Spotify advertising & marketing, False scarcity

Episode 11 Scarcity, Spotify, and second opinions

Spotify disrupted the music industry with savvy tactics from behavioral science. Through principles like scarcity and the fresh start effect, the streaming giant gained a devoted following and transformed the way we listen to music.

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Episode Transcript

MichaelAaron: Welcome back to Behavioral Science for Brands podcast, where we decode brands, apply proven behavioral science and bridge the gap between academic studies and practical marketing applications. I'm MichaelAaron Flicker.
Richard: And I'm Richard Shotton.
MichaelAaron: Today we're doing scarcity, Spotify, and always getting a second opinion. Let's get into it. So Spotify, one of the world's largest streaming music services, has really changed the way all people listen and consume their music. Richard, when did you start using Spotify?
Richard: Well a good 10 years ago.
MichaelAaron: And your favorite tracks or your favorite types of music to listen to?
Richard: Well, the types I think is very interesting. Yeah, because I think you're right that this is how Spotify has changed music. When I was a kid, I liked indie music and that's all I listened to. I would never dream of spending my pocket money on a, you know, rap album or a heavy metal album. What I think is so good about Spotify is, it encourages experimentation because there's no financial cost. You can try all these different genres. So I would say the single biggest thing that I love about Spotify is that it's made me much broader in my taste. So, I've started listening to Country Western. I've started listening to rap. I've started listening to more classical music. Yeah. When money was a limiting factor, I would never have gambled that cash on trying these new genres. So I love it.
MichaelAaron: And this is really a success of Spotify to make music as a service. Whereas in the past, for those listeners that maybe were not at the age of consuming music on your own, when you had to buy cassettes, buy CDs, go to a record store and actually pick it one at a time. You know, the idea that you can have 70 million songs on demand at the push of a button was almost unfathomable at that point.
Richard: Yeah. And that, that fact that it costs so much to buy a CD made you conservative. It made you risk averse. Yeah. You know, you, you are going to keep on buying things, you know, you quite like, because why would you waste maybe a week's pocket money on a CD and then not be able to afford anything else?
MichaelAaron: Now like all global companies that have changed an industry. A lot of controversy on both sides, Spotify may be great for consumers it, but it most certainly continued the changing trend of the music industry. That was really started by the explosion of the internet. Napster, Limewire, the Pirate Bay were all, sites that allowed you to swap music and no, commissions would go to the artists.
MichaelAaron: It was really a very big deal in the early 2000’s. So, Spotify really starts as a platform in 2006, founded by Daniel Eck, and by 2008 they are launching publicly. And according to him, it's in reaction. To music piracy whether it's in reaction to music, piracy, or seeing that there was a bigger financial opportunity to use technology to reach audiences.
MichaelAaron: And whatever the story is behind why he starts it, it really becomes something that changes the industry. Um, market size of the music streaming industry at the end of 20 19, 20 1 billion dollars and Spotify in their November, 2021 report has 32% market share. So, a very large, really large size. And if you look at the total number of users, Internet companies and technology use the term monthly active users.
MichaelAaron: How many people log in at least once a month to the service? 422 million people log into Spotify at least once a month. 182 million of those people are paying subscribers so, you know, a type of technology that really changes the way that people think about music. As you were saying before, explore music.
MichaelAaron: But a lot of the principles about how they got to where they are today were based on behavioral science, some of which they may have known about. And others they may have not known about. But even if you go back to the way that they launched Spotify, there was a behavioral science principle at the very beginning of when they first went public.
Richard: Absolutely. So right at the beginning it was an invite only service. Now that is applying the principle of scarcity. So, it's this broad idea that we want what we can't have. We value things more if we think they're in short supply. And it's a tactic, yes. used by Spotify, but if you look at most tech brands, they have something similar. Applied Gmail was invite only, so was Facebook. So was Clubhouse again and again, you see this principle being used,.
MichaelAaron: I was going to say ostensibly by the tech founders to beta test to get the product ready for the market, but there's a different effect it has on consumers.
