What is Scarcity?

Scarcity simply means insufficiency or shortness of supply. In economics, scarcity is the result of people having “Unlimited Wants and Needs,” or always wanting something new, and having “Limited Resources.” Limited Resources mean that there are never enough resources, or materials, to satisfy or fulfill, the wants and needs that every person has.

Scarcity also includes an individual’s lack of resources to buy commodities. It refers to a gap between limited resources and theoretically limitless wants. The notion of scarcity is that there is never enough (of something) to satisfy all conceivable human wants, even at advanced states of human technology.

SCARCE COMMODITY

A scarce commodity is one that has more quantity demanded than the quantity supplied. One can say that for any scarce commodity there is a possible existence of conflict over the possession of a finite good and the ownership of one exceeds the ownership of the other.

Scarcity falls under three distinct categories:

Demand induced scarcity:

This happens when the demand for resources increases and the supply remains the same or reduced.

Supply induced scarcity:

This is like the opposite of Demand induced scarcity, it occurs when the supply of a resource is low compared to the demand.

Structural Scarcity:

This occurs when the problem is one distributor and a part of a population does not have equal access to resources due to a reason or the other e.g political conflicts or location.

Sometimes selling a commodity that is scarce can be annoying, it seems that people are already getting used to the unavailability of these commodities and demand for them reduced but here are some benefits attached to having ownership and selling of a scarce commodity.

FOMO (Fear of Missing Out):

FOMO is characterized by the desire to stay continually connected with that others are doing. One of the most well-known scarcity studies was conducted by Stephen Worchel in 1975. He and his colleagues offered subjects cookies in a jar. One jar had 10 cookies and the other had 2 cookies. Surprisingly subjects preferred the cookies from the jar with two in it even though the cookies in both jars were identical. Psychologists proved that they believed that the reason why the first had 10 cookies was that the cookies were available and the reason why the other has 2cookies was that it was scarce. So the subject prefers to buy scarce commodities over always available ones.

Scarce commodities become even more powerful, it was proven as a driver of desirability. Dr. Micheal Lynn, a professor at Cornell, compiled a list of explanations psychologist and researchers have found over the years that examines why scarcity increase desirability.

Let’s break down these three main categories:

• Scarce commodity feels exclusive: Those who have scarce commodities have exclusive access, which is not openly available to others. This, in itself, makes a scarce item more desirable. This is why clubs have VIP areas, airlines have special membership lounges e.t.c
• Scarce commodities appear more valuable: According to the law of supply and demand, items in low supply often cost more and therefore scarce items are expensive items that act as status symbols.
• Scarce items make sellers feel powerful: Owning a scarce commodity means you have access to something other people want but can’t have, which gives the owner power.

Scarcity Marketing

The primary benefit of using scarcity marketing in your business is being able to position your products as services as a commodity. This drives up the perceived value of what you are selling and the fear that it has limited availability makes people act fast to purchase.

Scarcity marketing when done effectively also represents an opportunity to engage your audience in a new way. By creating an interesting background that shares the reason for the scarcity or creating catchy captions. It can also create powerful loyalty among your audience.