Give Advance Notice of Scarcity

BruceRIM 
Earlier this week, my five-year-old granddaughter showed me a Zhu Zhu Pet she’d wished for and then received. She said she was especially proud to have it because this particular female rock star hamster was “very rare” and her parents told her they’d had trouble finding it.

People are willing to spend not only time, but also money to purchase otherwise attractive toys and games that are in short supply. I touched on this topic in my posting about the psychology of the collector. From early in life, we demonstrate an inborn urge to have the complete set, and that means getting the rare ones, too. Scarcity opens opportunities to you—the toy and game professional—for higher profit margins. The scarcity in itself can endow an object with a greater value.

Scarcity can be implied by saying it takes a long time to create the product. University of Michigan researchers showed people artistic creations and asked each to judge the quality of each work. Before being asked for the quality rating, though, the participant was told the amount of time the artist had taken to complete the work: “The artist took one year to do this.” “This piece was completed by the artist within one week.” The times given were not the actual times, of course. You know how psychologists love to lie to people.

The purpose of the lying was to see if a potential purchaser of artwork would infer quality from the length of production time. And indeed, there was a relationship. Even though the “completion times” had been randomly assigned to the works, the longer the completion time, the higher the average rating of the work. If it took longer to do, it must be higher quality.

Zhu-Zhu-Pet-Rockstars-Roxie Here the lying was for experimental purposes. But if your shoppers conclude you’re lying about the reason for scarcity, their irritation will disrupt sales. Researchers at Stanford University came up with a surprising angle to all this, plus a suggestion for retailers to dissolve any ill will: Some participants in a study were given a gift, while the rest were denied the gift. Each participant was then asked how much they’d be willing to pay for the gift if purchasing it at a store. The average price was about 45% higher among those denied the gift than among those having gotten it. No surprise so far. The sort of denial experienced with scarcity raised the perceived value.

Next, those participants denied the gift earlier were given the gift. Now every participant had the gift, and each of them was asked if they’d like to trade the gift for another item, which the researchers had determined was of about equal value. Of those who got the gift at first, about 40% said they’d trade. Among those denied the gift at first, about 80% said they’d trade. Denial led to dislike.

There were a few more twists in the Stanford findings. Putting it all together, the researchers suggest that retailers can financially profit from pricing scarce items higher, but for longer-term good will toward the store, the retailer should give ample notice to customers. Warn customers about any shortages. Tell them how long you expect the shortages to last. Suggest alternatives they could purchase until the shortages ease.

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