Welcome to The Brainy Business Podcast
Melina Palmer: Welcome to episode 14 of The Brainy Business, understanding the psychology of why people buy.
Announcer: This Behavioral Economics Foundation’s episode is about scarcity. Ready? Let’s get started.
Announcer: You are listening to The Brainy Business podcast, where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly.
Announcer: Now here’s your host, Melina Palmer.
Melina Palmer: Hello, everyone.
Melina Palmer: My name is Melina Palmer, and I want to welcome you to The Brainy Business podcast.
Melina Palmer: How’s back to school season treating everyone? By now, you should all have kiddos back full time and getting into the full swing of normal, whatever that means for you.
Melina Palmer: I like summer, but personally, I love fall and the ramp up to the holidays.
Melina Palmer: It’s just one of my favorite times of year. What about you?
Melina Palmer: For me, this is a favorite time for a few reasons. First, I love to bake.
Melina Palmer: As a kid, I used to bake my own birthday cakes and those for my family members every single year, and I love to make them for the kids.
Melina Palmer: Now, I’m very craft focused and I love to make special cakes or treats whenever I can, and it’s always fun to have an excuse for that.
Melina Palmer: The holidays are full of those. And yes, everything I make is gluten free.
Melina Palmer: For those of you who don’t know me personally, you might not know that I have celiac disease, which means I can’t eat gluten.
Melina Palmer: But if you follow me on social media, you have probably seen a lot of tweets or posts on Instagram or whatnot in the past about gluten free, friendly things all over the place.
Melina Palmer: So when I was diagnosed about ten years ago with this, it put a little blip in my ongoing dedication to baking my way through life.
Melina Palmer: But I found a lot of gluten free flours and other alternatives that allow me to bake.
Melina Palmer: Still, I love to bake cakes, and apple pie was always a big specialty of mine, though I do apple crumble now, which is probably part of why I love the fall.
Melina Palmer: Because it’s apple season. If you follow me on Instagram, where I am the brainy biz, that’s, b I z, and that’s the same on Twitter and Facebook and all that.
Melina Palmer: You might have seen my recent post about how excited I was to see Honeycrisp apples are back in the store.
Melina Palmer: They’re my favorite. They’re amazing. If you haven’t had them, you should. Not great for baking.
Melina Palmer: I would say Granny Smith are better for pies, but they’re just delicious.
Melina Palmer: If you’re wondering why I’m going on about apples and baking.
Melina Palmer: I promise I have a point and it relates to the episode.
Melina Palmer: Honeycrisp apples are typically only available at certain times of the year, much like the cotton candy grapes I talked about in episode two.
Melina Palmer: They have the benefit of scarcity when they are finally available in stores, and that is what this week’s episode is all about.
Melina Palmer: Scarcity is likely a term you’ve heard before and understand, but in this episode, I’m going to break down a little bit about what this is and what happens in our brains when presented with scarcity.
Melina Palmer: Then I will give a lot of examples of how to implement this tactic in a business like yours, in case this is your first episode with me, in which case, welcome.
Show Notes and Free Worksheet
Melina Palmer: Show notes can be found within the podcast app or on thebrainybusiness.com.
Melina Palmer: I want to talk to you a little about show notes.
Melina Palmer: I will mention a lot of articles, past episodes and studies during the show, and I want you to know that you don’t need to take copious notes or go look things up for yourself.
Melina Palmer: I will link to pretty much everything in the show notes for you.
Melina Palmer: You can find those show notes within the podcast app you’re listening to or by visiting thebrainybusiness.com/14. Because this is episode 14, I’m not going to reference the show notes every time something’s linked there because I have a lot of link backs.
Melina Palmer: I know your time is valuable, but you should check it out. There’s lots of good stuff there.
Melina Palmer: And because this is a foundational episode, there is also another reason to go to that site, a free worksheet available for you to download on that same page, thebrainybusiness.com/14. You can follow along with that as you listen or use it after you’ve finished the episode.
Melina Palmer: Either way, these are really helpful for you to understand the concept and actually apply it in your business, which is the whole point.
Understanding Scarcity
Melina Palmer: In traditional economics, scarcity occurs when an item has limited availability but unlimited desire.
