Telling consumers when availability is low has two effects: 1) the scarcity effect induces some customers to buy while they can for fear of missing out; and 2) seeing customers rushing to buy prompts others to follow suit, in what’s known as the herding effect. Product popularity is taken as a proxy for product value. Harnessing these effects can boost sales.
However, it can also backfire. Customers driven by scarcity pressure may spend less time shopping around and make an impulse purchase less aligned with their needs. And customers following the herd may buy a product that doesn’t live up to their expectations. In both cases, customers may be left feeling disappointed and ask for a refund or return, which can be costly for a business, especially if any moderate sales gained through pressure selling were cancelled out by a massive number of subsequent returns.
How profitable is it, then, for a firm to display this information?
Authors: Eduard Calvo, Laura Wagner, Ruomeng Cui
Source: IESE Insight
Subject: Marketing / Sales