Scarcity

This shopping season, I’m less price sensitive than I have been for the majority of my life now that I have a steady paycheck, but I still cant help but notice and compare the prices of gifts through all my various holiday shopping. I’ve always been fascinated by the psychology of pricing. Have you ever stepped back and thought about why items are priced more or less than other similar items? I bet you just assume its because X is a “better” or “worse” product/service than Y and Z. But is that always so?

There’s obviously an element of cost that is always included, especially with low end, commodity-type goods produced at massive scale. Think most things that can be bought at Walmart of Costco. However, when you venture up the perceived value chain, attributes such as brand, quality, and scarcity begin to play a far more important role in setting and maintaining price points. And this is where pricing becomes more an art than a science.

I’ve always been attracted to things that can’t be seen or done everyday. Things that you notice and remember that you noticed. Things that get stuck in the back of your mind for days because it was so unusual. Put economically, these are scarce resources and experiences. I’ve always given less credence, perhaps even taken for granted, products or services that are able to be experienced every day. Let’s talk examples:

Audi, for instance. Audis are sexy cars, plain and simple. However, it seems like every fifth or sixth car you see on the street is an Audi. They’re everywhere. Its a bit surprising, because they’re not cheap. Even their lowest end model is in the $35,000 range, and the beautiful R8 is well over $150,000. Even at that price point, because they’re at least reasonably common, I value them only marginally more than the similarly common Volkswagen, simply due to aesthetics. I’m not there yet, but if I get to the point in life where I can afford one of the finer Audi sports models, I would almost certainly find and spend that money on a less common (scarcer) vehicle, even if I didn’t love the aesthetics as much as that beautiful Audi.

Diamonds are one of the best examples of artificial and controlled scarcity. Their availability is famously regulated by a couple enormous, global cartels – most infamously, Da Beers. Diamonds are not an incredibly rare resource in a geological sense. However, their availability to you and me is extremely scarce because it is so closely regulated. This maintains their allure of such a meaningful gift to be reserved for the most important occasions of our lives and thus warranting extremely high prices.

To be clear, I’m not trying to project my own feelings upon all general consumers; that breaks rule number one of marketing. Indeed, you may well value something more exactly because your friends and acquaintances have that thing (consumers of Apple products come to mind). No, I’m only describing my own thoughts towards prices, and how I will never fully understand but always be interested in pricing psychology, because it is truly different on a person to person, individual basis. And the examples are endless. I would rather pay $3.00 for a cup of black coffee at my charming local coffee shop than $1.75 at the Starbucks right down the street. Even if there is more variability, there’s only one Mercantile & Mash, only one Kudu. Whereas there are tens of thousands of Starbucks around the world where you’re sure to get exactly the same cup of decent coffee. Similar rationale could be made for craft beer vs Bud Light, or traveling out west for a snowboarding trip rather than simply going to the far closer and cheaper mountains in North Carolina. The applications could go on forever, but again, are unique to each of us.

Have you ever thought about your own perception of value? How important is scarcity to you? I suppose by my own reasoning here, if I want readers to value my blogs more, I shouldn’t allow my verbiage here to become commoditized. On that note, I’d like to wish a wonderful holiday season and happy new year to my scarce, valued readers!

 


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