How does the Scarcity Principle Works?

‍

How often have you scrolled through Amazon and landed on today’s deals?

Source: Amazon

‍

How often have you clicked on it?

‍

If you're like most people, you've likely clicked through to see what deals are available, even if you didn't necessarily intend to buy anything. The psychology of scarcity makes us curious and drives us to explore limited-time offers. The designers at Amazon and hundreds of other brands are using the scarcity principle. The scarcity principle is one of the most effective ways to convert users into customers by creating a sense of urgency and fear of missing out.

‍

What is the scarcity principle?

‍

The scarcity principle refers to the idea that people will buy more when something is promoted as being in short supply. If a product is promoted as being scarce in terms of time, availability, or quantity, then the desire to obtain it increases. Users will often buy the product on impulse, thus leading to faster conversion rates. This taps into our psychological bias towards scarcity - we tend to place more value on things that are rare or difficult to obtain.

‍

This is often used in marketing campaigns and advertisements. A recent real-life example includes people buying a lot of toilet paper during COVID-19. This can be understood with simple economics too. That is, when the supply of a product decreases, the demand increases.

‍

It is most commonly used in eCommerce or booking websites where a "sale ends in 2 hours" or "2 items left in stock." This triggers a fear of missing out and urges customers to purchase quickly before the deal/item is gone.

‍

Background of scarcity principle: Pioneering work by psychologists

‍

The fields of behavioral economics, judgment, and decision-making were transformed in the 1970s by psychologists Amos Tversky and Daniel Kahneman. Finding the cognitive biases and heuristics—mental shortcuts—that systematically and erroneously affect human decision-making was a key component of their study.

‍

Loss aversion, or the propensity for people to strongly favor avoiding losses over obtaining similar benefits, was one of the major biases they noted. This contributes to the explanation of the scarcity principle: we are more inclined to act in order to prevent losing out on a perceived loss, such as a rare chance, than we would be to seek easily obtained alternatives, such as possible rewards. 

‍

The groundwork for a deeper understanding of how human aversion to loss and scarcity influences decision-making in a variety of contexts, including economics, marketing, negotiations, and more, was established by Tversky and Kahneman's seminal study.

Based on these findings, psychologist Robert Cialdini rose to prominence as a pioneer in the area of persuasion and influence. The concept of scarcity was one of the six main principles of persuasion that he described in his 1984 book "Influence: The Psychology of Persuasion." 

‍

Cialdini provided other research and real-world examples to demonstrate how perceived scarcity drives demand, such as restricted entry to clubs or services or limited food supplies.

The ramifications go well beyond what consumers did. According to Cialdini, scarcity might increase effort allocation, guarantee that instructions were followed more effectively, encourage compliance with requests, and more. People were highly motivated if they felt that something was in short supply.

‍

Scarcity Principle works on three important cognitive biases

‍

Loss aversion

‍

People buy a product if it is scarce to avoid losses. The pain that follows a loss is perceived to be greater than the pleasure that follows a gain. For example, special occasion deals like Black Friday Sale or Independence Day Sale lead more users to buy a product to avoid loss of getting the product at a cheaper price.

‍

Source: Myntra

‍

Anticipated regret

‍

Otherwise known as FOMO, people anticipate regret if they miss out on something or make the wrong decision. According to a study by Eventbrite, 69% of millennials (who also have purchasing power)  experience FOMO. Regret often follows after we have missed out on an opportunity or taken the wrong decision.

‍

Users predict that they will regret not buying a limited-stock item if the item goes out of stock in the future. This urges them to buy the product. For example: WhiteHat Jr shows copy “Limited Spots Left” for their coding classes.

‍

Source: White Hat Jr

‍

Social proof

‍

This refers to the phenomenon when people who don't know what to do would turn towards others to guide their next action. A tourist will look at a queue and stand there to buy a ticket or teenagers will copy the next trendy outfit promoted by social media influencers.

‍

In websites and apps, messages like testimonials, positive reviews, or how many people bought a product and similar products are all examples of social proof. One of these websites is Udemy that showcases testimonials of learners.

‍

Source: Udemy

‍

How ethical is the scarcity principle?

‍

The scarcity principle is one of the many principles of persuasive design practices. The persuasive design uses these cognitive biases and behavioural science to influence decision-making.

‍

It meets the goals of users and businesses by giving cues for a faster decision-making process. The question of ethics comes into the picture when persuasive design becomes deceptive design where information is deliberately hidden like hidden costs, shaming users to buy a product, or use of false testimonials. 

‍

Overdoing the use of the scarcity principle can also be dangerous. For example: If a sale deadline was today, but it continues tomorrow and the day after, users can feel betrayed.  They will lose their trust. If they felt pressured to buy the product, they will seek a return, refund, or write negative reviews. All of this can make them never buy the product again.

