Proceed With Caution: 'Artificial Scarcity' Can Be Deceptive

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Artificial Scarcity

 

Are you familiar with artificial scarcity? In broad marketing terms, it means deliberately limiting the availability of something to build demand. If you haven’t used or come in contact with this strategy in business, you’ve certainly experienced it as a consumer, whether you were aware of it or not.

 

Artificial Scarcity Is Everywhere

Is this an approach you should be thinking about for your small business? It all depends. Consider some observations at businessweek.com from contributor Melissa Rayworth, who says there are plenty of examples of artificial scarcity all around us, pretty much all the time: McDonald’s use of McRibs exclusively as a short-term promotional item; limited-edition Gap jeans or art; and untold numbers of offers and pricing scenarios described as “Limited time only!”

Beanie Babies were another great example of artificial scarcity, and one that made their owner, Ty Warner, a ton of money in the process. If you were around at that time, you like remember that they were all the rage in the late ‘90s. This is partially because, according to the New York Post, Warner “would retire specific animals at whim, creating scarcity in the market and inspiring collectors to pay up to $5,000 for a plush toy that originally retailed for $5.” In this case, artificial scarcity drove Beanie Babies’ price up 1,000 times each.

In all of these cases, there are no real shortages. Instead, this is a marketing tactic to get our attention. And given that these kinds of scarcity claims, no matter how you cut it, are pretty much false, the real kicker, Rayworth says, is that they tend to work! Instead of feeling annoyed over being manipulated, consumers get excited and jump to buy! Which serves to perpetuate the practice. Regardless, social scientists say that at some level, we know that the scarcity of a given item isn’t really true—but we respond anyway. Go figure.

Artificial Scarcity Can Backfire

 But not all scarcity-based selling tactics work equally well. Sometimes if claims are made tongue-in-cheek, buyers like being in on the joke and play along. Or, consumers may want to be part of something nostalgic or that they grew up with, like buying a “limited-availability” DVD of a classic film (Disney is a great example of artificial scarcity as they oftentimes release their fan favorites for a limited time). Or maybe buyers want to splurge and feel like they need an excuse, even a flimsy one.

But blogger Ben Trafford says that as more and more consumers “wake up” to the reality of false scarcity claims, using such a tactic can backfire and alienate them in the process. And areas where artificial scarcity will no longer work include things distributed electronically, like e-books, music, and movies that everyone knows are unlimited.

So if we assume that the once fail-safe tactic of artificial scarcity may be losing some of its luster with savvy consumers and especially with younger generations of buyers, should you consider using it to drum up interest and sales? Definitely maybe, says a post on theadhereagency.com’s blog. In other words, there are right ways and wrong ways to use artificial scarcity (sometimes called “forced scarcity).

 

Right (and Wrong) Ways to Use Artificial Scarcity

If you abuse the practice of artificial scarcity (and your customers in the process), you stand to lose way more than the business you were trying to gain. And things like trust and confidence and loyalty aren’t easily replaced, if at all. The authors say that while online marketing can be a venue for such abuses, your customers are also more likely to detect them there. When “limited availability” or “discounted pricing” claims, for example, are made but are obviously not true, you’re playing “fast and loose” with artificial scarcity, according to the authors.

 Using artificial scarcity has other potential drawbacks as well. Case in point: In a post on his blog, VC Fred Wilson talks about how using artificial scarcity in the movie industry has two negative effects.

  • First, “it leads to piracy,” or people copying and distributing the movie illegally.
  • Second, “it also leads to the loss of a transaction to a competing form of entertainment,” says Wilson.

 In other words, if you’re using artificial scarcity to keep a consumer from buying your product, they’ll buy a similar product elsewhere, which also means that they’re giving that company their hard-earned cash—instead of you.


On the other hand, the artificial scarcity tactic is perfectly legitimate when you’re offering something of value to customers under honest and clearly stated terms, e.g., items are truly limited or prices are actually discounted. It’s important to describe what’s behind the scarcity offer—a closeout? A discontinued item?

Know your buyers, too. Long-time customers, or at least those you know are interested, are more likely to respond to and not be turned off by this kind of marketing approach.

 

The Final Word on Artificial Scarcity

 In the end, artificial scarcity can serve a valuable purpose for business owners seeking to increase their profit, but it doesn’t always come without costs. That’s why it’s so important to use this particular marketing tactic wisely should you decide to take this route.

 The last thing you want to do is turn off or alienate your customers by using artificial scarcity. It may be difficult, if not impossible, to ever get them back.


BFS Capital is a direct funding source and a leading business financing solutions provider. Founded in 2002, BFS Capital provides working capital to owners of small and medium-size businesses in all 50 states. In addition to funding, BFS Capital strives to work with business owners by providing tips and resources to help their businesses succeed. At BFS Capital, we are proud to be an accredited BBB company with an A+ rating. Follow us on Google+, Facebook, and Twitter!

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