Suggest scarcity or limited supply

Many people interested in a product, but few buyers? With this tactic, you get customers not to hesitate, but to pull out their wallets.

"Limited quantity!", "Only three rooms left, book quickly" or "Only until Friday" - many companies use offers like these to curry favor with customers. The strategy behind it: the scarcity effect.

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How does the strategy of (artificial) scarcity work?

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"The scarcer a product, the more attractive customers perceive it to be," says Peter Kenning, Head of the Business Administration Department at the University of Düsseldorf and a professor specializing in marketing. If, for example, the operator of an online store for sportswear indicates next to his products how many are still available, he thus arouses more interest in customers than if there were an unlimited number of items. The scarcity can either be natural, for example because a hotel only has a certain number of rooms. Or it may be intentional, in which case marketing terms it artificial scarcity: the supply is deliberately kept below demand, for example by means of a limited edition.

Teleshopping shows that the scarcity strategy works: sellers here constantly rely on the scarcity effect - and the industry is growing every year; according to Statista, it made more than two billion euros in sales in 2018. The TV salespeople advertise cucumber peelers, vacuum cleaners, coffee machines or other products of which, for example, 500 are in stock. Viewers can watch live as the stock empties. And the fewer products are available, the greater the temptation to make a purchase. But: "Teleshopping channels often have a credibility problem," says Kenning. Critics suspect that sellers actually have many more products in stock than they indicate. If this is the case, it can result in a warning for unfair competition."

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Why does scarcity make offers more attractive to customers?

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Marketing expert Kenning explains the effect of the scarcity effect with the so-called reactance theory: "People tend to react to restrictions on their personal freedom by wanting to regain this freedom. When companies make a product or service scarce, this leads people to want to regain the freedom to be able to buy the product. This makes the product that is unavailable or in particularly short supply more desirable."

According to Kenning, various studies also show that shortages such as "only three days left" or "limited quantity" increase customers' purchase intentions and make offers seem more attractive.

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What are the shortage strategies?

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Entrepreneurs can make their offerings scarcer in a variety of ways. But not every strategy suits every company: For example, it makes little sense for a supplier of a product that he can theoretically sell in unlimited quantities, such as software, to limit the supply.

So, before entrepreneurs start limiting their supply, they should consider: Does this method fit my company at all? Do I perhaps already have a limited offer, but am not making it visible? Which shortage strategy should I use? An overview of common tactics:

1. Limited availability
   Some hotel booking portals clearly communicate how many rooms are still available - urging website visitors to book as quickly as possible. "Sometimes it even says, 'only two rooms left available, three customers are watching this offer,'" Kenning says. "That exacerbates the shortage and situation even more. You have to hurry." Online store operators also often indicate next to products how many of them are still in stock. If goods are in short supply, Zalando, for example, reports "only two items available in this size." Some companies offer limited products from the outset: Luxury watch manufacturers, for example, produce a limited number of new watches and sell them for several thousand euros as "limited editions." This can lead to customers perceiving the watches as being of particularly high quality - and therefore particularly desirable.
2. Time-limited availability
   Here, the supply is not kept below demand - it is simply no longer available after a certain point in time. Confectionery manufacturer Ferrero, for example, takes a summer break every year with its Mon Chérie cherry liqueur chocolates. The chocolates disappear from supermarket shelves in late spring and return in September. Says Kenning, "This allows the company to point out at the end of the summer that the product is now back. And thus get attention again." According to Ferrero, the summer break is necessary to avoid quality losses due to higher temperatures. Another way to cut back on time is used by Daily Deal. The company sells online vouchers for various products and services - but only for a limited period of time. For example, if you want to save 50 percent on a massage at the salon around the corner, you have to strike within 24 hours. Here, there is no objective reason why the offer is limited in time. The offer is therefore artificially limited. The direct competitor Groupon does without concrete time specifications, but offers its deals "only for a limited time". The platform also informs interested parties how many customers have already bought and whether a product is selling very quickly, thus providing additional motivation to buy.
3. Time-limited discount
   A limited-time discount targets bargain hunters: "Only until Friday at the introductory price." The offer will also be available later - but at a higher price.
4. Vague or explicit scarcity
   Those who want to sell more with the help of the scarcity effect can communicate this in two different ways, according to Kenning: Either a company announces explicitly how long an offer is still valid ("only 3 more days") or how many products are still available ("only 3 left in stock"). Or it only vaguely indicates what the stock situation is. By using phrases like "limited time only" or "limited stock," companies leave it open when a product is sold out or how long a discount promotion will last. According to Kenning, it is impossible to say which works better - explicit or vague shortages. It depends on the product, the situation, and how much a customer can be influenced. But with vague shortages, entrepreneurs keep open the possibility of extending promotions when demand is high. "That works less with explicit scarcity," Kenning says. After all, if you encourage customers to buy with phrases like "only 6 chairs left" and then suddenly announce "50 chairs left" the next day, you risk your credibility.

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Does it make sense to artificially create shortages?

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Artificial shortages can lead to more sales or higher prices - for example, in the case of a limited edition. But they can also damage a company's reputation. Especially in the case of temporal scarcity ("only today"), customers can feel too much pressure and perceive this as frivolous.

Who wants to do it nevertheless, should justify this step according to Kenning well. The marketing expert: "If customers can understand the reasons for the shortage well, they will accept it more easily. Like Ferrero: You could argue that the company is artificially creating shortages when it takes products off the market in the summer. Ferrero, on the other hand, points to possible quality losses. Customers can easily understand that."

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Is it legally permissible to artificially short?

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Every company is free to limit its range. However, it becomes legally problematic if a company only feigns scarcity. The German Unfair Competition Act (UWG) states: "Anyone who uses misleading, untrue information about availability or quantity to persuade customers to make a purchase decision that they would not otherwise have made is acting unfairly and committing a competition violation (Section 5 (1) sentence 1 UWG).

In 2016, for example, the Wettbewerbszentrale issued a warning to the portal Hotel.de because the site advertised "only one room left" even though customers could still book rooms at the same hotel on other sites. The Nuremberg Regional Court prohibited the portal's actions (Case No. 4 HK O 5203/15).

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