It's well known that customers are more likely to buy if they believe that the product they're considering is scarce. Scarcity increases the perceived value of the product and prevents people from procrastinating their buying decision (which often leads to forgetting or changing their mind).

The internet marketing industry is infamous for the unethical use of scarcity tactics. I've given examples of this before (both in the post and in the comments). Vendors will claim that they're only going to sell 250 copies of a product, but publicly available data proves that they're selling many times more than that.

I've also seen cases where technically the vendor may not have been lying, but they clearly intended to deceive. For example, they'd advertise that they'd bought up all the remaining copies of a book and were selling them. The implication was that once the number they had were gone, no more could be sold. However, what they'd actually done was buy the right to print more copies!

They may have, at the time of the promotion, only had the number they claimed, but as soon as inventory ran low, I'm pretty sure they contacted the printer with an order for more. This tactic has been used with free promotional DVDs too...

What is "False Scarcity"?

There are two definitions of "false scarcity":

  • Lying about the scarcity of a product
  • Intentionally restricting production of a product to create scarcity

With physical products, the second definition is accepted as an integral part of "supply and demand" economics. Producers only produce the number of a product that they believe will maximize their profits. Producing more would would require building out more production capacity and/or create a glut, which would reduce the price they could sell for. It's not that they couldn't produce more. They just choose not to.

With digital, or "virtual" products, except in extreme cases, there's no need to worry about overrunning production capacity. Because of this, many people feel that intentionally restricting the availability of digital products is manipulative and unethical.

Others argue that it's not an ethical issue, but it's simply foolish to stop selling a product while there's still demand. As long as a vendor honors any claims they've made, I'm generally in this camp.

But there are exceptions to the rule.

When to Use Intentional Scarcity

The first reason why it might be wise to intentionally keep a product scarce is that some products may have less value if they're more common. This is true of physical luxury products, for example. A rare luxury car has value as a status symbol. But if everybody has one, while it's still as good a car as it used to be, it no longer has status value.

With digital products, an argument that's often made is that if too many people learn about a marketing technique or resource, it will lose its value. While that may very well be true, I find it hard to believe that a vendor selling such a secret has any illusions about their buyers guarding the secret. If you have a secret that valuable, why would you sell it at all, except perhaps to your own trusted inner circle?

By the time such secrets are sold, it's probably safe to assume that enough people have already discovered it to significantly eat into its value. At that point, selling the secret becomes more valuable than using it.

When a product is sold with resale rights, restricting the number of licensed resellers is legitimate. Otherwise, too many buyers leads to too much competition, and lowers the price that anyone can sell the product for.

Another ethical use of intentional scarcity is "dime sales" -- sales where the price starts low and increases till it reaches the regular price. For example, the price might start at $7 and go up 10¢ every 5 minutes, or it might go up 10¢ every time someone buys a copy.

Dime sales are an effective way to drive a lot of sales in a short period. And customers who get in at the low end tend to be very happy with their purchases.

But you can't run them too often -- at least not on the same products -- or your customers will get wise, and the only time you'll ever sell anything is at the beginnings of your dime sales. Plus, customers who buy at higher prices will end up dissatisfied -- and legitimately so, I believe -- when others are later given the opportunity to buy at a lower price.

The last legitimate use of intentional scarcity that I'll discuss today is limited bonuses -- bonuses that are only available for a limited time, or until a limited number have been sold. As long as your offer remains reasonable after the bonus limit is reached, there's nothing wrong with using this technique.

However, if the bonuses are necessary in order for the offer to be worth the price, then taking away the bonuses is really just another way of closing down the offer. In that case, honestly, the "bonuses" weren't really bonuses at all. They were parts of a limited offer.

I'll finish up with a few ideas for limited bonuses.

If you're selling an eBook with resale rights, make the first 100 copies "brandable" -- ie. the first 100 buyers can insert their own affiliate links into the eBook. So not only can they sell it, but they can earn commissions when their buyers buy products that the eBook talks about. After the first 100 buyers, everyone else gets a version of the eBook with your affiliate links. So they can make money selling it, but you earn commissions from purchases their buyers make.

You could offer resale rights to the first 100 buyers of a product that you're not generally selling resale rights to.

You could mix the two: resale rights to the first 100, plus branding rights to just the first 50.

For a product that has add-ons that are usually purchased separately (eg. as upsells), you could include the upsells for free for the first buyers. In this case, as with any product that has upsells, the product needs to be able to stand on its own without the upsells for your offer to be ethical.