Artificial scarcity builds up demand and helps you manage your customers. But should you give it a try?
If you started a company and turned down new customers, that would be crazy, right? Well, that's exactly what Zirtual, an online virtual assistant service for busy professionals, did when it first launched.
Maren Kate Donovan, Zirtual's 28-year-old founder and chief executive, started the company three years ago. But her invitation-only model wasn't just a gimmick, it was out of a major necessity. "We were very small," she said in an interview. "We had just a few people working for us, and we had clients send invitations to their friends as a way to manage the flow."
As luck would have it, her strategy worked. Now Zirtual has 35 full-time employees in Las Vegas and "several hundred active assistants" working around the clock so it can handle demand and was able to open its service--which starts at $99 per month for dedicated support and offers up to fifteen 15-minute tasks--to everyone. "It definitely helped us feed and then grow that community and it helped generate business," Donovan said. "Ninety-nine percent of our business was through existing [users] sharing invitations."
It Pays Not to Let Everyone in the Club
As we approach the 10th anniversary of two of the world's most popular web services--Facebook and Gmail--it's important to think about Donovan's invite-only strategy and why it was so successful. Facebook, which turns 10 next month, claims 1.2 billion users today. But back in 2004, it only allowed students with college email accounts to sign up. Meanwhile, Gmail, which launched in beta on April 1, 2004, says it has 425 million active accounts but famously restricted access by making everyone secure an invite. The result was remarkable: Facebook ushered in the social network era and demand for Gmail was so huge that a black market for Gmail invitations popped up, with people selling them on eBay for $100 or more a pop.
Get the Price Right
Here's another example of how managing demand can reap profits. Peter Watkins runs a men's accessories startup called Sette, which sells a collection of hand-folded and hand-stitched ties for an eye-popping $445 each. Each design is limited to only seven numbered units, much like a work of art, so customers know what they're getting is nearly unique. "We're still a very small business with distribution strictly through our website, a few boutiques, and occasional pop-up shows," he said. "The idea of the brand is to create a club for men who like nice ties they won't see or find on other people's necks." With most of his ties selling out, the strategy seems to be working.
Perception Is Everything
Most of Duncan McCampbell's work involves helping graduate programs at American universities attract more qualified foreign students, particularly from China. To do so, he often says each U.S. program will only accept a limited number of foreign applicants. "The Chinese are hard-wired to respond to scarcity-based competition," he said. "Everything good and desirable in Chinese higher education is very scarce and subject to intense competition. Parents [who fund their child's studies] want to tell their neighbors that their son or daughter was one of four candidates selected to a highly selective university MBA, JD, or LLM program in the U.S." In relying on the scarcity strategy, McCampbell, his clients have consistently met foreign enrollment targets without compromising admissions standards.
Turn Problems Into Solutions
Some business owners might see a surge of business as a bad thing when they don't feel prepared to handle it. Others might view it as a chance to build up demand. The takeaway here is that you want to take what could be a fatal flaw and turn it into a competitive advantage. If building up demand by turning away customers helps you do that, you might want to give it a try.
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