Richard: Yeah, I think you're right. There was a point made by one of the, the senior folks at Gmail that they said their invite only wasn't done to boost exclusivity. It was done because they just didn't have the server capacity. However, they say that in retrospect, it was one of the luckiest things that ever happened. By limiting who could get a Gmail account, it made them desirable. People wanted this, scarce exclusive resorts. So they now, in retrospect, say that it was the scarcity that was a key driver.
Richard: Very cool, very cool. With all behavioral science ideas, it's never displaced on logic alone. There are lots of studies that prove this point of scarcity. Probably the most famous, certainly one of the earliest was by a University of Virginia psychologists called Steven Worchel. When back in 1975, he gets 134 female undergraduates, and he splits them into different groups.
Richard: All of them think they are in this experiment to rate the taste of cookies. Now half of the participants, he brings the cookies in. It's a glass jar full to the brim. There's 10 cookies in there. People take a cookie, taste it and rate how much they like it. Mm-hmm. , that's the first group. Okay. Second group. He uses exactly the same batch of cookies, so there's no difference in the taste.
Richard: But this time when he brings it to the participants, it's in a glass jar, but there's just two of the cookies. Mm. When that group rates how much they're prepared to pay and how much they like the taste, the scores go up by 25%. Compared to the control. So key thing, everyone is eating exactly the same food, but the volume of the food. If it is in a scare supply, people treat it differently. You know, people want what they can't have.
MichaelAaron: And does the study go into whether or not that made them more willing to pay more for it or more desirable?
Richard: Both. So he looks at two metrics. They rate it and then they say how much they're prepared to pay. Both those scores go up.
MichaelAaron: Very interesting. So, you know, bringing up the Worchel study really raises a question we hear a lot in behavioral science. So at the face of it, 25% increase by using scarcity seems like everybody should use scarcity all the time. Now, we've heard in our travels and work together that well.
MichaelAaron: Wait a second. You said 134 female students? Yeah. All from one university, all talking about desirability of a cookie. Is this really extensible? Is this something that you can count on across all different categories? And there's even a term, this would be called a weird sample. W E I R D. Weird stands for Western, educated, industrialized, rich, democratic. Do the findings really apply more broadly?
Richard: Yeah, that, I think that's a very good challenge. And if you look at some of the classic studies in psychology, ones that were done in 1950s and 1960s, I think that question of is the sample representative, can you extrapolate the findings to the population as whole is a completely fair one. So the first thing you really want todo when you look at these studies is prioritize studies that were done in the real world or the nationally represented group. That's far better. Completely true And more recent studies will generally go to greater lengths to try and get a representative sample.
Richard: The second thing I think to consider is, if you as a master come across a single study like Worchel's, treat it with a pinch of salt. Don't jump to thinking this is the absolute truth and it's categorical. It's going to work everywhere. Before you do that, what you really want to find is, has the study been replicated?
Richard: Has someone else gone out, reran that study or tested the principle in a different situation, and do you find consistent findings? Now, what psychologists do is they will often look back across the whole body of literature and they will do what's called a meta-analysis. They will look at 10 or 50 or 20 different studies and try and see if there are consistent findings.
Richard: For something like scarcity, we do see that it works very broadly. There is a lovely study from Swarbrick-Jones in 2017. They look at 2,600 e-commerce experiments and they test 29 different ways of, um, how to drive extra sales. And what they find is the scarcity, either in volume or in time. So, when I say volume, I mean there aren't many of these items left, whereas time would be, you haven't got long to take advantage of this offer.
Richard: They are two of the three most powerful drivers of behavior. So I think on average there's a 2.9% increase in sales for e-commerce experiments that use scarcity, so yes. Fair enough to be slightly skeptical about the Worchel study, but it's not a one-off finding. We can give those findings general credibility cause of these other studies.
MichaelAaron: Yeah. And I think that it also so that's very helpful to hear you say and I think we also have to encourage marketers to apply the behavioral science, confidence to the size of the business opportunity they're going to make if we're talking about using behavioral science to inform colorways in a creative campaign that's inevitably going to change in a year or two versus the way that we do product packaging that may take five years to make a change, , size the opportunity and then apply the confidence of behavioral science to those.