Melina Palmer: All right, let’s talk about scarcity.
Melina Palmer: In traditional economics, scarcity occurs when an item has limited availability but unlimited desire for that item.
Melina Palmer: This can include natural resources like oil and water, or more abstract concepts like time.
Melina Palmer: Time is a very scarce resource we all wish we had more of.
Melina Palmer: And while scarcity exists in every resource, in some way or another, nothing is truly unlimited.
Melina Palmer: What happens when we know something is scarce? That’s where behavioral economics steps in. Studies have proven that we see things as more valuable when they’re less readily available.
Melina Palmer: One study showed an advertisement for the exact same watch with two different descriptions.
Melina Palmer: One said new edition, many items in stock, and the other said exclusive limited edition. Hurry, limited stocks.
Melina Palmer: What do you think happened? People were willing to pay 50% more on average when the advertising said the watch was scarce.
Melina Palmer: An exclusive limited edition with limited stock than when there were many in stock.
Melina Palmer: Remember, the watch is exactly the same in both cases.
Melina Palmer: This is not the first time I’ve mentioned scarcity on the podcast. I talked about it in episode eight.
Melina Palmer: What is value? When I told you the ridiculous and I wish it wasn’t true story of someone paying $75,000 for William Shatner’s kidney stone on eBay still creeps me out.
Melina Palmer: And, what about stamps? Even with regular price increases, they’re still worth less than $0.50 apiece, unless they’re printed with errors.
Melina Palmer: Did you know the most valuable stamp in the world, the British Guiana, is valued at eleven and a half million dollars.
Melina Palmer: Why so expensive? It was a limited run and is the only one known to be in existence.
Melina Palmer: But sorry, if you collect stamps, who cares? It’s still just a piece of paper.
Melina Palmer: What about the first silver dollar printed and issued by the US government?
Melina Palmer: It’s called the flowing hair silver and copper dollar, and it sold for $10 million at auction.
Melina Palmer: It was printed in 1794 or 1795, and was the first issued after the federal mint was established.
Melina Palmer: What about the ones the next year? Looks like the 1796 draped bust dollar is valued at just $794, which is still a lot considering it’s a $1 coin, unless it’s in certified mint state, where it could be worth as much as $60,000.
Melina Palmer: Again, the range on this coin, depending on its condition of how dirty or shiny it is, is from $800 to as much as 60,000.
Melina Palmer: And if it had the luck of being pressed just a few weeks or months before, it could have been worth as much as $10 million.
Melina Palmer: Again, for a $1 coin. Scarcity and value are closely tied together, and for some reason, our crazy brains think less equals more.
Melina Palmer: In this case, scarcity also triggers loss aversion, which I’ve talked about a lot.
Melina Palmer: we have a whole episode dedicated to that, episode nine, that first Behavioral Economics foundations episode.
Melina Palmer: So I’m not going to get into it too much, but when something is scarce, it triggers our loss aversion, because we don’t want to miss out on the opportunity.
Melina Palmer: If you have not yet listened to the episode on loss aversion, I recommend checking it out.
Melina Palmer: I’m not going to dig into loss aversion very much here, but as I talked about in that episode, avoiding a loss is a huge motivator for humans.
Melina Palmer: Double the joy felt by a gain when combined with scarcity.
Melina Palmer: That fear of regret, which will have its own episode soon, combined with an aversion to losses, is a powerful motivator of action.
Scarcity in Business
Melina Palmer: There are tons of examples of scarcity out there, and I’m going to give some examples of big brands using this regularly to help you find ways to apply
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the concept in your own business.
Melina Palmer: First, I have to start with Costco. If you have a membership to Costco, you likely buy all sorts of things from them, and they promote stocking up on your favorite items, not just because they’re available in bulk, but because they might not be there if you come back tomorrow.
Melina Palmer: This is a scarcity mindset. If you own a retail store, it might be hard to think about copying this.
Melina Palmer: Can you imagine a customer comes in and asks for something they saw and wanted yesterday or an hour ago, and you say, sorry, we’re all sold out.
Melina Palmer: Things go really fast around here, and then you don’t move heaven and earth to find the item for them or make a new one because it’s gone.
Melina Palmer: And you know that eventually they will learn just like everyone else. Of course, customer service still matters.
