Scarcity, Abundance and Chocolate Chip Cookies

I've been reading Influence: The Psychology of Persuasion, a sales manual of sorts written by psychologist Robert Cialdini back in 1984. In order to find out what makes buyers buy, Cialdini attended training programs for realtors, car salesmen, waiters. He studied Amway reps, cult members, and transcendental meditation seminar attendees. And he read up on countless other psychologists' experiments. Some of the irresistible forces he identified include:

* The "contrast principle", which involves offering prospects top of the line items first, products within their price range second, and accessories only after the deal is done.

* The "social proof" effect, where fans of the same product amplify each other's devotion. It's how people fall victim to everything from fashion fads to cults, and why "bestseller" labels, customer testimonials and success stories work.

* The "commitment/consistency loop", through which people convince themselves to stick with positions they've taken. For instance, after telling a survey taker that he dined out often, Cialdini wasn't able to refuse the subsequent sales pitch for a discount card. He suggests asking prospects to reaffirm their wishes ("isn't it true that you're looking for a really fast server?") throughout the sales cycle.

But what Cialdini found most compelling was scarcity. He cited a study in which participants were offered chocolate chip cookies.

Group (a) volunteers were presented with a full container
Group (b) received a mostly empty container
Group (c) got the full container first, but it was quickly replaced with the mostly empty one
Group (d) was told that the container was mostly empty because there are lots of participants and hardly enough cookies

The volunteers were asked to rate their likelihood of buying the same cookies in the future. Group (d) scored the highest - followed by (c), (b) and (a). Oddly enough, (d) didn't find the cookies better tasting; they just wanted them more. Which means product quality matters less than the perception of scarcity.

I wonder what Cialdini would think about Chris Anderson's idea of the "economy of abundance". As David Hornik puts it: "

The basic idea is that incredible advances in technology have driven the cost of things like transistors, storage, bandwidth, to zero. And when the elements that make up a business are sufficiently abundant as to approach free, companies appropriately should view their businesses differently than when resources were scarce. They should use those resources with abandon.

Mike Maasnick from TechDirt adds that:

You find the point where you hit something that doesn't have infinite supply, and that's the business you want to be in -- because it's about to get really big. Then you leverage the infinite supply that pushes everything in your direction. For instance, you need to STOP thinking about content by itself as a product. You don't sell "ideas" you sell books, or consulting services, or reports or conferences (or a bunch of other things). You don't sell music, you sell CDs or concerts or t-shirts or access (or a bunch of other things). Basically, you look at the content itself (which is infinite in supply) to sell something that isn't infinite in supply.

In other words, don't create an artificial cookie scarcity. Make lots of them at minimal marginal costs. Give them way and leverage the free cookie offer to sell something with higher profit margins.

Might this strategy be applicable to web hosting providers' bandwidth allocations as well? When customers are offered 3000 GB for under $10, they become Cialdini's Group (a). They like the cookies just fine, but since supply far exceeds demand, the perceived value is low.

Rather than price competing to the point where bandwidth is sold for way less than its actual cost, why not stop metering it altogether and start billing for some other kind of activity? Cyworld's virtual goods come to mind, and DreamHost's pay-per-transaction music store hosting service. There must be plenty of other possibilities...

Comments

[Dongmei]

About the cookies. I was wondering if it is the scarcity that works or the popularity (everyone likes it so it must be good). Then group d beats group c. So it's not that. It seems like people have a tendency to want and take something for the sake of having it.. before it's too late. They want it because there's a good chance they can't have it if they don't take it now. That's the 'limited time offer' concept.

[Isabel Wang]

But the "limited time offer" is all about scarcity. And the end result of popularity (at least in the cookies research) is scarcity. I guess the experiment was incomplete. The researchers should have offered group (e) a full container of cookies and told them that all the other volunteers really enjoyed it. We know that scarcity + popularity > scarcity alone, but groups (a) through (d) don't provide any data on how popularity on its own affects perceived value versus scarcity on its own.