Scarcity as a marketing strategy
Small businesses may not have the business model of luxury brands like Ferrari, Rolex, and Hermes. That doesn’t mean we can’t learn something from them.
I’m a huge fan of Ferrari. Not the cars, per se, but the company1. I’ve always been an admirer of the history, the culture, the branding, the marketing, and everything else that keeps its name at the peak of the proverbial sports car mountain. When there is an article deep-diving some part of the company, whether it’s their historic Formula 1 team, the creation of their newest vehicle, or the story of their founder, Enzo, I’m sucked into it every time.
In reading a recent feature in the Wall Street Journal, I was reminded of their brilliant use of scarcity as a marketing principle, and got thinking about other brands that utilize this strategy.
A brief explanation, if you’re not read up on Ferrari. While you can generally buy a used Ferrari car through a Ferrari dealer with no issue (other than, you know, the price), it is nearly impossible to purchase some of their brand-new ones, especially if you are in search of one of their highest-end cars. Take the recently-announced hypercar, the F80. With a price tag of over $3 million, you would think that just writing a check with a lot of zeroes would be enough to secure your own.
Not so fast, my high-rolling friend. Just having the cash to purchase a Ferrari isn’t enough. The company only makes a limited number of each model, and they ensure that those vehicles go only to the best customers. You need to effectively be in a “long-term relationship” with Ferrari – you need to have a collection of other Ferraris, and have purchased your newest Ferrari somewhat recently. You also need to sign a contract preventing you from selling it on the secondary market for a period of time, that way they know you are buying it because of your love for the vehicle.
Ferrari thrives off of the idea of scarcity. In 2024, they manufactured the most vehicles they ever had – 13,752. In contrast, General Motors sold 2.7 million. Even Porsche made over 300,000. Very few companies produce as few cars as Ferrari does each year. And yet, Ferrari is worth around $90 billion, as measured by its stock market cap2. The company grows their production a bit each year to ensure consistent growth, but, in the manner of Enzo, they always leave some demand on the table. In the founder’s famous words, “Ferrari will always deliver one car less than the market demands.” In actuality, they likely produce hundreds less than the market demands. They utilize their various racing teams to grow the love of the brand, produce some of the highest-quality cars ever made, and then ensure that even those that can afford to purchase one have a difficult time doing so. They barely whet the appetite of the consumers who want their product.
That scarcity feeds future demand, while also allowing them to sell product for an enormously-high price. Other luxury brands utilize the same strategy. Patek Philippe (the watch company) does this on a regular basis3. Rolex is one of the most well-known watch brands in the world, and in fact they control 30 percent of the total watch market, more than the next six brands combined. They advertise their brand in the highest-end events: tennis Grand Slams, Formula 1 races, fashion shows, etc. They produced 1.2 million watches in 2023 – yet they also ensure that availability of their product is scarce. That’s why second-hand Rolexes can often fetch 50 percent more than their original retail price. “The luxury industry is built on a paradox,” said Hermes CEO Patrick Thomas. “The more desirable the brand becomes, the more it sells, but the more it sells, the less desirable it becomes.”
Now, obviously luxury brands have a leg up on any small business. Most of us are not selling a product that only the top 0.0001 percent can afford. Most of us are looking to offer our services or products to as many customers as possible. But scarcity is a crucial piece of driving human behavior, and at the end of the day that’s what most of us are trying to do. Whether you’re dealing with a B2B or B2C model, your ultimate goal is to convince your end user that they should engage with your brand and spend money on your offerings. If someone believes that your offerings are not always readily available, it is possible that they will be more impulsive in committing to them.
Evolutionarily, this makes total sense. When our ancestors were hunters and gatherers, the scarcity of food, shelter, and potential mates helped shape our brains to crave the impulsive behavior that most brands want us to exhibit. We may not need to forage for our food anymore, but our brains are still essentially the same as they were thousands of years ago. Think about when you were a kid and your parents told you “no” to something – a party you wanted to attend, a new toy, an extra slice of cake. Didn’t that make you want the thing even more? That’s scarcity.
There’s even science behind this. Worchel and Adewole published a 1975 article in the Journal of Personality and Social Psychology that found if there were two jars of identical cookies, but one jar was filled and the other only had a few, participants overwhelmingly chose a cookie from the jar that was nearly empty. That’s completely irrational – the cookies are identical, and the participants knew that. But the thought that there are only a few left, or that others before them wanted a cookie from that jar makes our brains desire it even more. Scarcity at work.
Why else would nearly every brand at some point utilize this strategy? How many emails do you get with the phrase, “Flash sale,” or “One-night only,” or “Act now!” or “Only while supplies last”? This idea of scarcity appeals to our natural impulses. Nintendo did this with the Switch, and Sony did this with the PlayStation 5 – they intentionally undermanufactured the initial batch to ensure the demand for the new gaming systems would last. They grew the brand, made it extremely desirable, and then made it scarce4. When consumers had trouble getting their hands on one of the two gaming systems, it seemed to increase the demand even more. Third-party ticketing websites do the same thing. When you want a ticket to a sporting event or a concert, those websites will say “Only XX seats left at this price!” It makes you think you have to act fast, and it makes you think those seats are more valuable.
However, there’s a difference between false scarcity and actual scarcity. Scarcity only works when there is strong demand for the product; when people aren’t hit in the face too often with the idea of scarcity; when consumers - who are quite smart - perceive scarcity as a sales tactic, it actually hurts more than it helps.
There are also certain companies that absolutely do not want scarcity to be a part of their brand. Procter and Gamble does not want toilet paper to be in short supply5. Sherwin-Williams doesn’t want to run out of black and white paint. Grocery stores don’t want to run out of milk. But for a leisure item, something that people want, and don’t need, there is something to be said about utilizing some level of scarcity for the betterment of a brand.
While running out of a product does not seem like a solid business model, it may have some benefit, depending on the industry you’re in and the products you sell, especially if you have little competition for your product. As the supply and demand curve teaches us, you push demand as hard as possible, and then control supply. If you’ve been working hard at building your brand, and you find a strong level of demand for your goods, there may be something to be said for ensuring that you don’t provide your product to everyone who wants it. It often leaves more on the table the next time you produce something.
Okay, I do like the cars, but I’m not in a mid-life crisis just yet.
That makes Ferrari the fifth-most valuable car company in the world, but if you remove the three companies that are valued as tech companies (Tesla, BYD, and Xiaomi), Ferrari is actually second behind Toyota.
They also have one of the most brilliant marketing slogans I’ve ever seen: “You never actually own a Patek Philippe…you merely look after it for the next generation.” So many levels of depth to that.
No one knows this more than my wife, who sat outside in the cold for an entire day just to get the Switch at its midnight release. I slept soundly through it, then asked if I could use her Switch – because that’s what a good husband does, right?
That whole mess during the pandemic wasn’t a good thing for their brand. I don’t have any friends who now say, “Man, I really gotta get my hands on that good TP.”