+Scott Watson

Monday, 19 April 2010

The Problem With Scarcity

As I write this post, the Icelandic volcano has paused from its spewing of volcanic ash. For now at least! The leaders of the 3 main political parties still all believe they are the best person to lead Britain out of recession and on to better times. And, as ever in these situations - there's a scam to be had and a victim to be found. How so? Let me explain in more detail.

When a resource is scarce, we human beings tend to place more value on it - in our own minds at least. Whether it's the TV shopping channels that do their best to sell their unsuspecting, no, gullible viewer to purchase something they don't need, and probably don't want - just because 'There's only seventeen left in stock and they're 'Selling out fast and won't be back in stock for 4 months at the very earliest.' No there isn't only seventeen left in stock and well they know it! There's probably hundreds, possibly thousands of the item left in stock. They're just using the scarcity trick to influence the viewer to believe there's hardly any stock left - and so 'I'd better buy one NOW before I LOSE OUT.'

How does this relate to Iceland and their mis-behaving volcano?

Before I answer that question, another example first. Due to the collapse of the Icelandic economy, and several banks and investment houses, each with a presence in the UK financial services industry, when the country and its banks went bust, no UK customer was permitted to withdraw any of their personal funds. Thankfully, the UK government introduced an investor/saver protection policy, basically providing a £50,000 insurance policy to protect UK investors from financial loss. This is even if they possessed more than £50,000. In basic terms, The Icelandic government owes British investors several billion pounds ($5 billion according to www.thisismoney.co.uk) in lost savings.

So, how does this relate to scarcity? Well, the scarcity rule doesn't only apply to products, services or money. It also relates to the scarcity of choice. Limiting the number of choices an individual, group or population can make. Try this one for size!

The Icelandic government allowed their population to vote on whether they should pay the debt to the British savers (who trusted the Icelandic banks with their funds). It was a straightforward 'Yes' or 'No' vote. Guess the result? A resounding 'NO'. Was it reasonable to expect a population to vote 'Yes' under the circumstances? Unlikely and perhaps the Icelandic governments public referendum was a ploy to absolve themselves of responsibility for making such a decision? After all 'They didn't say 'No'..the people did!'

Many trusting British savers now have scarcity of financial resources or reserves due to the actions of a government.

Sticking with Iceland, the volcano eruption has caused enormous disruption for travellers across Europe. Air travellers especially have suffered significant inconvenience due to aviation authorities cancelling all flights for fear of accidents occurring due to the volcanic ash. And for some serious entrepreneurs (or perhaps some would call them unethical business people at the very least), what do they do knowing that other people's suffering could make them a bundle of cash and profit?


Virtually every major news channel in the UK has reported that train companies, including Eurostar have increased the cost of their ticket prices - due to the increased demand. Hotels in regions affected by travellers not being able to depart - have increased their prices and food outlets (not the major chains), have increased their prices. Why? BECAUSE THEY KNOW THEY CAN! Of course, however reluctant the weary travellers may feel, they do need to eat and they do need to sleep. Catch 22.


Have you ever travelled abroad, or even to a new city, jumped in to a taxi and stated your destination, only to be asked by the driver, 'Is this your first visit?' Next time, please ignore the question or respond 'No' and leave the conversation there. Whilst some taxi drivers may ask in an effort to build some rapport and influence you to tip them well, others, I know from many personal experiences ask this seemingly innocent question to establish just one thing. And that is 'Can I scam you?'

Answering 'Yes' to the drivers question puts you, the trusting passenger, at an immediate and costly disadvantage. Why? Because the driver can take you wherever he or she wants, clock up the price on the meter, and you're none the wiser. When you reach your destination, you just pay up, possibly tip him or her (especially if they delay giving you change as it can feel somewhat awkward) and find out later in the bar you've paid way over the odds. Who's scarcity of local knowledge cost them dearly? You! I've had this dishonest trick played on me in Florida, Bahrain and Dubai. It's reached the point where I let the driver take me on a tour and only upon safe arrival at my destination (usually a good quality hotel), grab my bags and refuse to pay the fare. Not just the fare shown on the meter, but ANY fare. After all, when you've written down their licence number and contact telephone number for complaints, the driver is always happy to move on and find a more willing victim. I love Bahrain and the behaviour of some (not all) taxi drivers really dilutes my experience of the beautiful Kingdom.

Please Enjoy Your Stay - And Show Me The Money

The Radisson BLU hotel in Nice, France has cornered the market in pressuring paying guests to give them more money, by force rather than choice. How so? Easy, to enjoy the sunshine sat by or swimming in their hotel pool will cost each guest £20 per day. Imagine the cost of your enjoyment if you are a family of 2 adults and 2 children. Sure, you'd likely attempt to get the children to share a sunbed together - but that's against the rules apparently. Ok, you say, we'll go to the beach instead and save our money. No it won't. That too will cost you £20 per person per bed per day. And, as you pay in advance (remember you're a guest at the hotel), if it rains, there's no possibility of a refund. Selling on scarcity and the first hotel I've ever heard of which charges guests to use their pool.

Be very aware of how the scarcity rule is used against you. It could cost you dearly, not just in money but trust too. And when trust is lost, it's often very difficult to win recover.




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