Melina Palmer: You should be helpful and friendly. But scarcity can only take effect when items are truly limited, meaning not everyone gets one.
Melina Palmer: One thing Costco has that really complements their scarcity model is a fantastic return policy.
Melina Palmer: This makes it so people are not scared to buy a few extra items and hope they will like them because they know they can always bring them back if it doesn’t work out.
Melina Palmer: And they’re better safe than sorry. And as I mentioned when I talked about satisfaction and money back guarantees in the it’s not about the cookies series.
Melina Palmer: Most people do not end up returning items or taking advantage of those guarantees or mail in rebates.
Melina Palmer: So the benefit is worth the risk for stores like Costco.
Melina Palmer: And, they could be for you as well if you combine this awesome return policy scarcity opportunity.
Melina Palmer: Now on to one of my favorite big brands to showcase, Starbucks.
Melina Palmer: You might be thinking Starbucks. They have the same drinks everywhere, every day.
Melina Palmer: I can get my iced chai in the winter or the summer, if that was your response.
Melina Palmer: I have three letters for you. PSL. If you are a fanatic, you know what this means and are likely celebrating the return of PSL already as it’s in season.
Melina Palmer: So to say, a season that seems to get longer and longer every year.
Melina Palmer: But for those of you who are not huge fans, PSL stands for the pumpkin spice latte, a drink made famous by Starbucks, which is now imitated in all sorts of brands, from coffee, creamers and pies and all sorts of things.
Melina Palmer: I don’t know. And even though it’s hugely popular, it’s only available a few months of the year.
Melina Palmer: I think it used to only be available for the month of October, maybe into November.
Melina Palmer: Now it comes out as early as September 1. You know, I’m not sure.
Melina Palmer: I’m not a fan of pumpkin spice, which I know will likely shock many since I am such a fan of its spice flavors in the chai tea latte.
Melina Palmer: I just don’t get pumpkin as a liquid consumable. I’m sorry.
Melina Palmer: I also can’t bring myself to try the eggnog latte, which is another seasonal item at Starbucks.
Melina Palmer: If you like it, let me know on social media.
Melina Palmer: Tell me that I’m crazy and I should give it a try.
Melina Palmer: Scarce items can take on a life of their own did you know the real PSL has 110,000 followers on Twitter?
Melina Palmer: Yes. You can check out the Twitter handle @TheRealPSL on Twitter, and the accounts post from August 28 of this year saying, quote, signing on just to say I’m back.
Melina Palmer: Let’s catch up in real life. Had 2300 likes, 654 retweets, and 88 replies.
Melina Palmer: Have you ever had a post with that much interaction on it?
Melina Palmer: Frappuccino also has its own Twitter account with 190,000 followers, which shows the power of a brand.
Melina Palmer: But that will be the topic of another episode. Scarcity can create cult followings, which means other people do the marketing for you.
Melina Palmer: They get excited and talk and spread the word on your behalf, making the brand bigger than anything you could do on your own.
Melina Palmer: Word of mouth is a powerful thing, and scarcity can be a big driver of it.
Scarcity and Product Launches
Melina Palmer: Consider another Starbucks invention that took the world by storm when it was announced about, I, guess now, 18 months ago.
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Melina Palmer: The Unicorn Frappuccino.
Melina Palmer: Unlike, many scarce items at Starbucks, which are usually available for a month or so, the Unicorn Frappe was only going to be in stores for five days, but sold out in many locations in less than two.
Melina Palmer: Did Starbucks do a ton of promotion around the upcoming item? A, no.
Melina Palmer: A quick scroll back shows one tweet on the Starbucks account, one from Frappuccino, and a single press release on the Starbucks website saying the Unicorn was available.
Melina Palmer: And all those were on the day it came out, which was April 19 of 2017. Apparently, the Unicorn Frappuccino announcement was leaked a week or so in advance and basically broke the Internet.
Melina Palmer: Starbucks has a legacy of scarce items driving traffic into its stores, including the red cups, which only come out at the holidays and are disposable, I might add.
Melina Palmer: But they get people across the globe jumping to be the first to post a coveted Red cup selfie online each and every year.
Melina Palmer: This is also extended to items they sell in stores.
