Remember Tickle Me Elmo? It was a stuffed toy that would giggle and vibrate when tickled by children. Released by Tyco Toys in 1996, it has a retail price of $29. But then the Christmas shopping season arrived and seemingly normal people lost their Muppet minds.
Even though Tyco produced 1 million units, the toy was hard to find. Media coverage of retailers selling out in minutes fueled the frenzy. There are accounts of people who managed to buy one early in the season, reselling the doll for as much as $2000!
People fought over the product when new shipments arrived in stores. Time Magazine reported that a Walmart employee in New Jersey was tackled by 300 customers--suffering a broken rib and a concussion--when he held up the lone remaining Elmo doll.
All this over a stuffed toy? What was going on? Again, behavioral economics can help us understand behavior that seemed reasonable to people at the time and ridiculous to us now.
You Want What You Can't Have
The first behavioral principle at play in this story is called "Scarcity." People attach greater value to things that are scarce. Oldsmobile, for example, exceeded its sales projections in its final year of production. They were going out of business because not enough people wanted their cars, that is until they faced the prospect of not being able to buy one at all, at which point the product became suddenly more popular.
If you have children you've also seen scarcity at work. A toy can sit in the toy box for hours, but as soon as one child picks it up, some other child will want the same toy. When it was on the floor it was plentiful because supply exceeded demand (1 toy, zero kids). When it was in a child's hands it was scarce (1 toy, 2 kids).
Retailers know about scarcity and use it in their marketing. "While supplies last," and "For a limited time," are examples of leveraging scarcity to enhance people's perception of the value of the product or service being offered.
Everybody Wants Some, I Want Some Too
"Everybody wants some. I want some too. Everybody wants some. Baby, how 'bout you?" --Van Halen
Another behavioral economics force influencing the popularity of Tickle Me Elmo and other Black Friday sensations is Social Proof. Especially in uncertain situations, people become more likely to copy other people's behavior than to make an independent, rational choice themselves. We assume other people know something we don't and that copying their choice is a shortcut to making the right choice for ourselves. It's why trends occur. It's why bestseller's lists are often self-fulfilling.
Many people didn't want a Tickle Me Elmo--hadn't even heard of the toy--until they saw other people clammoring for one. Their own desire was influenced not by the inherent qualities of the product or its utility, but by other people's desire for it--even strangers. Caught up in the crowd, many people made Tickle Me Elmo purchases they likely regretted later.
Some manufacturers leverage the power of social proof to influence our choices. McDonald's touts "Billions served." How many news stories have you seen showing people waiting in line outside Apple Stores for the new iPhone? Do you remember the media reports of scarcity and fights over product surrounding the release of Sony's Playstation 3? These are all attempts to influence our choice by showing us how others are choosing.
You can protect yourself from scarcity and social proof by deciding to evaluate "deals" differently. Focus on the utility of the product (its usefulness to you) relative to the asking price. Or, fight social proof by imagining long lines of people clammoring to buy every product and break the tie by comparing other criteria like features, benefits, or warranties.
By understanding the principles that influence--and often trick--your emotional brain, you can make better decisions for yourself and your family.
Spread the fire. GS