‍

How can I use the Scarcity Principle in UX design?

‍

Give Honest, Limited-Time Offers

In order for limited-time offers to be effective as a scarcity strategy, they must be genuine and transparent. Advertising a "one-day sale" that ends up being prolonged indefinitely will mislead users and you will lose their trust. Indicate in simple English when the promotion will begin and stop so that users know when to take advantage of it. Nykaa effectively expresses the finite nature without misleading by emphasizing phrases like "Only 3 Days Left!" Temporary promotions provide a sense of urgency, but if that sense of urgency is false, it will backfire and damage credibility. Tell the truth about when sales and discounts expire.

Source: Nykaa

‍

Create a sense of Urgency in Copies through words like Instant, Hurry, Now, Soon, Close, Fast, and Today

One effective method to use the scarcity principle is through word choice. Users may be encouraged to act swiftly out of a fear of losing out by using active language that conveys scarcity and urgency. Bigbasket successfully does this by utilizing exclamations like "Only A Few Left!" and "Hurry, Shop Now!" in their product descriptions. Some terms that convey a sense of urgency include immediate, soon, close, rapid, and today. But use caution—using them excessively might come out as spammy marketing. However, well chosen wording might provide that beneficial nudge toward conversion.

Source: Bigbasket

‍

Use a Countdown Timer for Temporary Discounts

Because countdown timers are active and visually appealing, they work incredibly well to evoke a sense of scarcity. The sense of time literally running out intensifies urgency. In a clever use of this, The Interaction Design Foundation displays a countdown clock for their exclusive course discounts. Honest countdown clocks should cease the promotion when the timer reaches zero. When used transparently, timers give a clear call-to-action that the scarcity window is closing.

Source: Interaction Design Foundation

‍

Use Scarcity of Quantity to show Real-Time Stock Shortages

Presenting stock levels and quantity scarcity in real time is particularly effective for items with low inventory. Reminders such as "Only 2 left!" are displayed on platforms like Tata Cliq to indicate when stock is running low. This causes a psychological response since we don't want to pass up the opportunity to purchase an item before it disappears. Naturally, this strategy should only be applied to actual shortages in inventory—not just imagined ones.

Source: Tata Cliq

‍

Remember to always conduct A/B tests and usability tests to find out how users feel about these messages. Even while scarcity may be a strong incentive, it's important to find the correct balance and not push things too far. Users may feel anxious, suspicious, or even exploited if scarcity techniques such as countdown timers, low stock alerts, and persuasive language are used excessively quickly. There can be a fine line between controlling and inspiring. Because of this, thorough testing—qualitative as well as quantitative—is essential.

‍

You can evaluate the performance impact of employing scarcity concepts, such as limited-time deals, versus regular promotions by using A/B tests. However, statistics don't provide a whole picture. The feelings that consumers have about various scarcity implementations may be discovered by combining that quantitative data with more in-depth user research methods like questionnaires, interviews, and usability testing. Are they feeling valued and empowered to take action, or misled? 

‍

Thorough user feedback is essential to guarantee that scarcity concepts stay within ethical bounds. Testing should indicate whether users frequently express feelings of dread, distrust, or exploitation. If so, you've crossed a red line. The best use of scarcity principle is when you motivate your users while respecting their liberty in making decisions.

‍

Conclusion

‍

The scarcity principle makes us place a higher value on items perceived as scarce. This explains why luxury items like bags and cars get sold at higher prices even if they appear ordinary. It is a powerful psychological principle that plays on cognitive biases and can be leveraged in UX design to increase conversion rates. Be it signing up, purchasing a product, or completing a task, it can urge users to take action. But it is essential to use this tool ethically and not deceive users. The ethical line may sometimes be blurry, which is why rigorously testing scarcity implementations across quantitative measures like conversion rates and rich qualitative user feedback is so critical. Only by combining data with careful observation of how different scarcity tactics make people feel can organizations find the right motivating balance without veering into anxiety-inducing or deceptive territory. In the end, the goal of UX design is to create useful, usable, and pleasant products for users and this principle can help in achieving these goals.

‍

Are you looking to use this principle in your design to increase conversions? Our team at Alien has a decade of experience in ethically and effectively using scarcity to boost sales. Just drop us an email or hop on a call with us to know about our past work and how we can help you scale greater heights.

‍

‍

‍

Read More:

5 Key Factors to Consider When Choosing a UX Design Agency: Visual Design Expertise

6 Step Guide to Master Dashboard UX Design

Best UX Strategies for User Retention that Actually Works

‍

‍