Tag Archive: behavioral economics

Lionel Robbins in his book, “An Essay on the Nature and Significance of Economic Science” has given a definition for economics through the lens of scarcity. The definition is given by him is imperative even now. He defined,

“Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.

                                                                                                                             – Lionel Robbins

Scarcity of any commodity creates demand for it and that demand leads to higher price ( based on demand curve).

Robert Cialdini in his famous book “Influence: The Psychology of Persuasion” has mentioned “Scarcity principle” can be used in persuasion. His article titled “The Science of Persuasion”  he explains how scarcity can influence people and how marketers use it influence consumers. This article explores about the use of scarcity in marketing context to persuade consumers. Before getting into the literature, let’s have a look at an example of scarcity effect in marketing.

Online platforms like Amazon, Ebay, Flipkart and many other websites mostly creates this scarcity effect to influence consumers to buy product. Take a look at the picture given below to get a good grasp of practical use of scarcity appeal.

Scarcity Appeal.jpg

Image source: Amazon.co.uk

While browsing Amazon.co.uk to buy a printer I found a product listed with only 7 units left in stock. Probably this may not induce me. However, if there is only one unit left in stock. This will trigger my unconscious, emotional part of the brain. When the emotional part of the brain is triggered, fundamental rational evaluation of a product gets defied.  I will end up in buying the product assuming I will lose it, if I don’t buy now. Scarcity appeal is effectively utilized by Udemy (an online learning platform) to sell most of the courses offered by them.

Researchers have found why scarcity triggers to take decision. Robert Cialdini (2004) has explained scarcity does not only create demand it also makes any information persuasive. Amram Knishinsky, a student of Robert Cialdini studied the influence of scarcity messages and found that the order for wholesale beef buyers increased by 600% when they were told “about shortage of the product” by a phone call.

In another study by Rajneesh Suri et al focused on how consumers process price information and how it is influenced by perceived scarcity. This study revealed perceived scarcity of motivated consumers influence price processing only when they buy product that are of high value, branded, superior image oriented with accpetable price ranges.  In case if marketer wish to promote low priced product to motivate consumers they need to use differential advantage of the product. Scarcity appeal for less motivated consumers low price with scarcity appeal works well . An article by Michael Lynn(1991) conveyed, scarcity create a “least available products are most valuable” image  in consumers mind and are influenced to take a decision.

Scarcity Appeal 1

Image source: http://cdn.business2community.com

Looking at these studies, it is clear that scarcity certainly influence consumers. Their decision-making varied based on the perceived scarcity and their motivation levels. Hence, a marketer to trigger consumer buying behaviour they can use taglines/ promotion messages like “Limited Edition”, “Offer till October 20”, “Offer until stocks last”, “Early bird promotion”, “Limited seats only”, “Filling up fast” and so many similar to this. However, a care is need when they encounter customers who are highly motivated and less motivated.




Decisions in real life

For the last two years, I have spent part of my time in reading about how humans make decisions. I have bought books like Predictably Irrational by Dan Ariely, Thinking Fast and Slow by Daniel Kahneman, The Art of Thinking Clearly by Rolf Dobelli, Nudge by Richard Thaler and Cass Sunstien, Misbehaving by Richard Thaler and Decisive by Chip and Dan Heath. I’m yet to read Misbehaving and Decisive. I just thought to share what I have learned from the books.

Humans are thinking that they are taking rational decision in their life. Rationality is actually questioned by the books that I have mentioned above. Given a choice (imagine you are dieting), would you like to consume chocolate cake (your favorite one) or raw vegetables. You can pick only one out that. What will you choose? Both are available at free of cost. Will you pick up veggies or will you prefer chocolate cake?. Think about it. I don’t really know what you are going to pick up. Yet this is what you really face everyday, you want to work hard and reduce your weight and get fit. Continue reading