In my chat with Josh Spector this week, we talked about creating valuable things. One of the core moments of our chat revolved around artificial scarcity, and that got me thinking — particularly as Josh seems to see this differently than I do.

Artificial scarcity is a trendy marketing tactic. I see limited-time sales, contests, and first-come-first-serve discounts —only 5 copies left at $20!!— all over the place.

And it bothers me — because what's being sold are digital products: eBooks, courses, and software subscriptions. In a world where marginal cost —how much it costs you to create one more copy— is mostly zero, scarcity just feels wrong.

But it works. It taps into a part of the human brain that is a few thousand years behind the times. And the fact that we exploit this concerns me. In the abundance economy that I want to contribute to, artificial scarcity has no place.

Or does it?

Not all digital products are equal, and there are a few —just a few— good reasons to employ artificial scarcity. I'll show you the risks of limiting things too much, why it backfires particularly for creators, and when it's okay to use this strategy.

Let's get scarcity right.

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The Role of Artificial Scarcity in Marketing

Artificial scarcity is a strategy sellers employ to create a sense of urgency around their products, compelling customers to make purchases out of fear of missing out. They limit availability even though they have more than enough supplies.

This makes great sense in a crowded marketplace where most items are commodified. Everything is infinitely available, with plenty of alternatives that are just as good.

And for that, anything that makes a product stand out will sell it. Particularly apparent scarcity. Our brains value things more when we think they’re scarce — no matter if they really are. We’re physical beings thinking in physical dimensions.

You see this on Amazon all the time, particularly around Black Friday: time-limited and quantity-limited deals are pushed onto the Amazon homepage. The lucky merchants who get chosen for this often move ten times more inventory than during non-deal days.

Do people suddenly need ten times as many white noise machines? Is everyone all of a sudden interested in saving 30% on 12-packs of socks with puppies on them? (Yeah, all of these were deal suggestions on my Amazon page.)

Of course, there is no genuine need for these things, but with a discount and time running out, people who were on the fence already about such a purchase are motivated to finally commit.

And that got me thinking. Artificial scarcity will create short-term financial gains for sellers and maybe even make impulse purchasers happy, but it can also have long-lasting negative consequences — particularly when looking at the creator economy.

Negative Impact on Relationships

Because here’s the thing: Amazon is purely transactional. Every step of the purchasing experience is set up so that you never know who you’re actually buying from. Unless you dig deeper, it’s all just Amazon. It’s all commodity.

But that is entirely different in the creator economy: when you’re buying a book or a course from an expert in your field, you’re not buying an easily replaceable thing. You’re purchasing something that only that creator can create. You trust them, and only them, to make something valuable, and you want that thing. You know it’s worthwhile because your peers tell you how impactful it is, and you’re aware that a lot of time and energy went into making the product. It takes authors years to write a book, and a well-designed and executed video course is often months in the making, too.

At the same time, you’re very aware that digital copies are incredibly cheap to make. That’s the whole point of the internet: it’s a massive copying engine. Every time you go to a website, you load a full copy of it into a browser. Every video you watch is copied in small chunks onto your computer while you stream it. That’s why the marginal cost is effectively zero: we are meant to copy digital information easily.

That’s why it hurts to see things being arbitrarily limited. When sellers use artificial scarcity, they risk damaging their relationships with us — their customers. We feel manipulated. We lose trust in the person behind the product, and any future interaction with them will be tainted by the perceived dishonesty we experienced.

In an age where customers don’t just know the creator behind the product they consume, but consume that product because they have a relationship with that person, this loss of trust will extend far beyond the product and massively undermine the individual creator.

We’re all part of an intricately woven web of connections and relationships. Our success as creators is entangled with the success of those around us. There are no meaningless and purely anonymous transactions in a community where people watch out for each other. I often think back at the bar scene from the movie A Beautiful Mind, where John Nash, math genius and game theory contributor, gives an example of coming up with the best outcome for a group. In the movie, it’s about who dances with whom, and it turns out that purely selfish choices result in a non-optimal outcome for the overall group.

In our seller-buyer world, it’s similar: if we use scarcity tactics, we might make some quick cash because our customers fear missing out, but we end up with a severely misaligned community where sellers can’t be trusted, and buyers are viewed as quick cash-grabbing opportunities.

And that’s a massive long-term problem. Burning your relationships for a quick transactional gain is never a good idea when you’re part of a community that thinks in decades.

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Effects on Consumer Behavior

​Communities won’t easily forget. And one of the things they will remember very thoroughly is when someone is enriching themselves at the cost of the most vulnerable.

