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You enter a department store or jeweler and notice that the Rolex display has a few empty boxes of missing Rolexes - seemingly just purchased by another big-time shopper. If you spoke to their salesman, it would reflect this, letting you know that the watches are always on backorder to show demand.
This is all to manufacture scarcity and exclusivity.
Artificial scarcity describes situations where the producers or owners of a good restrict its availability to others beyond what is strictly necessary. This takes place because the law of supply and demand ultimately states that a low supply paired with high demand will increase the price of a given product.
Using this scarcity purposefully is known as the scarcity principle of persuasion. First described by Dr. Robert Cialdini, this principle has proven that when we think a product is in short supply, we’re more likely to purchase than we would have had there been no feeling of scarcity.
There may be no more apt example than purchasing air tickets online. Many a flight ticket website will tout the fact that there are limited amounts of seats available, or that your low price will expire soon if you don’t act.
HubSpot recently ran a survey for general consumers, and of the three hundred respondents, almost half said that scarcity makes them more curious about a product.
Rolex is a luxury brand that focuses on delivering high-quality watches at a premium price while owning the entire supply chain and Rolex branding is keenly aware of this. Not only do they artificially create scarcity in stores but they also work as a supply-driven market as one Rolex watch takes nearly a year to manufacture in Switzerland.
Most luxury products, like Rolexes and diamond rings, make use of the scarcity principle to drive sales. Rolexes are set as equal to great quality that you can pass down from generation to generation, epitomizing not only luxury but a timelessness that no other watch brand has been able to replicate.
What’s key to know is that this principle doesn’t just extend to physical products, but can be applied to online purchases too.
Tech companies have employed this approach by making their platforms more exclusive - apps like Uber or the Robinhood app all started as invite-only applications. The idea is that a social value is placed on the product or service, and they leverage exclusivity to get you to sign up.
When a product is in scarcity, consumers have to face their own skewed cost-benefit analysis. They know that a product in low supply but high demand will come with a higher price tag - and they purchase it regardless because they also see the greater satisfaction that owning one will bring. Like a Rolex watch, for example.
It’s an effective persuasion strategy, if and when paired with the right characteristics. One of those characteristics? The right branding. Rolexes are considered to be more than your average timepiece, being associated with career milestones and personal gifts to commemorate anniversaries and similar. It’s a celebratory symbol that marks excellence.
And this is what makes this approach work with consumers. If the product’s scarcity is based on increased demand and low supply, consumers are more likely to be receptive to making that big purchase.
They further the scarcity by only distributing their watches through exclusive stores that register as official Rolex jewelers. To create a personal connection with the customers, Rolex discourages buying the products online
Rolex takes this even further by adding distinctiveness and a known niche to their product. This business approach has a high level of quality, emphasizing individuals with significant buying power.
And they appeal to these buyers by being the first to introduce exciting new features to their already trusted projects, having innovated not only in waterproof watch cases but also multi-time zone tracking and adding the date feature to their dials.
What many people may not know is that Rolex is run by a non-profit organization, with a large percentage of its overall earnings going to charity and social causes. The remaining income is then retained to invest further into the product and marketing. Rolex is the top spender in advertising and marketing in the watch industry since 2000 after they overtook Timex for the number 1 spot.
Since the brand is all about being built to last, its marketing strategy also plays on the generational touch of the Rolex watch. Since you’re buying a watch that is supposed to last forever, its price reflects this quality.
Another way the brand stays ahead of its competitors is by having a long-term relationship with the Swiss Federal Institute of Technology - this is where they recruit some of their top engineers and scientists year after year.
This altogether means that despite producing fewer watches on an annual basis than their competitors, they still manage to outperform them in projected revenue.
It’s very possible to use this approach to the advantage of your own business or product. People like to feel like they’re in on something exciting and exclusive, and if you can get your marketing to reflect that fact you’re going to be set up for success.
This can be used in a variety of ways. Say you are launching a new online service - think about your level of pricing and how you plan to launch it. If you make it an invite-only service to start with, you get key early feedback that can help shape your business for years to come. Not to mention that those early adopters can become your most loyal customers in the end.
Want to learn more about the foremost business models in the world? I write about key business approaches by evaluating companies like Duolingo, Waze, ConvertKit, and much more - make sure to check them all out here.