Richard: Yeah, I think, I think that's fair. So you can either say size the opportunity or the cost of applying this idea. Yeah. If there is a one-off study with a slightly bizarre finding, but it's going to cost you nothing to test it for yourself, well, why not do it? Right. Think of behavioral science just as this wonderful compendium of insights that can, you know, give you ideas about what to test. However, absolutely, either if the intervention is going to be costly or it could have huge impacts on your brand, then I think you want to have the confidence that comes from knowing there are multiple studies that point in the same direction.
MichaelAaron: And so,, you know, one of the reasons we created the Consumer Behavior Lab was to say we want to help those that want toapply behavioral science to their brands, to know which ones have a one-off finding and which ones really do have a lot of, you know, have had meta-analysis done that we know that there's multiple studies that reinforce that finding.
MichaelAaron: Um, that's something you and I just have a personal passion to do and happy to help folks as they're going through their own readings, as they're doing their own research in this. So let's tie it back to Spotify and restate it. So, tell us Spotify and scarcity in this first opening part.
Richard: Yeah, so when Spotify launched their service, the success or failure of that launch would not just have been based on the quality of the service, what the scarcity experiments by, Worchel and others shows is exactly the same product can be more appealing if you limit access. So, when they launched, they only let you join if you had been invited. This was a, a kind of a pressure. It became a precious commodity. By adding that extra layer of scarcity at launch, it makes the appeal of Spotify greater and therefore turbocharges their first few years.
MichaelAaron: Amazing. So let's go to a break. While we do. If you like what you're hearing, please give us a rating. Give us a good review. If you're interested in something we talked about, drop a comment on social, go to the consumerbehaviorlab.com and leave us a note, let's interact, give us some feedback. Let us know what's interesting, you hear. And when we come back from the break, we're going to talk about a totally different type of scarcity and how Spotify applies it.
MichaelAaron: Behavioral Science for brands is brought to you today by Method1, a digital first marketing company that brings science to the art of persuasion. They're behavior change Experts who solve business challenges by creating meaningful connections with consumers. Method1 has deep disciplines across many brand categories to unlock behavior change that fuels brand growth. Visit them at method1.com.
MichaelAaron: So over the break, Richard and I were talking about a third part of the Worchel study, that not everybody knows about and we thought it'd be fun to share a pro move in behavioral science. It says pro move where you combine. Two different behavioral science principles, to have even a greater effect.
MichaelAaron: In this case, we've been talking about scarcity and how Spotify used scarcity at their launch. And now we're going to talk about how we can add social proof to scarcity we actually spoke about social proof last season, Richard when we went through Aperol in season one, episode three. Why don't you remind us what we were talking about with Aperol and Social Proof? What's the quick concept on social proof, and then we'll get into this third part of Worchel's study.
Richard: The core concept of social proof is the idea that people are not discreet decision makers. That we are not completely individualistic. Often people look around to what others are doing, and if a product looks like it's popular, that product becomes more appealing and people are more likely to buy it. So one of the easiest tactics you can take from behavioral science is to emphasize the popularity of your product. Talk about being New York's favorite you know, 10,000 units sold. Whatever it is, emphasize your popularity and you're likely to boost sales.
MichaelAaron: 10,000 or a million. Five-star reviews.
Richard: Yes. Anything that emphasizes popularity. Mm-hmm. bestseller number one, nation's favorite. Those would all be social proof ideas. Now you mention. Combining that with scarcity. And you're absolutely right. That is something Worchel did in his study. So I mentioned two variants. The test he did, he actually did a third, and in the third group of people, he comes in with his glass jar and his two cookies.
Richard: But before people try the cookies, he says to them, look, I'm really sorry. There's only two cookies left. They. Proved to be very popular today. So he's emphasizing the popularity and they're in a scarce condition. And the ratings, both in terms of taste and in terms of willingness to pay are highest in that scenario. So if you can, don't just talk about scarcity, talk about the scarcities due to the facts that there has been high levels of demand. And if you do that, you're combining two very powerful principles, behavioral science.
