Rishi Khanna is an Entrepreneurs' Organization (EO) member in Dallas and founder and CEO of both ISHIR, an offshore outsourcing custom software development company and Digital Success, a digital marketing agency. As a market strategist and sales growth methodologist, we asked Rishi about the prevalence of scarcity marketing and how its tactics impact purchasing decisions. Here's what he shared.

It's human nature that when we're told we can't have something, our determination to get it grows stronger. McDonald's has been teasing consumers with the McRib for limited engagements since 1982. When television shows such as Arrested Development and The Mindy Project were cancelled, determined fans circulated petitions to convince Netflix and Hulu, respectively, to purchase the rights to shoot additional seasons. And a multitude of discontinued snack products inspire devoted fans to scour the internet to uncover every last available package.

Savvy marketers have taken note of this innate behavior and leverage it to grow product sales. With Black Friday "Doorbusters" upon us, let's examine the mechanism behind scarcity marketing.

Have you ever been product stalked?

I have, and while I like to think that as a marketer I'm immune to most marketing strategies, my behavior indicates otherwise.

One morning at 7:13 a.m., a message appeared on my laptop, seemingly screaming to get my attention:  Designer sunglasses: Regular price: US$229.99. Now: US$89. Sale price ONLY available while supplies last.

I was tempted, as I had recently browsed that particular pair. The battle between restraint and temptation began. I already had enough pairs of sunglasses and certainly didn't need another. Temptation, however, made a strong case: "That's less than half the original price! And only available while supplies last. What if I never find them at such a great price again?"

Restraint somehow prevailed. I closed my laptop, showered and got dressed to go to work.

But as I drove, my thoughts lingered on the sunglasses and the deeply discounted price. I imagined myself wearing them. I'm almost embarrassed to admit that I gave in to temptation and purchased them. It was a great price, though.

I was a victim of FOMO?fear of missing out?the pervasive anxiety that I would miss out on something great unless I acted immediately. I despise e-commerce for this fear-based marketing tactic, but even so, they got my US$89. 

How fear impacts purchasing decisions

Marketers amplify FOMO by offering exclusive products, private invitations and limited time offers. Hurry, while supplies last! Preorder now for a special price. Only two seats left!

Amazon uses an inventory update, "Only 4 left in stock," to create a sense of urgency. Then they double down, asking, "Want it tomorrow?" so consumers are propelled toward purchase.  

FOMO manipulates our basic human psychology of wanting to possess something that we don't have and combines that motivation with an opportunity for purchase, then adds fear by imposing a looming deadline.  

Scarcity marketing drives sales

The holiday season is often rife with scarcity marketing tactics. I remember at Christmastime when I was a child, my mom would buy things we didn't need from clearance sales at stores that advertised they were "Going Out of Business!" Eventually, I realized that these stores never actually closed. They were using the concept of scarcity as the catalyst to pry open Mom's wallet.

Scarcity marketing takes another form when the product is perceived as an exclusive, limited edition product. OnePlus mobile phones is a prime example. In 2014, the company sold almost a million smartphones without a brick and mortar retail presence. How? They created exclusivity for their limited-edition phone by offering its purchase through a digital invitation only. This drove demand for "the phone that wasn't sold in stores." It's counterintuitive, but the aura of mystery grew, and people couldn't resist. They didn't want to miss out.

Starbucks operates a popular time-based scarcity marketing strategy with its pumpkin spice latte. Have you had one this season? You better hurry?they're only available for a limited time.

Recently, B2B brands have joined the scarcity marketing club by offering limited registrations to webinars with noted speakers?it seems like there are always only a few seats left. Is there no end?

5 Dos and Don'ts of Scarcity Marketing

Scarcity is a powerful marketing tactic, not only for increasing sales but also for establishing your brand's perception in the marketplace.

With so many nuances involved, how can you leverage the strategy in your business?

  1. Don't overuse it. Year after year, though my mom couldn't resist clearance sales, I became wary of such stores. Scarcity marketing must be used sparingly. Your product or service must be perceived as valuable when it's marketed as scarcely available, but not as something that is scarce twice per year like clockwork.
  2. Subtlety is crucial. Consumers should not be able to readily detect scarcity as a sales tactic. Nor should they be able to predict it. It has to be subtle. Execution is critical to driving sales through scarcity.
  3. Vary scarcity marketing tactics to maximize impact. The product or service you're trying to sell should genuinely be exclusive, valuable or available for only a limited time?or a combination of all three. Woot and Groupon, for example, offer hard-to-resist discounts on products for a short window of time. One must literally grab the offer before it vanishes.
  4. Don't saturate the market. The week after I bought the designer sunglasses, another special appeared on my laptop: the Oakley Tincan Ferrari sunglasses mocked me, but this time I didn't yield. Why? Because I'd seen that exact ad a couple of times before. Restraint won, because the marketers didn't do a great job of camouflaging the true scarcity of the product at that price.
  5. Plan ahead for a spike in demand. If scarcity marketing works for your brand, be prepared for increased traffic. And, be sure to have a strategy in place to manage higher product demand?the goal is not only to create enough scarcity to drive demand but also to have enough product to fill the orders.