The “Sold-Out” Strategy – It Works!

We learned in our marketing lessons to use a “skimming” pricing strategy (price high then reduce price as the product matures) to draw early adopters willing to pay high prices. This assumes as we observe the sales pattern we will adjust supply to meet demand at the optimized price, meaning we would be selling out at just the right amount, because we would get every customer willing to pay that specific price to purchase. Some new businesses are now marketing on the principle of “people always want something they can’t have”, and finding success through utilizing the “sold-out strategy” (aka. Leaving business inefficiencies unattended) 

When someone starts a new business, if demand is higher than supply and the product is sold out, usually they say it’s a “good problem to have.” However, if there is a constant, shortage of product for prospective clients, it then points to inefficiencies in the business, where there is a lot of money left on the table. 
Case in point, a popular cake shop’s opening hours are 11-6PM, but runs out of cakes each day around 3PM. The usual, rational strategy would be for the business owner to adjust their production to ensure they have cakes to serve clients until 6:00PM, so every client walking in willing to pay for a slice of cake would be satisfied. Contrary to the rational option, since the cake shop is following the “sold out strategy”, the business owner continues at a lower level of production, so that each day customers arriving after 3PM are disappointed (at times vowing never to return). 

There are pros and cons to the “sold-out” strategy, with the pro being customers clamorig over each other to get there early to try this rumored cake in high demand, and the con being not enough return customers after they made the initial effort to try their first slice of cake, and more importantly, the opportunity cost of lost revenue. 

So would you use the “sold-out” strategy, which may potentially frustrate prospective customers, or adjust your strategize over time to ensure you don’t leave money on the table?