MichaelAaron: Very cool. So, okay, let's go back to Spotify now. So we talked about the concept of a volume scarcity. Yeah. That is, there's only so many people that can register for the product at the launch, but there's another type of scarcity called time scarcity. Yeah, absolutely. And Spotify uses this in a very interesting part of their site called Discover Weekly.
Richard: That's right. So time scarcity would be, you only have one or two weeks to take advantage of the this offer. Right. That's Times scarcity. Discover Weekly applies that because this is a playlist that Spotify create for you. It's based on your listening, but it's a selection of new music that you've never listened to, but they think you'll like, because it's a bit similar to what you've listened to before, that only lasts for a week because it's not going to be around forever. People tend to treat it with greater respect, greater reverence than they would if it just lasted for the rest of eternity. So it's a simple idea to apply.
MichaelAaron: Very simple. But when Spotify first launches, Discover Weekly it doesn't work.
Richard: No, so they had tried two times before to l launch this type of service, right? So throw back Thursdays, feel good. Fridays essentially the same idea. Suggest you new types of music. You might want toto listen to both of those flopped. Yet when Discover Weekly launched in 2015, it was a huge success. There were 40 million downloads of the playlist in the first year. The difference was the day they launched the service.
Richard: They launched the service on a Monday. Now that might sound like a tiny inconsequential difference, but behavioral scientists would argue otherwise. There is a wonderful psychologist called Katy Milkman at Wharton, and she has come up with an idea called the Fresh Start Effect. And essentially it's the idea that one of the big drives of human behavior is the need to be consistent with our past selves. Now there are an awful lot of negative words we use for inconsistent people. So we tend to do the same thing again and again because we don't want tobe perceived as inconsistent. And one of those things is not listening to new music. But what Milkman argues is when we enter new time periods, that linkage with our past self weakened and we become more open to change.
Richard: So she calls this the fresh start effect. She doesn't just argue this from logical load. She looks at a variety of different data sets, things like gym registration data, bundles of search terms like quit smoking, start dieting, and for all these different data sets, she sees pronounced spikes at the beginning of new time periods. So we have more likely to try these new behaviors. On Mondays, the beginning of the week, the first of the month, January rather than any other month in the beginning of the year after birthdays, after holidays, again and again, we are more open to new things to change your behavior at the start of those time periods.
MichaelAaron: So that emotion you feel when you start a new year and you're going to make New Year's resolutions, even if you don't keep to them the idea open to making a new year, new you, new resolution. That's an example of fresh start effect.
Richard: Exactly. And, and in fact, Milkman is inspired by that insight she sees. She looks around at culture and it's well known that people do try new things on at the beginning of a year, and all she does is think, well, if it's happens at the start of a new year. Does it happen at the start of a new week a new month? And what she finds is, yes, it does. These are repeated, predictable, increases in an openness, new behavior. So, if you are a marketer, this is fascinating. If you ever want to change someone's behavior, if you want get to, get people to try the category for the first time, to switch from a competitive brand, these are moments that you should be, should be targeting.
MichaelAaron: It feels very adjacent. To the bias that we spoke about before. Is it called nine enders? Yes. Where you're at the, you're 29th, 39th, 49th birthday, you're more likely to want to make a change. Yes.
Richard: Yes. So it's a slightly different argument, but. the implication is very similar for marketers. So this is a study from Adam Alter at NYU and his partner, I think Hershfield maybe. And what they argue is our culture arbitrarily, completely arbitrarily says the turn of a decade out is a massive event. So, becoming 40 is a big deal. Becoming 41 isn't, becoming 50 is a massive deal. Becoming 53 isn't. And they argue that as we approach those landmark moments, we reflect on our lives. And just the act of reflection means that we turn off the autopilot for a bit. We at least consider how we are behaving and it's just the act of consideration means that we are open to new changes. So, people are much more likely, just as you say, to try new behaviors, new things when they're agents in a, in a nine, and it's not speculative.
Richard: They look at a bizarre mix of data sets, first time marathon runners. 48% more likely to have an age that ends in nine an affairs website called Ashley Madison. They look at 8 million male users of that, and men are 18% more likely to join when their age ends in nine. And then even more depressingly look at American suicide data.
