When an object or resource is less readily available (e.g., due to limited quality or time), we tend to perceive it as more valuable (Cialdini, 2008).

Scarcity (the psychology of): People have a “mental bandwidth”, or brainpower, made up of attention, cognition, and self-control which may become reduced or depleted, thereby making it harder to solve problems, reason, or retain information (Mullainathan & Sharif, 2013).

Both definitions center around there not being enough of something.

But in one instance it makes the resource more valuable (meaning it drives demand) and in another it becomes an obstacle to taking action.

WHAT?! They do opposite things?!?!?!

That’s basically what I’m saying. Which is why it’s important to know when and how to use this concept.

Let’s have a closer look at how scarcity can drive demand or can be an obstacle to change.

Scarcity to drive demand

This is a popular, and very effective, marketing method to create a sense of urgency and demand for something that is limited in quantity or has a deadline.

You have absolutely seen this in your daily life, even if you didn’t realize they were using the scarcity effect on you.

  • Have you ever been booking a plane ticket or hotel room and the website tells you that other people are looking at that same room, or 3 other people have already started to book it (oh no!), or that there’s only 1 plane seat left at this price (GASP!). Well, that’s scarcity.
  • Have you ever shopped on a site that only lets your selected items remain in your cart for 15 minutes before it goes back “on the shelf”? That’s scarcity too.
  • Have you ever waited until the last minute to register for an online course or sign-up for a special deal that was going to eventually close forever, but you do it because that digital clock keeps ticking down?? Yup, that’s scarcity.
  • Have you ever shopped at TJ Maxx or Homegood’s food section and just had to get that one bottle of fancy maple syrup because it seemed to be the very last one on the shelf?? Well, that’s no accident – there are scarcity masters stocking those shelves.

Scarcity in these examples work because it taps into our desire to not miss out on something we want (FOMO) and to not lose something we have at the tip of our fingers (loss aversion).

And it’s a solid technique to consider for your own efforts. For example, you could use this scarcity effect to:

  • Drive last minute donations before time runs out.
  • Sell limited, exclusive access to certain events or for certain items/experiences (VIP experiences and silent auctions are popular for this reason).
  • Offer limited time discounts or matches to increase purchases, sign-ups, or donations.
  • Offer items, experiences, courses only during select times of the year and not on a rolling basis (you’ll drive higher attendance at the last minute as opposed to people thinking it’s always there).

Scarcity as an obstacle

This is definitely the more serious side of scarcity.

When someone’s basic needs aren’t being met – meaning they don’t have a regular or steady supply of food, shelter, or money – then it becomes extremely difficult to make new choices or change behaviors.

If you think about Maslow’s Hierarchy of Needs (and I may be the lone nerd here who thinks about these things a lot), these basic needs must be met in order to have the mental “bandwidth” to focus on psychological or self-fulfillment needs.

But while these needs are not being met, all your time, energy, and attention is consumed with survival.

This is not a concept we can USE in our work, but it’s one we must factor in when asking people to change their behavior.

For example, there are many initiatives across the globe focused on motivating individuals and communities to save money on a regular basis. This may be to have a safety net, to be able to afford additional shelter and supplies, to have more consistent funds throughout the year, etc.

But when one’s daily attention is consumed with having enough money to just make it through the day, then it feels impossible to consider putting any money away for savings. And there is research that shows this is a true cognitive issue.

However, if there are moments throughout the year when money flows a bit more freely – say, after a harvest season – then individuals may have a bit more bandwidth for a conversation about savings. This is due to the mental relief felt when not every waking moment is spent worrying about money.

So, if you’re working in situations where you want to motivate change among those whose basic needs aren’t being met consistently, then try to determine when in the day/year they may have more mental bandwidth to consider doing something new and different.

Be clear on which scarcity you’re working with or using

I write this article as a plea for us to be clearer on which form of scarcity we’re working with or using.

Scarcity has become a popular term, like “nudge”, that can mean multiple things and create confusion around intentions and objectives.

Scarcity as a tactic to drive demand can be fun and exciting – thinking of new ways to increase value and urgency is a great brainstorm activity for teams.

But scarcity of resources is much more somber. It requires empathy and understanding of our audiences’ situations, especially their stressors, and aligning our asks around their needs.

Because these two sides are quite different from one another, it’s important to be clear on which side we’re facing.

If you want to dig in deeper

Here are some additional resources I recommend checking out if you want to travel down the scarcity rabbit hole:

  • How scarcity is being built into the online user experience, by UX Design.
  • A Hidden Brain podcast episode on how scarcity creates a “tunneling” effect.
  • The entire book on scarcity you can buy on Amazon.