photo credit: Ken Bondy
Shark Week is here! We needed to wait an entire year, but finally one of the best weeks in television has arrived with hours of gnarly shark attacks and great whites leaping out of the water at seals in life-or-death chases. The waiting has put me in such a fervor that the Shark Week Countdown clock took over my homepage. Fortunately though for all of us shark fiends, the Discovery channel has brought us the joy and awesomeness of this week for the past 25 years. Yet, with access to YouTube and the rest of the Interwebs, why is Shark Week met with such intensity? More importantly though, what can Shark Week teach us about an effective pricing strategy? Well, the answer lies in our old friend: scarcity.
Shark Week, like Diamonds or McRib sandwiches, is a scarce resource that only comes around every so often. We could have shark programs on throughout the entire year like Deadliest Catch or a Jaws DVD on repeat, but having it just once a year makes it a promotional and exciting event. The buzz is the brilliance of artificial scarcity; it gets people excited, allowing products and services to have a higher perceived value, rarity, and price. To fully understand how you can utilize scarcity throughout your business and pricing strategy, let’s explore the phenomenon a bit more.
Mastering the art of artificial scarcity to create urgency
No company on the face of the planet has utilized scarcity more effectively than De Beers diamonds. We’ve all heard, “a diamond is forever,” and that their rarity is something to be cherished. Yet, although a diamond may last forever, they are anything but rare. Instead, diamonds are actually one of the most plentiful resources in the world, with over 57,000 pounds being mined each year. Yet, De Beers controls over 80% of those diamonds, only selling a small fraction per year on the open market, because, as Ernest Oppenheimer (former head of De Beers) once said, “common sense tells us the only way to increase the value of diamonds is to make them scarce.” The result is an artificial scarcity that plays directly into their marketing of a diamond being so unique that the little glimmering rock is the only thing worthy of your unique love.
Of course, we’re not all selling diamonds, nor do you necessarily control a majority of a particular product or service. After all, the rise of the cloud and development resources makes the barrier to entry in the software industry relatively low. The secret then lies in the limited time offer. Think back to our shark friends. We can easily hop on YouTube to get our shark fix, but with countdown clocks and heavy Shark Week advertising, Discovery tells us that this week is only here once per year. During this fateful week, the Discovery channel actually has some of the highest ratings on television, compared to barely breaking the top 50 throughout the rest of the year. Similarly, the limited time offering of the McDonald’s Mcrib boosts Ronald’s sales significantly, with people flocking to the barbecue goodness.
Individuals realize that with a limited time they must act quickly to enjoy the offering. The beauty here is that you can relive the limited time offering more than just once per year, which is the common practice in the retail industry. We chatted a bit more about retail pricing strategy and psychological pricing previoulsy. AppSumo masters this phenomenon on a daily basis with countdown clocks on every single course or deal they’re offering. Take a moment to notice that those clocks don’t actually expire, but they still create urgency amongst customers.
The Real Secret: Create Real Scarcity
DeBeers, McDonald’s, and Discovery create real scarcity through controling supply, offering their products in limited amounts and time. In fact that’s the true, lexical definition of scarcity, limiting labor, raw materials and/or capital. If we didn’t have these limitations in our world, we’d all be stuffing our faces with McRib sandwiches while lounging in our diamond encrusted, waterfront mansions watching Shark Week every week. Yet, real scarcity does exist. In terms of Shark Week, there are only so many camera crews, scientists, divers, boaters and studio producers. There simply isn’t enough to create the supplies to film a new shark show every day or even every week. This “real scarcity” plays into the marketing for Discovery to combine it with their limited time offer and get all the shark fanatics in a tizzy one week per year.
Yet, part of creating overwhelming demand for your product is to actually have something so unique and scarce that individuals have no other option but to flock to your business. We touched on this above, but in most web businesses true scarcity is hard to produce, because of the relatively lower barriers to entry. Competing with Discovery’s shark week would be fairly difficult, but with wordpress, shopify, etc. competing with another online business becomes relatively easy. The answer for your business exists in differentiation.
Look at Gemvara for instance, a high-end, fully customizable online jeweler. When creating their business, they could have just as easily made a static site that sold luxury jewelry from top designers. Through unique marketing, limited time offers, and traditional retail practices they may make a very small dent in the jewelry industry. Instead, their customization feature causes customers to become hooked on Gemvara, because no one else can compete with their unique offer of being able to make exactly the piece of jewelry they want. When you differentiate your product from your competition within your target customer segments, you create real scarcity and real demand, because you’re the only one with your unique offering. Then, when combined with some artificial scarcity surrounding your price, the sky's the limit.
Overall, the biggest lesson in scarcity is that, just like sharks, you can never stop moving. You need to consistently combine aritifical and real scarcity within your pricing strategy. DeBeers needs to constantly buy new diamond reserves that are found; Discovery channel needs to consistently make every Shark Week spectacular; and McDonald’s needs to keep the McRib coming back at unique times throughout the year. Creating artificial and real scarcity is an art that requires dynamism that constantly reacts to the market and is proactive to customer needs and wants, because as soon as you lie down, you’ll drown. Just keep swimming.