The Scarcity Economy
Since its hugely successful collaboration with Travis Scott in 2020, McDonalds has rolled out a seemingly endless series of celebrity meal and merch collaborations, most recently with Saweetie. In April the fast food chain revealed a BTS Artist Meal that generated such a frenzy in Jakarta, with so many delivery drivers crowding into outlets that over a dozen McDonalds had to be temporarily closed. McDonald’s partially credited a 25% sales increase in the U.S. to the collaboration.
This month, Mattel Creations released a version if its iconic card game UNO redesigned by BAPE that sold out in seconds. And Telfar announced the launch of Telfar TV, a public access channel through which the brand will distribute QR codes needed to be able to purchase its sell out bags.
From food, to collectibles to fashion - brands at every level are adopting marketing strategies built on the premise that their products are both tantalizingly rare and authentically connected to culture. Seemingly disparate, these initiatives are all underpinned by the same key principles.
The evolution of a retail model that started in the 80s with Shawn Stussy printing his signature on tees for surf trade shows and grew in the 2000s into a hype and drop model that unlocked billions of dollars in value by inventing luxury streetwear has been well chronicled. General Idea believes that an evolved version of this model has come to dominate not just fashion and luxury but all consumer goods that do not trade as pure commodities (competing solely on price). The strategy of creating a limited product and weaving a careful story of its specialness is now the dominant retail model of the 21st century. It feeds what we term The Scarcity Economy.
The Scarcity Economy is defined by:
Why has this model come to dominate retail?
What are the social and business realities that make it so effective and how can brands adopt a Scarcity Playbook effectively?
PART 1: THE RISE OF THE SCARCITY ECONOMY
Recreating value and meaning
The end of the 20th and beginning to the 21st century have seen crucial changes to global production capabilities and supply chains, a retail channel revolution and a transformation in cultural perceptions of status, all converging to necessitate a rewriting of the traditional retail marketing model.
Global production and distribution capabilities are now so efficient and prolific that consumers are furnished with an excess of choice in any category of good they can imagine. As Steve Howard, Head of Sustainability at Ikea put it in 2016, we have reached ‘Peak Stuff’. This abundance of stuff available to buy has 2 effects. Firstly, it erodes the value of material objects in general - more supply of anything drives down price, and today consumers have access to more of just about everything, at lower prices than ever before in history. When you know you can have anything at any time, do you really want any of it?
Secondly, consumers faced with this excess of stuff become unable to make purchase decisions. In his Ted Talk The Paradox of Choice, Dr Barry Schwartz relays a colleague’s finding that for every 10 investment funds companies offer their employees, they are 10 percent less likely to participate because ‘paralysis is a consequence of having too many choices’.
Brands are now faced with the challenges of rebuilding perceived value in their products and convincing consumers to make a purchase decision in the face of crippling choice anxiety.
The answers to these challenges are found in evolving the model streetwear brands have been following for decades.
Part 2: Features of the scarcity economy
Limited access: Creating Rarity
The notion of a product being hard to access is relatively simple to create.
Until recently the dominant model for introducing a sense of scarcity was the classic hype and drop model perfected by streetwear brands like Supreme and Palace. It relies on releasing a limited supply of a good through restricted production and/or real world access requirements. A crucial feature of this principle is that unlike in traditional luxury, price remains the same (and usually relatively accessible) despite low supply. This subversion of market principles creates hype, that once resulted in queues around the block at Supreme and now is just as evident whenever the latest Skims product drops. This feeds a multi billion dollar resale market where products sell for many times more that their original retail value.
While this model is undoubtedly still effective it also carries a risk; for some brands it can foster ill feeling amongst consumers who never manage to access the drops, however hard they try. This can breed a sense of resentment towards the brand. There is also evidence that younger consumers in particular are tired of the hype model. In light of this, brands are expanding the ways they create scarcity - from pre orders to personalization, which we explore in part 3.