Melina Palmer: A, venti sized reusable cup with a straw this last holiday season came out with rose gold sequins and sold out almost immediately.
Melina Palmer: People went crazy for it, and it still can be seen for nearly $100 on Amazon and eBay.
Melina Palmer: Not to brag, but my hubs got me one of these at retail, of course, for Christmas last year, and I love it, though I would not have paid $100 for it.
Melina Palmer: Speaking of Rose Gold insanity, did you know that they came out with rose gold mini ears at Disneyland this year?
Melina Palmer: Those too were selling on the secondary market for astronomical amounts, and, the stores in downtown Disney could not keep them on the shelves.
Melina Palmer: They had a limit of ten pairs per person to be able to buy them because they were so popular.
Melina Palmer: And apparently someone would tweet about it in the morning when they saw the trucks being unloaded and they sold out almost instantly.
Melina Palmer: Apparently I’m the luckiest sparkle Rose gold lover in the world because my hubby also found these for me, also at retail price when we took the kids to Disney earlier this year.
Melina Palmer: I am sharing a picture of myself enjoying my rose gold spoils on social media for your enjoyment, so you can see how beautiful these sequined items actually are.
Melina Palmer: These examples from Starbucks and Disney are a combination of scarcity and availability, which is going to be the topic of next week’s episode that’s essentially capitalizing on something popular and becoming part of the craze.
Melina Palmer: Rose gold is hot right now, but it goes in and out of fashion. Unicorns rocking the Internet.
Melina Palmer: But not every attempt is a winner, and that’s okay.
Melina Palmer: If you’re going to take a shot at incorporating scarcity, know that not everything will cause an uproar of epic proportions.
Melina Palmer: Sometimes there will be duds. Starbucks has had a lot of other special frappuccinos, including the crystal ball, which came out earlier this year, and, was really not exciting to people.
Melina Palmer: Definitely not the same as the unicorn of the year before, but they have a lot of winners.
Melina Palmer: And it’s about that search for that thing that’s going to be able to fuel its own fire and your overall brand that people are just going to latch onto and go crazy over when it’s scarce.
Melina Palmer: And remember, it doesn’t need to be anything super expensive. Expensive either.
Melina Palmer: Starbucks red paper cups probably don’t cost them that much more to make than the white ones, but people love them.
Melina Palmer: And if they were available year round, they would not have the same appeal. Scarcity matters.
Implementing Scarcity in Your Business
Melina Palmer: And yes, you can use scarcity even if you do not sell physical products.
Melina Palmer: In some industries, like real estate, scarcity is implied. After all, at the end of the day, every house is unique.
Melina Palmer: However, it’s good to have a reminder for people to ensure their subconscious brain understands the scarcity and the need to act quickly.
Melina Palmer: There are some words you can use to help trigger scarcity in the brain of your consumer.
Melina Palmer: I’m going to list them here for you now, but they’re also on the free worksheet if you want to download it at The Brainy Business.
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Melina Palmer: Okay, here is the not exhaustive list. Limited time extended, custom, handcrafted, one of a kind closeout sales, or everything must go.
Melina Palmer: And last chance. These terms can be added to more than just products, but services as well.
Melina Palmer: Remember from earlier in the episode, time is a very valuable commodity and you have a limited amount of yours to give instead of saying you are.
Melina Palmer: I’m, very busy, but I work to squeeze someone in. There’s often value in holding firm on hours.
Melina Palmer: Think of a doctor’s office or massage therapist or dentist when their time is booked, it’s booked even if you have to book two or three months out.
Melina Palmer: If you say instead to your clients, I have one spot available on my calendar next week, would you like to book that now the mind starts to get a little scared and doesn’t want to lose the new opportunity.
Melina Palmer: Especially make sure, just like we talked about last week on episode 13 about mindset, you need to say it with confidence.
Melina Palmer: If you’re waffling or it doesn’t sound like you’re quite sure that maybe, maybe you’ll make an exception, it’s not going to have the same effect.
Melina Palmer: So you have to be firm in saying that that’s the only spot that’s available, or whatever it is.
Melina Palmer: And if you do a promotion or discount, make sure it’s short term and remind people when it ends.
