Scarcity, life of a product, and lightening deal
ecommerce, lightening deal, product and business, lightening deal construct, economics, product lifecycle, marketplace, promotion, pricing strategy, product management
Dear Reader of thinking category,
Last few days of year 2021…..hope you had a good year - a year of good memories both in personal and professional life.
About the same time last year, I started thinking category and made a sort of new year resolution that I will write more and use this platform to learn and share my learning with everyone.
So far, I wrote 30+ posts (On Average 2.5 every month). Here I am after one year with 2000+ subscribers 😍. I am grateful to everyone who were the part of my growth journey this year. Many Industry leaders, entrepreneurs, and category leaders have shared their time and their rich experiences in the industry with me, and that made my journey more enriching and worthwhile. Thank you, all. 🙏
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Now, on to the last post of this year. I hope that you enjoy reading it.
The dynamics of Scarcity
Scarcity is one interesting topic that is close to my heart. In the book - Psychology of money, Author Morgan Housel writes,
Spreadsheets can model the historic frequency of big stock market declines. But they can’t model the feeling of coming home, looking at your kids, and wondering if you’ve made a mistake that will impact their lives. Studying history makes you feel like you understand something. But until you’ve lived through it and personally felt its consequences, you may not understand it enough to change your behaviour.
The author talks about how the experience of living in the depression era - an era of scarce resources and financial instability - influence the risk appetite of a person in the context of making investment decision even in the long-run. Your experience in the past stays with you even if things are not the same anymore.
Scarcity (In the past) not only affects the way we think about money, but it could also influence the way we buy or consume. Marketers use this concept to create a sense of urgency in the mind of customer/buyer and that leads to improved conversion rate / velocity of purchase for their products.
You might have noticed on Amazon prime - “Expiring from Prime in the Next 30 Days” or by so and so date. This might have made you to watch something due to fear of disappearance from the platform.
I believe that most of you are also familiar with the lightening deals (Amazon) or limited time offers on the marketplaces. Before we get into it, let’s look at product lifecycle.
Life of a product :
We know that product goes to distinct stages in the market (Depending on the product, product category etc.)- When new products are introduced in the market, initially it might see some slow growth since the product is not known. With marketing or word of mouth marketing, it would experience jump in the demand. And then there occur some time when the demand is declining. This is liquidation or markdown period.
In this stage, the brand can introduce some promotions or flash sales that could boost the sales artificially for the shorter period of time. Is it a good time for lightening deals if you selling through marketplaces?
What is the lightening deal (Flash Sales) ?
I believe the term has been coined by Amazon. It has basically two elements:
Limited time (a short time window within which the promotion is running)⌛
Limited quantity (Artificial supply constraint) 🧱 🧱
For example - Above shown promotion will end in 6 hours. Discount - 74% off. If you add one more bar showing the remaining quantity left, that will add supply constraint element also.
Economics of the lightening deal:
Let’s try to look it at from supply-demand curve perspective.
In normal situation, the quantity in demand is 60 at Price point 100. At the time of lightening deal with 50% of discount suddenly the demand has increased to 80. Hence, the sudden rush of customers to claim the deal. (Limited quantity + limited time frame ⌛ + High demand due to low price).
Why this is an effective promotion strategy for marketers, marketplaces and sellers :
Loss aversion : Loss aversion theory in this case would mean :
Pain you will feel if you miss this discount opportunity > The pleasure that you will get if you avail this offer
Hence, the tendency to not miss this limited-time opportunity. You might feel a sense of urgency. You can call it FOMO or whatever, the point is that
This leads to
Higher inventory turnover of otherwise slow moving inventory
Volume —> Sales, Profitability ❤️
New sellers with less reviews or rating can use this feature to improve their rating since more sales will happen due to limited deal offers.
Higher visibility on the marketplaces platform for sellers / brands
Improved conversion for marketplace or ecommerce platforms
How?
Let’s discuss what all aspects to be covered if you are working on limited deal offers in a marketplace environment. This is from a marketplace point of view.
Lightening deal construction :
A snapshot of how multiple lightening deals looks like on Amazon:
To configure the lightening deal at the marketplace, you can use this framework:
That’s about it. I hope enjoyed reading it. Please do share with your colleagues who might be interested in this 👇:
Also, if you have been involved in developing such limited deal offers, would be happy to do some chit-chat.
Merry X-Mas 🎅🎄and Happy New year to all 🥂. Would see you all in Year 2022 😊.