Understanding scarcity strategies in service firms

Scarcity strategies are widely used in the service industry as people believe scarcity is an important signal for high service quality and value. The magic of scarcity strategies, however, does not always work. Improper use of scarcity strategies may backfire, leading to undesirable consumer responses. This chapter aims to provide both a theoretical and managerial discussion about why, when, and how scarcity strategies can be appropriately communicated to different customers and used effectively in different service contexts. To this end, the chapter classifies different types of scarcity strategies and discusses the science behind positive and negative scarcity effects. Moreover, it presents individual differences and important contextual boundary factors that influence the effectiveness of scarcity strategies. Furthermore, this chapter analyzes two potential challenges posed by scarcity strategies, such as managing customer expectations and overuse of services. Quality improvement strategies and demand and capacity management are discussed to help overcome these challenges.