Melina Palmer: Similarly, you can limit the quantity available. If you’re selling tickets to a workshop or a class, for example, set a limit and stick with it.
Melina Palmer: Let people know that is all there is, and once they’re gone, they’re gone.
Melina Palmer: When’s the last time you booked a flight online? Have you noticed their messaging that says, hurry?
Melina Palmer: Only two tickets left at this price. That’s scarcity in action.
Melina Palmer: And the same thing I’m recommending for you in your service based business.
Melina Palmer: If you do not sell a product yourself, you can still use scarcity by putting on a contest.
Melina Palmer: As with anything, the important thing is to know what the goal is. What do you gain from it?
Melina Palmer: Are you looking for a social media following word of mouth email addresses?
Melina Palmer: Be clear that you know the intent before you go through the process of setting up a contest.
Melina Palmer: When I ran the marketing department at Verity, which is a highly regulated financial institution, I still found ways to use scarcity.
Melina Palmer: We gave away gift cards for a night out on social media to promote our credit card with dining rewards and gain followers.
Melina Palmer: We gave away $100 every day for a month through random drawings for people who opened accounts during a new member promotion.
Melina Palmer: We gave away $5,000 via, random drawing for people who applied for home equity line of credit during a specified time, and many more.
Melina Palmer: Now here’s my disclaimer. Of course everything we did complied with gambling laws.
Melina Palmer: Check the laws in your own state before you go down any sort of contest path.
Melina Palmer: These can work really well for you, but there are a lot of rules and you need to make sure that you play the game okay.
Scarcity in Holiday Shopping
Melina Palmer: There are so many examples of scarcity, it would be impossible to capture them all today.
Melina Palmer: However, I chose this time of year for this episode for a reason. The holidays are full of scarcity examples.
Melina Palmer: As I mentioned earlier, there are special holiday editions of treats including pumpkin spice, eggnog and gingerbread lattes at Starbucks.
Melina Palmer: Retailers put on promotions Black Friday is full of scarcity examples.
Melina Palmer: Lots of special offers that get people excited to come into the stores and the big toy of the season changes from year to year.
Melina Palmer: But the tactics are pretty much always the same, whether it’s Cabbage Patch Doll, Furby, Nintendo, or Tickle Me Elmo.
Melina Palmer: Back in 1996, when the world went crazy for Elmo, it was said that the laughing dolls were going for as much as $1,500 on the resale market because there weren’t any available in stores.
Melina Palmer: Look around and see just how often this is used and you will be amazed.
Melina Palmer: And also check to see which offers seem enticing and which seem off putting.
Melina Palmer: It’s easy to sound like a cheesy infomercial when you’re using scarcity, so take a step back and don’t get too over the top.
Melina Palmer: Think exclusivity rather than cheesy sales tactic.
The Diamond Invention: Scarcity and Availability
Melina Palmer: And speaking of using scarcity in an exclusive fashion, I want to end this episode with an example of probably the most widespread example of scarcity in the world.
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Melina Palmer: Have you ever bought, received, coveted, or worn a diamond engagement ring?
Melina Palmer: I’m guessing about 99% of the audience is saying yes to that question.
Melina Palmer: Did you know that diamonds are not really all that rare?
Melina Palmer: Or that diamond engagement rings, especially with large, spectacular center stones, were not popular until the early 1940s?
Melina Palmer: Or that the slogan of a, diamond is forever was essentially created to ensure people would never try to resell their diamonds, but hold on to them forever and not disrupt the market?
Melina Palmer: I have linked to a fascinating article from a 1982 issue of the Atlantic in the show notes, which outlines this whole story.
Melina Palmer: I’ll talk about it a lot more next week because it’s about availability even more than scarcity.
Melina Palmer: But these two concepts worked together to make diamonds what they are today, very much like how relativity and anchoring and adjustment work together.
Melina Palmer: Scarcity and, availability are another peanut butter and jelly sort of concept grouping.
Melina Palmer: And in case you haven’t listened, anchoring and adjustment and relativity were episodes eleven and twelve on, the podcast.
Melina Palmer: So you should check those out there in the show notes.
Melina Palmer: I’m going to read for you the first paragraph of that article, as it just really sets the stage.
Melina Palmer: It makes it so obvious how this works. It’s crazy. Okay, the diamond invention.
