1) Amazon offers Prime members benefits like preorders, Prime Day and exclusive products, creating scarcity in a world of abundance.

Almost a year since the August 2017 acquisition of Whole Foods, Prime members now have access to weekly grocery discounts. Tacked on to the ever-expanding benefits associated with Amazon’s loyalty program, Whole Foods discounts are just one of the exclusive Prime offers, which also include channel-specific streaming of premier league soccer broadcasts in the UK, Amazon Wardrobe, the new “try-before-you-buy” apparel program, and Prime Pantry, a monthly $4.99 membership for free shipping on $40 orders on everyday grocery and home products. These services work to maintain healthy customer relationships and affect customer behavior in the long term, even with the company’s recent 20% bump in the annual Prime subscription cost to $119.  

Amazon’s new and improved flash sale

Another bonus of a Prime membership is Prime Day—an annual daylong event in July when a wide range of deals are made available to Prime members only. Though consumers may view Prime Day as a time to reap the benefits of their membership (free two-day shipping and exclusive access), the holiday works at least equally as a promotional tool for Amazon, its products and services. Not only does it incentivize consumers to join Prime, but it is also using Prime Day 2018 to highlight its Alexa-enabled devices, which can sign up consumers to Prime, read a list of Prime Day deals, and will offer exclusive discounts to customers ordering through Alexa. This year, the company plans to place a large emphasis on its private-label products, which are a growing focus for Amazon. Unlike Black Friday or Cyber Monday, Prime Day builds additional anticipation as the company does not pre-release the exact date (in 2018, the day was leaked).

Prime Day not only works to affect customer behavior, but also generates massive revenue. When first introduced in 2015 to celebrate Amazon’s 20th anniversary, hundreds of thousands of people signed up for Prime in order to access the deals, purchasing 34.4 million items in one day. In 2017, the third year of Prime Day, brand sales rose 30% and mass merchant sales jumped 124%. In contrast to Cyber Monday 2017, which made $6.59 billion in sales, Prime Day 2017 made an estimated $1 billion, all through Amazon.

While companies like Rue La La, Gilt, and Fab.com were built on the flash sale, doing so meant that the companies’ entire business model was reliant on short-term discounts, which most companies only use to clear out excess or slow-moving inventory. Prime Day flips this model, confining its discount extravaganza to a single day each year, which it conveniently uses to push its best core products like Amazon’s growing body of private labels and Alexa-enabled devices more than it does to get rid of products. In 2018, it’s also expected that Amazon will see even higher revenues, as it is expanding the length of the holiday to 36 hours.

Gilt, which terminated its flash sale-only model in 2017 to buoy sales with full-price and off-price items, points to the reality that flash sales do not promote long-term sustainability for a brand and the idea that sometimes, scarcity needs to be applied narrowly, rather than broadly. The company not only reduced its number of daily flash sales from 40 to six—moving away from the flash-sales model also meant that Gilt could repurpose unsold flash items as off-price to enhance its margins. Looking at Gilt’s trajectory, Amazon would never go as far as to make Prime Day the defining moment of the Prime membership program—it is just one of many opportunities for shoppers to exercise the power of their subscription.

Using preorders to drive Prime membership

Amazon has also put its own spin on preorders—a favorite of companies before the ecommerce boom to promote physical goods in the runup to their release. Particularly in the video game industry, preorders used to define the consumer experience—before a new game hit the market, the company would use preorders to build anticipation, allowing the most eager customers to place an advance order on a physical copy. But with the digitization of the sphere, copies are now readily available for purchase online that can be downloaded and played instantly.

Today, however, the industry continues to plug preorders. Sony’s “No Man’s Sky,” for example, was first teased in December 2013—three years before its 2016 release. Because the game was in development throughout this time, the final product largely differed from how it was marketed. Years of hype also built up unrealistic expectations. One reviewer wrote that as opposed to Minecraft, a game “that slowly built out its fandom over years of updates and small-scale tweaks, No Man’s Sky arrives burdened with a reputation as a game-changer, and it may turn off some casual players with its quiet beginning.”

Even as video game preorders lose relevance, companies are attempting to adapt them, treating the tactic less like a pre-sale and more like a pre-order bonus—a preordered game might be part of a collector’s edition or include exclusive discounted or free downloadable content. Still, because most games are typically discounted within a few months, there’s even less impetus for customers to make a purchase before the release date.

Particularly at a time when products are increasingly accessible, preorders, like waitlists, have the potential to isolate or turn away customers. Amazon, which often debuts new products and services at a lower price for its Prime members via preorder, makes sure to use the strategy in a way that boosts the company’s ecosystem. For Prime members, while the offers are short-lasting—members had two days in June 2018 to preorder the $120 Fire Cube for $89.99—but exclusive. And, because Amazon folds the preorder strategy into its Prime ecosystem, offering discounts on new items is a way to boost membership without relying on the preorders themselves to sustain business since Prime members are already active spenders on Amazon’s platform.

