Scarcity has always been an important principle for luxury brands around the world and I think, it certainly can be useful to apply the scarcity principle for many non-luxury brands too. The scarcity principle is about how people tend to place a higher value on things that are perceived to be (or really are) rare or in limited supply. While luxury brands often use the scarcity principle as one of the best practices, any business, brand or professional can effectively leverage this principle also to create demand for their products and services. And stronger margins along with better retention.
“Nothing creates cool like scarcity.” - Neil Blumenthal
Let’s start by exploring how scarcity works in a luxury business model. There are two main types of scarcity: real vs. the perceptual. Real scarcity is due to genuine, often physical constraints, such as rare materials or limited resources available (human craftsmanship and skill, or perhaps your very own time and energy) and of course pricing, though that gets very non-rational to the point where products sell more, the more expensive they become, seemingly violating the law of demand and supply. It’s called the Veblen-Effect in the high-end luxury space, and it is a topic I will explore in a separate article. Back to a tangible example: the Swiss luxury watch brand Richard Mille uses materials like graphene, carbon TPT, and other advanced composites to create extremely lightweight and durable watches.[1] These materials are, by their very nature, hard to come by. Perceptual scarcity is about deliberate (business) decisions to introduce limitations. For instance, Dunhill accessories are seen as scarcer and more exclusive than those of S.T. Dupont since Dunhill doesn’t have so many stores all over the world. Pagani limited its Huayra model to only 100 units in total. Luxury whisky brands like Laphroaig and Bunnahabhain make ‘travel retail exclusive’ bottles that can only be bought in select duty free shops in select airports world over. And so on. How many official Ferrari dealerships do you think there are in London? Two locations within walking distance – one owner.
“Luxury implies scarcity” – Prof. Jean-Noël Kapferer
But scarcity isn't just about offering less; actually, quite the opposite - it's about creating more value, intrigue, and desire. It’s more multifaceted than that. Scarcity, either directly or indirectly, is often associated with notions such as availability, accessibility, exclusivity, exoticism, uniqueness, waiting lists, customization and so forth. It can be about space (distribution; locations), time (limited; availability) or quantity (rare materials or limited production). Exclusive and selective distribution allows controlling the ‘experience’ of either product or service in its most finite granularity. Limiting time, availability of products/service, exclusive previews, waiting lists etc. are all mechanics to fuel the fire.
The role of scarcity is paramount for luxury brands because at the root of the very notion of luxury supply must never outgrow demand. Whether real or in perceived, demand always must be highly disproportionate to supply in the luxury business model. For instance, on an operational level, some luxury brands limit the distribution of their products while others make the luxury customer wait. You need to be patient when ordering your Rolex Daytona for about three yearss. Even if a store had one – or more than one, it would think hard about putting it on display. Making things rare (or: unavailable) increases desirability to a point where price is no longer the deciding factor alone. An apparent shortcut therefore is to simply limit your products and raise their price. It's of course not that simple. It’s said that in his early decades, Fabergé, the famous high jeweller, would craft each piece uniquely. Even the cheaper pieces wouldn’t have a single copy. He took the scarcity principle to a whole new level, which is why even the royalty was among his clientele. Whilst this works beautifully in luxury, this concept transcends high end segments and is much more broadly at work than you might think.
“Scarcity can be a catalyst for growth” – John C. Maxwell
Nowadays, scarcity principles are applied in various industries. From fast-fashion, retail, gaming, automotive, to technology as well as in B2B and the service industries. It’s very broad. For instance, the fast-fashion brand H&M often collaborates with high-end designers for limited-edition collections. These collaborations create a sense of exclusivity and scarcity, as the special collections are only available for a short period, attracting a rush of shoppers early in the morning before the store opens. Nike limits the production of certain iconic sneaker models (often in collaboration with a superstar) and has marketed its vintage designs so well that they become collectible luxury items for which the demand is soaring exceedingly.
In gaming, players get incentives through points, tokens or fictional currencies that are in limited supply. Tesla is also quite exemplary in adopting lessons from luxury brands. For instance, it uses exclusive distribution by relying on as few or no intermediaries as possible to sell their product. It is interesting that many new car brands copy-paste the approach of taking super low deposits and then shout “sold out”. Few people know that these splurges are driven by ‘USD 250 fully refundable and non-committal’ deposits. Apple is another great example. Millions the world over aspire to the next product of Apple and impatiently wait for it to arrive at the stores. The demand is evident with the length of queues in front of the Apple store. The first round of iPhones comes in short supply - always.[2] So customers wait for some of the models to arrive for the second round. Similarly, the new AI assistant device called Rabbit sold out in the first 24 hours.[3] Want to get ChatGPT Pro for 20 bucks a month? Please join the ‘waitlist’ …
It's not just physical or software products. Skilled professionals and experts can be scarce too. There are very few, for example, sharply focused experts such as for example coaches for commodity traders, vintage car restoration specialists, jet acquisition lawyers, SAP automotive warranty leads and so forth. These experts can command the price for their services, and they choose who to work for and who not to work with, and at what terms, rather than the other way around.
If you look closely, there are many non-luxury brands and service offerings accross a variety of industries that effectively use the scarcity principle to drive interest, increase demand, boost sales, retain full (or even ‘top up’) margins and create sticky-loyalty. The equivalent from an employer branding or EVP (Employer Value Proposition) point of view is the introduction of fringe benefits, multi-year stock option plans etc. Not for everyone and attractive precisely for that - and hard to let go once you are used to it.
“Scarcity creates value” – Kevin Harrington
The key for scarcity to work is communication. There is a reason why luxury brands should their products, dreams and aspirations from the rooftops to the masses. From live-streamed high-end events (streaming is for everyone, being at the event is not) to influencer marketing and high-level digital, product-placement, out-of-home and media spend. The more people who hear the message, and the less who can have/access it – the better for scarcity to work in your favour.
Regardless of what industry you are in, you can start applying scarcity principle through very practical ways too.
Without a doubt, these are but thought starters for your own journey of using scarcity to your advantage. By strategically incorporating scarcity into your business and marketing tactics, you can stimulate interest, drive sales, achieve higher price points, better margins, stronger retention and create a perception of exclusivity.
However, beware: Luxury brands teach us that scarcity alone has very little power. Whether it is because something is literally scarce or because the brand implements scarcity as part of its brand strategy, it only works when, simultaneously, the rest of the work is done with a culture of excellence too. Scarcity is not a shortcut and should never come at the cost of the quality of whatever you offer.
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[1] World’s Lightest Mechanical Watch Revealed Thanks to Graphene, University of Manchester, 13 Jan. 2017, www.manchester.ac.uk/discover/news/worlds-lightest-mechanical-watch-revealed-thanks-to-graphene/.
[2] Ruffatti, Isabella. “IPhone 15 Sold out in Less than an Hour.” Amateur Photographer, 15 Sept. 2023, amateurphotographer.com/latest/photo-news/iphone-15-sold-out-in-less-than-an-hour/.
[3] Nolan, Beatrice. “A Sleek $199 AI Assistant That Promises to Handle Your Digital Tasks Sold out in a Day - but More Are on the Way.” Business Insider, Business Insider, www.businessinsider.com/ai-device-tech-replace-rabbit-r1-sold-out-2024-1. Accessed 17 Jan. 2024.