Melina Palmer: As a side note, notice they call this the diamond invention. Whoa. Okay.
Melina Palmer: The diamond invention, the creation of the idea that diamonds are rare and valuable and are essential signs of esteem, is a relatively recent development in the history of the diamond trade.
Melina Palmer: Until the late 19th century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil and the entire world.
Melina Palmer: Production of gem diamonds amounted to a few pounds a year.
Melina Palmer: In 1870, however, huge diamond mines were discovered near the Orange river in South Africa, where diamonds were soon being scooped out by the ton.
Melina Palmer: Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered.
Melina Palmer: Diamonds had little intrinsic value, and their price depended almost entirely on their scarcity.
Melina Palmer: The financiers feared that when new mines were developed in South Africa, diamonds would become, at best, only semi precious gems.
Melina Palmer: The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds.
Melina Palmer: The instrument they created in 1888 was called De Beers Consolidated Mines Limited, incorporated in South Africa.
Melina Palmer: And yes, they mean that De Beers. Over the next hundred years, De Beers owned and controlled over 90% of the world’s diamonds.
Melina Palmer: Through a, carefully crafted mix of controlling price, available inventory, and strategic advertising, they completely changed the world.
Melina Palmer: It’s an amazing story, and many of the tactics used would not be tolerated.
Melina Palmer: Today, however, the lesson remains scarcity is a tactic that works, especially when combined with availability, which, as I said, I will dig into next week.
Melina Palmer: And if you read the article before then, awesome. As a side note, it’s quite lengthy, but definitely worth it in my opinion.
Melina Palmer: However, if you don’t want to take that time, just tune into next week’s episode and I’ll give a lot more details on what they did and why it worked.
Melina Palmer: Based on what we know today about the subconscious brain and how it makes buying decisions.
Melina Palmer: Essentially, on the scarcity piece, they were able to realize very quickly that if there were so many diamonds available, they wouldn’t have any value to them.
Melina Palmer: Again, think back to the episode on, value, which I did a few weeks back.
Melina Palmer: So if there’s not enough value, they need to control the supply that’s available to keep demand high.
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Melina Palmer: We’re getting back into basic economic theory here. So they were able to hold back.
Melina Palmer: So if they had a year where there were a ton of diamonds that came out of the mines, they didn’t necessarily leak them all into the market.
Melina Palmer: They would hold them back for times when they needed that supply and then let it out.
Melina Palmer: But over time, after this article came out several years later, then the diamond market has really shifted in that other players have come into mix and this.
Melina Palmer: This recap from the Atlantic goes into other countries discovering diamonds and De Beers trying to buy them out from Russia and Australia and Israel.
Melina Palmer: And it’s really just a fascinating story. But all the lengths they went to to make sure that they were able to protect the investment that they had and keeping their not scarce resource looking as though it was actually scarce.
Melina Palmer: And, the advertising tactics they did to get people interested in buying diamonds are all about what I’m going to be talking about in the availability episode next week.
Wrap Up
Melina Palmer: Okay, on that note, I think it’s time we wrap up this episode on Scarcity.
Melina Palmer: Don’t forget to download your freebie worksheet and check out those show notes on thebrainybusiness.com/14. That worksheet will help you look and find examples of scarcity, find ways to flip something that maybe should be including scarcity, and tips on how to incorporate that in your business, as well as those terms I talked about earlier in the episode that, you can use to quickly bring the feeling of scarcity into your advertising.
Melina Palmer: And again, that is at thebrainybusiness.com/14. And as another example of a way you can use scarcity in your messaging, I’m going to show you a couple of examples of how I use this in my business right now.
Melina Palmer: Alright, this episode on Scarcity is officially done. Next week, as you know, is episode 15 dedicated to availability.
Melina Palmer: This is a really fun concept and ties in so well to a lot of what we talk through today, as you know, and I can’t wait to tell you about it.
Melina Palmer: Until then, thanks again for listening and learning with me, and remember to be thoughtful.
Announcer: Thank you for listening to The Brainy Business podcast.
Announcer: Melina offers virtual strategy sessions, workshops, and other services to help business be more brain friendly.
Announcer: For more free resources, visit thebrainybusiness.com.
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