Still, all of these efforts serve the same function. They leverage the behavioral economics principle of loss aversion, a term Daniel Kahneman coined to reflect the finding that for consumers “losses loom larger than gains”. The perception of something being scarce introduces a powerful competing incentive to overcome the ‘pain of payment’. If the consumer does not urgently act to secure this item they will loose it forever. In the context of an endless array of indistinguishable consumer goods this framing alone is highly effective. It creates the perception of inherent value and the urgent incentive to act.
Specialized knowledge: Creating meaning
To truly capitalize on the benefits of limited access, the object must also be imbued with meaning. The stories that we attach to objects create powerful emotional value, which then translates to a corresponding financial value. (The Significant Objects Project conducted in 2009 offers a fascinating demonstration of this.) This storytelling allows brands to justify their higher price points.
What story should a brand tell consumers about its product in 2021? What do consumers want the brands they buy to say about them? Here the societal shifts in what is considered a marker of status impact the kinds of meaning brands create. As Elizabeth Currid-Halkett notes in The Sum of Small Things, in the 21st century, the very idea of aspiration has changed. The status value of a consumer good is no longer in its price as in Veblen’s theory. Thanks to rental services many more people now have access to expensive clothes, cars and even interiors that look enough like private jets to fool your Instagram followers. Status now transcends money and social mobility is linked to knowledge resources: what you know is more important than what you have.
True status now lies in a good’s ability to allow the owner to display their specialist knowledge, which in turn reflects their values and world view. This knowledge is both time consuming to acquire and hard to fake, and it reflects modern aspirational values outside of wealth. Consumers look to signal their compassion, discernment, humor, taste level, wokeness through the brands they purchase.
Buying Chobani yogurt shows not only a commitment to responsible food production, but also to a broader cause of social justice. A Patagonia Snap-T fleece signals not only that you are outdoorsy and fit but also engaged in environmental causes.
The stories brands tell about their products now function as a vector for the kind of knowledge and values their consumers wish to display.
The ultimate result and function of these products and their attendant stories is that they are leveraged by consumers for their own gains. They are used to evidence cultural capital (a person’s knowledge assets), validate consumers’ place in the world and even help them transcend it through social mobility.
The Scarcity Economy is the result of a confluence of too many goods, a changed retail landscape and a new definition of aspiration that require the reframing of status goods as representing a combination of access and knowledge: both of which have more value the harder to obtain (more scarce) they seem.
Part 3: The scarcity playbook
Operating within the Scarcity Economy first requires a clear understanding of a brand’s value system: why it exists, and what it believes. Clarity around purpose and values is the bedrock on which brands can activate these principles with authenticity. The Scarcity Economy comprises of 5 pillars.
1. Make it feel special
The principle of making something feel scarce and therefore special and desirable is fundamental to success in the Scarcity Economy -- and there are many methods brands can explore in pursuit of a sense of scarcity. Brands from Tesla to Telfar allow customers to pre order goods - creating the same sense of anticipation and satisfaction as drops whilst avoiding the ill will that can be an inadvertent side effect, where some customers feel that they always miss out. Relatively commodified goods such as plain t-shirts and hoodies can be made special through personalization as Zara does with much if its kids clothing. Showcasing highly specialized production methods, Currid-Halkett’s ‘conspicuous production, is a hallmark of traditional luxury and still extremely effective at justifying a high price point. Loewe’s storytelling around the artisans that make the brand’s leather and wicker goods has added depth and substance to the buzzier high fashion elements of the brand. DTC brands often succeed in creating a sense of scarcity through distribution - by limiting the option to purchase to their own e-commerce sites and by creating their own distinctive retail experiences - something both Glossier and Everlane have done with great success. Limiting the physical item itself - through the numbers produced and the time it is available is the standard approach of collaborations - championed by Nike in its endless collaborations and adopted by other mass retailers such as Uniqlo and Mattel Creations. Finally, smaller brands can achieve this sense of specialness through their relatively low profiles - only consumers that put in the time to do painstaking research will find them and be rewarded for their efforts. This type of scarcity is often seen in connoisseur focussed products such as whisky.
