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The Power Of Scarcity

In Fast Company’s April issue, we’ll profile Jonah Berger, the 32-year-old Wharton professor who has become one of the world’s foremost experts on what goes viral and why. It’s easy to find examples of products or ideas that have spread and become popular, but as he writes, "It’s much harder to actually get something to catch on. Even with all the money poured into marketing and advertising, few products become popular." His new book Contagious: Why Things Catch On, being published next week by Simon & Schuster, tries to answer the question, Why do some products, ideas, and behaviors succeed when others fail? In this exclusive excerpt, which will be serialized in five parts, he explores the concept of social currency, one of the six elements Berger says helps unravel the mysteries of virality.

In 2005, Ben Fischman became CEO of the discount shopping website The business model was straightforward: Companies wanting to offload clearance items or extra merchandise would sell them cheap to SmartBargains, and SmartBargains would pass the deals on to the consumer. There was a broad variety of merchandise, and prices were often up to 75% lower than retail. But by 2007, the website was floundering. Margins had always been low, but excitement about the brand had dissipated, and momentum was slowing.

A year later Fischman started a new website called Rue La La. It carried high-end designer goods but focused on "flash sales" in which the deals were available for only a limited time—24 hours or a couple of days at most. And the site followed the same model as sample sales in the fashion industry. Access was by invitation only.

Sales took off, and the site did extremely well. So well, in fact, that in 2009 Ben sold both websites for $350 million.

Rue La La’s success is particularly noteworthy, given one tiny detail.

It sold the exact same products as SmartBargains.

How come Rue La La was so much more successful? Because it made people feel like insiders.

While it might not be obvious right away, Rue La La actually has a lot in common with Please Don’t Tell, the secret bar we talked about earlier. Both used scarcity and exclusivity to make customers feel like insiders.

Scarcity is about how much of something is offered. Scarce things are less available because of high demand, limited production, or restrictions on the time or place you can acquire them. The secret bar Please Don’t Tell has only 45 seats and doesn’t allow more people than that in. Rue La La’s deals were available for only twenty-four hours; some are even gone within minutes.

Exclusivity is also about availability, but in a different way. Exclusive things are accessible only to people who meet particular criteria. When we think of exclusivity, we tend to think of flashy $20,000 diamond-encrusted Rolexes or hobnobbing in St. Croix with movie stars. But exclusivity isn’t just about money or celebrity. It’s also about knowledge—knowing certain information or being connected to people who do. And that is where Please Don’t Tell and Rue La La come in. You don’t have to be a celebrity to get into Please Don’t Tell, but because it is hidden, only certain people know it exists. Money can’t buy you access to Rue La La. Access is by invitation only, so you have to know an existing user.

Scarcity and exclusivity boost word of mouth by making people feel like insiders. If people get something not everyone else has, it makes them feel special, unique, high status. And because of that, they’ll not only like a product or service more but tell others about it. Why? Because telling others makes them look good. Having insider knowledge is social currency. When people who waited hours in line finally get that new tech gadget, one of the first things they do is show others. Look at me and what I was able to get!

[Image: Andrew Hetherington]