Seth's thoughts on Supply & Demand

Lot's of good, current ideas here from Seth Godin:

Scarcity

One day, you may be lucky enough to have a scarcity problem. A product or a service or even a job that's in such high demand that people are clamoring for more than you can make.

We can learn a lot from the abysmal performance of Apple this weekend. They took a hot product and totally botched the launch because of a misunderstanding of the benefits and uses of scarcity.

First, understand that scarcity is a choice. If you raise your price, scarcity goes away. If your product is going to be scarce, it's either because you benefit from that or because your organization is forbidden to use price as a demand-adjustment tool. I'm going to assume the former. (But I riff a bit on the latter toward the end)

Why be scarce?

• Scarcity creates fashion. People want something that others can't have.
• Lines create demand. People want something that others want.
• Scarcity also creates word of mouth, because people talk about lines and shortages and hot products.
• And finally, scarcity drives your product to the true believers, the ones most likely to spread the word and ignite the ideavirus. Because they expended effort to acquire your product or service, they're not only more likely to talk about it, but they've self-selected as the sort of person likely to talk about it.

The danger is that you can kill long-term loyalty. You can annoy your best customers. You can spread negative word of mouth. You can train people to hate your scarcity strategy (Apple did all four this weekend).

Take a look at the guy in the photo. That's the goal. He feels great. He's a hero, at least for a moment, all because he stood in line all night. He gets to talk about it and others (not everyone, but enough) aspire to be him next time. You reward the tribe and you build the tribe at the same time.

The problem is that our kneejerk way of dealing with scarcity is to treat everyone the same and to have people 'pay' by spending time to indicate their desire.

Waiting in line is a very old-school way of dealing with scarcity. And treating new customers like old customers, treating unknown customers the same as high-value customers is painful and unnecessary.

Principle 1: Use the internet to form a queue. If you have a scarce product, you almost certainly know it's scarce in advance. Instead of taxing customers by wasting their time, reward the early shoppers by taking orders online. A month before sale date, for example, tell them it's coming. If you sell out before ship date, that's great, because next time people will be even quicker to order when they hear about what you've got. (And you can do this in the real world, too--postcards with numbers or even playing cards work just fine.)

A hot band that regularly sells out on the road, for example, could put a VIP serial number inside every CD or t-shirt they sell. Use that to pre-order your tix.

Principle 2: Give the early adopters a reward. In the case of Apple, I would have made the first 100,000 phones a different color. Then, instead of the buyer being a hero for ten seconds, he gets to be a hero for a year.

Principle 3: Treat different customers differently. Apple, for example, knows how to contact every single existing customer. Why not offer VIP status to big spenders? Or to those that make a lot of calls? Let them cut the line. It's not fair? What's fair mean? I can't think of anything more fair than treating the people who treat you well, better.

Principle 4: When things happen in real time, you're way more likely to screw up. One of the giant advantages of the Net is that you can fix things before the whole world notices. Try to do your rollout in small sections, so you can fix mistakes before you hurt the very people you're trying to embrace.

Principle 5: Give your early adopters a forum to celebrate. A place to brag or demonstrate or show off or share insights and ideas. Amplify the heroes, which is far better than amplifying the pain of standing in line.

Imagine what the Apple and AT&T stores would have been like this weekend if they were filled with happy customers who had pre-paid, pre-registered and were just dropping in for three minutes to pick up their (very coveted) phones, walking up the VIP line, past all the others just waiting for a chance to buy one...

Hot restaurants in New York violate all five of these principles on a regular basis. So do sports teams and stores that have lines out front in the middle of winter. What a waste.

Even colleges do it. They pretend they've got a meritocracy, but in practice, it's a high-pressure lottery with enormous financial and stress overhead involved.

Yes, there are times when scarcity is mandated (the TSA at airports, for example, or food rations at an emergency site). I know that there are plenty of ways to deal with this scarcity as well. Ways to treat your customers (and yes, they are customers) with more respect, to communicate the situation more clearly and to architect the environment so that people are grateful, not stressed out.

Smart marketers understand that scarcity (intentional or not) is a tool, one that can be used to enhance the story, not detract from it.

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