Scarcity Principle: What It Is and How to Apply It to SaaS Marketing
By job description, marketers are responsible for identifying customers’ needs and goals, and presenting their product or service as a solution. If only the buyer’s journey was as simple as awareness, consideration, and decision.
In reality, our prospects are weighing their options while being continuously exposed to new information. Google calls this “the Messy Middle” of the buyer’s journey – an almost infinite loop of exploration and evaluation. To interrupt this cycle and move potential customers towards taking actions, marketers have borrowed from psychology and behavioral economics.
One of the effective ways to influence potential buyers is by using cognitive biases, and the 6 that are applied most often in marketing are the power of free, social proof, authority bias, category Heuristics, and today’s topic, the scarcity principle.
Brands can use the scarcity principle to persuade people to fill out a lead form, purchase a product, or take another desired action.
What Is the Scarcity Principle
The straightforward definition of the scarcity principle is that as stock or availability of a product decreases, it becomes more desirable.
In other words, people want a product more if they believe that it soon won’t be available to them.
In marketing, this scarcity principle has recently proven to be a powerful tool to influence people’s decision-making process, as the pressure of knowing that a product in high demand will soon be unavailable pushes them towards taking action quickly.
Why Use the Scarcity Effect
The scarcity effect was explored in an experiment, conducted in a supermarket. The participants were asked to buy tins of soup, all of which were for the same price.
The people were divided into three groups. One of them had no limit on how many soups they could purchase, the second group was limited to buying 4 tins of soup, and the third group – to 12 tins.
The average soups purchased per group were as follows:
- First group (No limit) – 3.3 soup tins
- Second group (Limit of 4) – 3.5 soup tins
- Third group (Limit of 12) – 7 soup tins
The change in limitation subconsciously nudged people into action.
The limit of 12 soups was much higher than the normal amount one might purchase, but the limitation alone influenced people to buy a lot more than they needed.
But why is that?
We subconsciously link the limited availability of a product with high demand. And usually, high demand is connected with high quality or great price to quality ratio.
On top of that, humans have an inherent fear of missing out – also known as FOMO.
When the product’s availability becomes limited, this fear becomes stronger, further influencing us towards making a purchase.
The psychological connection we make between scarcity and quality, combined with the FOMO effect, nudges customers towards not only taking action, but doing it fast.
The heuristics in the principle of scarcity are different than in other marketing strategies, as customers don’t necessarily get additional information about the product that might influence their decision.
Instead, the scarcity principle sends signals to the customers about the product’s availability, which later get interpreted by the customers the way they perceive this signal.
Because of this, the scarcity heuristic becomes a powerful tool when marketing your product to new customers.
The scarcity effect can also play a key role in your remarketing strategy for SaaS as well. People who have been exposed to your brand might feel greater pressure to convert, once they realise they have the opportunity to receive an exclusive or limited offer.
3 Scarcity Models
Now that we know what the scarcity principle is, let’s look at the three main limitations marketers use to influence their customers’ decision making process.
This form of scarcity is used when there is a time limit on a product’s availability. When there is a deadline, customers usually are inclined to act before the offer is gone.
This timeframe can be whatever the marketer decides. Depending on the product, the time limit can be a couple of hours, or a couple of months in the future.
Seasonal sales, holiday campaigns such as Valentine’s Day flash sale, or Black Friday campaigns are all use cases for the scarcity principle.
Limiting the supply of a product is perceived almost as a threat to the freedom of choice to consumers. This usually triggers a desire to maintain their access to the product by actually purchasing it.
The experiment with the soup tins from before is a great example of a quantity limit. It also shows how there must be a strategy in where the limit of the quantity lands. As seen in the experiment, sometimes limiting quantity too much is not always a good strategy.
Limiting the amount of information, options, or other features is done to emphasise their value. By not letting customers have access to a particular part of the product, they are inclined to purchase the full product in order to feel special that they have access to an exclusive feature.
Freemium SaaS models, for example, are regularly using the scarcity principle for upselling opportunities.
Scarcity Bias Examples: 3 SaaS Brands That Have Nailed the Scarcity Principle
Let’s look at a couple of real life examples of how the scarcity principle can be applied to SaaS marketing.
AppSumo offers tools and a platform for small businesses and apps. When you visit their website, you’ll see some of their offers have a green banner that states the offer will end at a certain point in time – a perfect example of putting a time limit to use the scarcity bias.
Superhuman is an email app that used a very interesting marketing strategy to promote their launch.
They’ve introduced a waitlist for the people who’ve shared their contact information. These leads are then invited to a special session that would feature unique offers, introductions to the product, and access to advanced features.
However, some people in the waitlist are invited to skip the line and get access to this session twice as fast. This message is phrased in a way that makes users feel like exclusive winners, once again feeding into the scarcity effect.
Dreamhost is a web host and a domain registrar. They had a big sale of both their hosting service and domain registration service recently. However, both sales were different, with the domain service having a much higher discount.
The brand’s message is that the hosting promotion was valid only for new account registrations, while the domain promotion was also available to current customers.
With this strategy, Dreamhost is putting a constraint on the offers, shifting the focus towards one of the promotions. The domain registration service has a much bigger discount and is opened both to new and existing customers.
On the other hand, limiting the hosting service discount to new customers also makes the offer look exclusive and can drive new customers towards making a purchase.
There are numerous ways you can apply the scarcity principle when marketing any kind of product. All you need is a compelling and smart strategy which can elevate your SaaS marketing to the next level.
On a roll? Take a look at another cognitive bias you can implement to SaaS marketing – the authority bias and great examples of how brands are using it.