Tuesday, 6 January 2015

Billy's Thirty-seventh Law: The importance of urgency...the effect of scarcity

 Everything I learned about marketing I learned by watching infomercials and direct marketing ads.

The first law about pricing was about the importance of choice.  The second speaks of urgency.  Urgency forces the brain away from the timely rational and towards the impulsive emotional.  This is an important part of all buying behaviour, and has a special effect on price sensitivity. 
When we panic, our brain chemistry changes.  This reaction, part of the fight of flight response, moves our brain into a reactive mode.  This is crucial when confronted with say…a sabre toothed tiger.  It is not so important when the announcer tells us that this is a ‘Limited time offer…quantities are limited…call that toll free number in the next five minutes.  The same brain chemistry kicks in…all be it in a limited way. We react rather than acting rationally. 
The twin of urgency is scarcity.  The laws of supply and demand tell us that where there is high demand, and limited supply, prices begin to increase.  In a great podcast from Planet Money, from National Public Radio in the US there was a great story on the reselling of Nike sneakers.  Those who purchase limited edition shoes early can often double or triple their money at resale. (I have referenced the website below…check it out it is very interesting.)
During the 2010 Olympic Winter Games, tickets to the Gold Medal between Canada and the USA sold for thousands of dollars, due to the high demand (the host nation in the gold medal match) and limited supply.
Sometimes, urgency and scarcity just happen.  Sometimes we can work to make them happen.  Limited editions of prints are an attempt to limit supply.  Time limited availability creates urgency.  You can use these techniques to influence demand or supply and therefore move your prices higher. 

Trying to create scarcity can backfire.  In anticipation of demand for the 2015 World Junior Hockey Championships, the Montreal organizers raised ticket prices to a rate much higher than the NHL Canadiens.  The result was empty seats in the stands…taking away for the overall hockey experience.

Scarcity and urgency affect consumer behaviour and price sensitivity.  Creating, or at least understanding these two pillars of your customers' mind will help you develop a more robust pricing policy.

Happy New Years.  I look forward to more posts as the year progresses.  This is a great time for forward planning, change and business development.

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