Richard: So there is a small but statistically significant spike in suicides when some's age ends in nine mm. A repeated finding, you are much more likely to try new things when your age ends in nine. So again, if you are a brand who wants maybe to get people who have always drunk alcoholic beer, if you want to get this trial, a non-alcoholic lager. Target 29 year olds, target 39 year olds. If you want to get people to excise the first time, target nine enders. Lots of opportunities.
MichaelAaron: And to me, this really reveals one of the things that Richard and I get so excited about in behavioral science, which is it gives you a little bit of an unfair advantage over your competition.
MichaelAaron: Just this little bit of knowledge about when folks are more likely to want to try something, either the nine enders at the end of a decade. Or, Fresh start, beginning of the day, beginning, beginning of the week, beginning of the month, beginning of the year. They give your brand a little bit more of an extra chance to win that consumer trial or to win that repurchase.
Richard: A absolutely. I like the phrase unfair advantage because who would think? Of testing 29-year-olds as an audience, 39-year-olds. I think you would only do it if you had heard of Adam Alter's argument, but once you've heard that, once you've heard the data, it is an obvious thing now to test. It's a sensible thing to test, but without knowledge of that behavioral science experiment. You'd test thousands of things before you thought of testing that
MichaelAaron: and, and you might even test it and miss it if you didn't have the academics behind it. Yeah. To know you were looking for it.
Richard: Yeah. You either might have your date ran list, might see that spike and just think it's noise. Or what many people do is aggregate their data. You might just look at the propensity of people to try your products and band it up in five year groups and miss this opportunity. So, you need the hypothesis that comes from behavioral science before you begin to analyze your data.
MichaelAaron: Are we preaching to the choir here, Richard? We've got our fans listening to us talk about behavioral science, but it's helpful because as you, as you think more about how you can engage more deeply in behavioral science as you want to bring it back to your workplaces, whether you're at an agency or you're at a brand and you want toget other people.
MichaelAaron: Engaged in this, there's going to be that subset of stakeholders who ask, well, what's the real business advantage? Yeah, this is all very nice, but what's the business advantage doing this? I think what you and I are trying to draw out here is there's a real business advantage.
Richard: Yeah. These. These studies are not just interesting party conversations. They're not just, they're also that. Yeah. Well, true. That's very true. But there's a business opportunity. Yeah. Now you have as a business, a finite amount of money to spend on your media. So why wouldn't you place your media dollars at the moment when people are most open to your messaging?
Richard: If you just have a scatter gun approach to any age, it's going to be less effective than using people like Alter's findings. to Target the moments that matter most.
MichaelAaron: So Richard, when we talk about this on a Behavioral Science for Brands podcast, obviously the people listening on the, on the podcast are excited about behavioral science.
MichaelAaron: They're interested in learning more, but you and I have been talking a lot recently about how this is more salient than ever because our industry is changing so fast, 25 years ago. You couldn't take the insight about targeting nine enders or a fresh start effect, like only delivering the news on Monday and deliver it to the right audience at the right moment.
MichaelAaron: But because of the advent of digital, because of how powerful our media targeting is today, we really have the opportunity to take the behavioral science. Principle, take the insight and activate it in the market.
Richard: Yeah, absolutely. It's a brilliant change and it's made behavioral so it's even more relevant. So, you take something like Facebook, they know your date of birth, so you can target just nine enders or think about the fresh start effect. You can target people within a couple of weeks, their birthday. So, something as you say, that was once of academic interest. You know, little quirk about human nature.
Richard: Now, it has a business advantage because every business has the same issue, which they have a finite amount of media spend. So all these theories we've been discussing, all they mean is the, rather than, In a scattergun spray gun approach, spend your money across all the audiences. These allow you to focus on the moments and the people that matter.
MichaelAaron: And what we want to encourage everyone listening to do is to think about how you can take these principles and apply them to your brands and in your agency and for those that need more evidence, this is a business case for how to take behavioral science and use it in the real world.