TYPES OF SCARCITY
2. Tell a story with layers
As Elizabeth Currid-Halkett documents, the crux of status in the 21st century is knowledge of the right things; where to shop, what to eat, how to exercise, as we aspire to become and show that we are better people. Our purchases become the physical manifestation of this goal.
Through their choices consumers display what they know, and what is important to them. Careful brand storytelling can help consumers build a multifaceted representation of themselves.
Within fashion and lifestyle goods especially, this knowledge manifests initially as an in depth understanding of design and or production process of a product. Who designed it, what it is inspired by, how it is made. Further potency can be added by intersecting this core design knowledge with other specialist knowledge, thereby allowing consumers to tell multiple stories within once product. For example, the Bottega Veneta Puddle Boot made with biodegradable polymer allows a consumer to demonstrate 2 levels of knowledge and value:
3. Collaborate to connect
Collaborations are a bridge between material rarity and an object’s meaning; they create a reason to limit the number of goods produced and offer an inbuilt significance by borrowing another creative or brands’ cultural capital. Creative collaborations allow brands to anchor themselves in authentic cultural niches and display their own cultural knowledge and values through the creators they partner with. For example when Louis Vuitton connects to the permanent store of value that is fine art through Jeff Koons, or Oreos connects to youth culture through Lady Gaga.
The starting point for any collaboration is a credible connection between the partners. Transactional collaborations are glaringly obvious to consumers and do little to build brand image long term. The most successful collaborations have at their core an unexpected tension that captures consumers’ imaginations. It can be two entirely different brand worlds within the same category colliding - as when Palace collaborated with Ralph Lauren Polo and juxtaposed the classic refinement of the Ralph Lauren world with the anarchic humor of Palace. Or it can be two different categories that are nevertheless connected via a consumer’s lived experiences and therefore cement a brand’s authentic connection to their consumer. For example, Doen Collective’s collaboration with Heather Taylor home, purveyor of cottage core table linen, reinforces both brands’ vision of an idyllic Southern Californian earthly yet chic lifestyle. In either case the collaboration furthers consumers’ credibility and association with a specific category or a lifestyle or cause.
4. Build an identity that adapts
To fulfill their function as vectors of knowledge and values, modern brand identities need to be approached as concentric circles of branding, with the core institutional branding protected at the center, and then radiating outwards, more playful expressions that interact with culture and provide more opportunity for knowledge cultivation and recognition amongst its most loyal customers. Most people recognize the interlocking Gs of the Gucci logo, some will recognize the tiger and fewer still will know the hand drawn skull and crossbones is part of the house’s brand identity.
This adaptive approach to identity helps brands cater to different types of consumer with different levels of knowledge, and prevents the overexposure that can be a consequence of success.
5. Understand your community
Communities are the gatekeepers of approval and the authenticators of credibility.
Brand communities validate the knowledge consumers have taken the time to acquire and confirm that their efforts were worthwhile. Demonstrating acceptance by a community is a shortcut to displaying knowledge; if I am part of this group, I must know as much as they do.
This belonging helps them accrue social status. Communities congregate around specialist knowledge, or commitment to a value system based on knowledge (via a lifestyle or a cause). They thrive on both digital and real world experiences that brands can facilitate. Communities can be either active (a defined ‘club’ created by the brand) or passive (consumption of product signals belonging). Developing an active community requires brands to create clearly defined group forums for consumers to participate in. Passive communities are built at a brand comms level, that filters down into communities based on social signaling and mutual recognition - one Loro Piana vicuña sweater wearer to another.
When viewed through the prism of Scarcity, we can see how brands can use the same set of principles to engage entirely different consumers across any imaginable category.
What these consumers know, and what they care about may be different but they are all responding to the same fundamental imperatives; the desire to own things that seem special in a world of over abundance and a way to represent an aspirational version of oneself.
*Disclosure - All the imagery does not belong to General Idea and its only purpose is to illustrate the examples and models above.