Artificial scarcity quickly leads to inefficient use of resources because it encourages people to buy things they may not need or can’t afford. This hoarding behavior creates digital waste as people accumulate items they never end up using.

You should see my Humble Bundle purchase history. I spent hundreds of dollars on book bundles of which I never read a single one — just to have them for a lower price while the bundle discount was running. At least I know that Humble Bundle donates a portion of their sales to charity — still, I didn’t need all those 104 ebooks that sit in my digital library there. Unread, unused, but also illegal for me to give to someone else.

Creating urgency around a product will cause some people to make impulsive purchases that they may later regret. And the more of those people talk about it in their community, the more your reputation as a trustworthy community member will go down.

Global Impact and Accessibility.

It’s a global community, too.

Consider what impact your marketing efforts have on people who live in places with significantly lower purchasing power. What’s an impulse purchase to you might drain their whole budget for the year. Employing artificial scarcity can disproportionately affect those with lower incomes or purchasing power. If you manipulate them into buying when they shouldn’t, you effectively force people to allocate resources to products they may not be able to afford. That causes financial strain, and your customers won’t forget that feeling.

Another thing they will not soon forget is being left out — intentionally or through negligence. When I activated purchasing power parity pricing for my books in courses —which means automated discounts for people depending on where they’re purchasing from— I received an avalanche of emails telling me they could finally afford to purchase my work. Several times, I was told that no one ever thinks of that.

Not only do people neglect to price their products to make them affordable globally, but then they make them hard to access for everyone?

Yeah, that doesn’t sound like the abundance mindset to me. Artificially limiting access to digital products, which have near-zero marginal costs, is an inherently questionable act. It prevents some people from accessing valuable information or resources, contributing to inequality and social exclusion.

And yet, we need to make money.

Embracing Abundance and Building Genuine Relationships

So, how do we get to a pragmatic approach here? It starts with encouraging building genuine customer relationships and offering products that provide real value. By focusing on long-term customer satisfaction and fostering trust, we can create loyal customers and contribute positively to our communities.

Of course, focusing on long-term relationships and trust-building might not be practical for all businesses or creators who need immediate income to sustain their work. But artificial scarcity isn’t the silver bullet to immediate income.

You can run a limited-time discount, but you have to mean it. Having a fake countdown timer that resets every time someone refreshes the page will be obvious to your visitors — and quickly destroy any semblance of goodwill towards you and your income. So stay honest with your buyers. Word of your manipulative exploits will spread fast.

When Scarcity is a Benefit

But not all artificial scarcity is manipulation.

There is something that benefits from being limited: outcome-oriented and creator-managed communities. Cohort courses and digital single-purpose communities benefit a lot from having limited seating. Since creators are real people with limited attention, limiting direct access to the creator makes sense. For example, Kevin Shen offers a YouTube Studio Course in which he guides his students through setting up their own home studios. If Kevin would allow hundreds of students into his cohorts, he’d never be able to give them meaningful guidance over time. Here, scarcity is a protection against mediocrity.

There is another place for scarcity: when you’re front-loading financial gains to jump-start a business. No matter if it’s selling a handful of lifetime deals for your SaaS business or having a few elite tiers in your Kickstarter campaign, limiting the “show-your-commitment” options for early adopters allows you to treat their upfront cash as an investment into your idea and the business that will make it happen. If you don’t limit your lifetime deal sales, you’ll run into unsustainable economics down the road. If you promise too much to too many, you’ll scale their disappointment. But generally, pre-sales are a good thing to keep limited.

These are a few rare exceptions to a pretty clear rule: artificial scarcity may offer short-term financial gains, but it comes at a cost. Use them too much, and you undermine your own reputation as an honest community contributor — and you’ll end up being yet another marketer who only joined that community to make some quick cash. You don’t need an immediate payoff. Playing the infinite game will end up much more lucrative than extracting profits from someone’s fear of missing out today.

So consider embracing an abundance mindset, forget about all the sales hacks, and focus on building genuine relationships. When people see you strive for sustainable success and a positive impact on your peers and communities alike, they will reward you with their trust. They will recommend you, invest in you, and —ultimately— allow you to make money. If something should be scarce, it’s artificial scarcity in a digital world of abundance.

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Classifieds

Indie Hacker community-recommended tool of the week: Kuba suggests Inboks by Luca Restagno — a solution to Twitter DM management problems that I personally feel very strongly. Twitters own DM system just breaks after a few thousand followers, and we'll all eventually grow into that. Great tool!

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A big shoutout to Michele Hansen for taking the fight against Section 174 to congress. Small SaaS business in the US will be facing tax burdens up to 500% of what they paid last year. If you operate a US SaaS, sign this letter.

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