Richard: Yes. Because if you go to your financial director or you go to a client and say, we should apply the principle of targeting people whose age ends in nine and you just argue it from the logic alone, you are going to get a lukewarm response. You may get it, you may not. Yeah, if you take your client through the Adam Alter work, you run them through the methodology, tell them results. What I've found is it suddenly shifts the conversation. It's no longer should we target this group. It's well now practically, how do we identify nine enders? How do we target them?
Richard: So, it moves the conversation from a subjective opinion to an objective argument. And that tends to be much easier for, for businesses, and, and clients to buy.
MichaelAaron: So Richard, we like to end every podcast by summarizing the big takeaways for our listeners.
Richard: So big takeaway here is firstly, think about the principle of scarcity. The same item will be judged differently if it is in short supply. So try and think about how you can introduce either volume, scarcity. These are limited editions. Um, emphasizing how few or how little stock you have and time scarcity emphasizing how little time people have to take advantage of your product.
Richard: So that was the first big thing we discussed. And then the second was this idea of the fresh start effect. The idea that all moments are not equal. People are particularly likely to change their behavior, like trying a new brand or a new category at the start of a new time period. So if you ever want to change people's behavior, The beginning of the year, month, week after the birthday, or even after they come back from a holiday.
MichaelAaron: So Richard, we talked about nine enders today. Yeah, it was an unexpected twist. Our conversation took in your life. Have you ever committed to something at a nine ender birthday that you might not have committed to in any other year?
Richard: Well. So , I'm 47 now. When I was 39, I, I moved jobs. It wasn't, I had no knowledge about nine enders at that stage, but I think there was an element, I think midlife crisis would be a bit too grand. I don't too much, but. Approaching for you. I began to think, God, you know, what am I, what am I doing? And one of the, one of the reactions was to switch agency. So I've certainly seen the effect of this in my life. So what about you, MichaelAaron? Are any Nine ender style changes in your life?
MichaelAaron: You know, maybe not the ending in a nine, but as I was finishing, university, I'm in my senior year and I, you're approaching a landmark, you're actually leaving. Yeah, that's right. Yeah. The end of my, of my college career, and I was up to school in Boston and the Boston Marathon was a big cultural event. In fact, in Boston, they closed the universities. on Patriots Day, on Marathon Monday, and they run right through Boston College's campus. Yeah. Where I went to undergrad, so yeah, end of college.
MichaelAaron: I decide I'm going to run the Boston Marathon. Oh, wow. I like to tell people, Richard, I completed the Boston Marathon. Ah, okay. I took three quick walk breaks. I cried three quick times, but I did it and I got all 26.2 miles done.
Richard: I've looked at the Boston Marathon and you to get in, certainly as a foreigner, you have to break like three hours or three 15.
MichaelAaron: So yeah, that is true. There is a, there's strict standards in America as well. However there's something that used to exist called bandits. Yeah. Where you run at the back of the race and it's still sanctioned. You're still a part of the race, but you're not bibbed, you don't have a bib on. Okay. Okay. , very common to do for charity.
MichaelAaron: Yeah. In fact, I think I did have a bib and I was running for charity, so you can Yeah. Do it to qualify. Or you could do it as a charity run. And I think that's what I did. I did it as a charity run. Thanks for tuning in to Behavioral Science for Brands. If you are applying behavioral science on your brand, we'd love to hear about it.
MichaelAaron: Leave a comment or send us an email at [email protected]. Tune in next week for Fried Chicken Beer. And the Consumer Behavior Lab's First National Experiment. Until next time, I'm MichaelAaron Flicker.
Richard: And I'm Richard Shotten.

Episode Highlights

Principle of Scarcity

4:20 - 5:25

Psychologists note that when a product or service is perceived to be scarce, people want it more. Many tech companies like Spotify have taken advantage of this principle to create buzz and demand for their products.

The Fresh Start Effect

17:00 - 19:00

Katherine Milkman’s study found that “fresh starts” on specific event dates can enable people to be more effective at setting and achieving behavioral-changing goals.

Nine Enders

19:20 - 20:54

Alter and Hershfield's study found that radical shifts occurred more often among those who were approaching a new decade of life.

Resources & Useful Links

Want to dig deeper on the idea of social proof and the intention of actions gap? Here are some
additional resources that show how to make your brand more popular with consumers and the
importance of combining motivation with triggers to convert intention into action.