Exclusive products further differentiate the Prime membership experience

The company also launched a program called Amazon Exclusives in 2015—a separate assortment of products only available to those who signed up for the service. Since then, Amazon Exclusives has been folded into Prime, to become Prime Exclusive Savings: “New products just for Prime members, for a limited time.” In 2016, for example, Amazon limited the sale of certain video games and Blu-rays to Prime members only. Clicking on an Amazon Exclusive item, a shopper without a Prime subscription would be prompted to sign up for a 30-day free trial of a Prime membership.

Though the name suggests otherwise, the products aren’t exclusively available on Amazon—it’s just the biggest online marketplace to provide them. The majority of items are sold by third-party sellers on the site, but fulfilled by Amazon—an added benefit for shopping the exclusive products thanks to Amazon’s supple distribution network.

Prime Exclusive Savings is particular in that it highlights specific Prime-only deals for a limited time, affixing newfound value to them that is only available to members. Unlike Supreme, which maximizes demand by creating a small inventory for each of its weekly drops, Amazon maximizes demand through its Prime membership and supply through its abundance of products—the idea is that the largest selection of books in the world will lead to the largest number of customers, and therefore the largest sales—but only a certain tier of customers can take advantage of the best deals.

Amazon’s pre-abundance scarcity play is also inextricably linked to the exclusivity that comes with Prime membership—Prime customers are increasingly receiving a differentiated experience from non-members. Though Prime Exclusive Savings continue to seem experimentational, they are united by their use of scarcity and exclusivity to drive membership. Amazon has always eluded to scarcity with notices like “only three left in stock,” and as it expands its Prime membership benefits, it will continue to create the illusion of scarcity without compromising on what informs a Prime membership and changes customer behavior: fast shipping through its fulfillment centers and convenience by being a one-stop shop for anything and everything.

2) Exclusive experiences often lead to long waitlists for consumers, which can create secondary markets and counterfeits, building hype for the brand even if it doesn’t increase revenue for the business.

Hamilton launched its ticket lottery as a promotional tool, but relentless hype has led to a secondary market of counterfeit tickets.

As experiences and events grow in prominence in terms of how consumers decide to spend their money, StubHub reigns supreme as the world’s largest online ticket exchange marketplace. The site allows ticket holders to name their price and resell tickets to events; the company then takes a commission on sales.

Like other resale sites—SeatGeek, Ticketmaster, Craigslist etc.—StubHub acts as an unofficial lottery: the tickets are first come, first served and only account for pre-purchased, unwanted tickets meaning that there is a finite, and often small number available. Though StubHub is not immune to fraud, it guarantees that purchased tickets will be valid for entry—if not, the site will find the buyer replacement tickets or provide a refund.

Because StubHub sellers determine their own prices, they often boost the cost of a ticket, operating like any other secondary market. But especially for buyers looking for last-minute tickets, stumbling upon a good seat or a good deal is a treasured prize, well worth the money.

One of today’s most coveted events both on and off StubHub is Lin-Manuel Miranda’s musical “Hamilton.” Since the show debuted on Broadway in summer 2015, ticket prices have retailed as high as $1,150 per seat. Like other hyped one-time or short-term events, the high prices, finite number of seats at each Hamilton performance, and unknown timeline after the season ends in April 2019 has spurred both a secondary market and a counterfeit industry, which some resellers asking upward of $2,000 per ticket. In the last few years, many eager theatergoers have found deals on sites like Craigslist only to arrive at the box office and discover that their tickets didn’t scan because they were fake.

One way to evade the high prices and the secondary market altogether is the official online Hamilton lottery, which offers $10 tickets for first- and second-row seats each performance. Consumers can use the dedicated Hamilton app or visit its site to enter the lottery from 11:00am two days before each show until 9:00am the day before. Notifications come in by 11:00am the day before the show and winners have from 11:01am to 4:00pm to finalize their purchase of up to two tickets.

In comparison to an offline retail strategy, access to which is limited to the location of physical stores, Hamilton and the ticket lottery are available in all of the cities where the musical tours, which come and go, only lasting for a certain number of seasons—a marriage of time, product and experience scarcity. At the same time that this transience makes tickets to Hamilton more valuable, the lottery comes at no cost and minimal energy to its entrants, which incentivizes them to participate even though the odds of winning are about one in 400 given the approximately 10,000 entries per performance. In turn, this increases the value of the tickets in the lottery, despite their flat price of $10.

Though the lottery requires a heavy dose of patience its next-to-no entry point democratizes access to a scarce resource typically held at a price point the majority of consumers cannot afford. It also further engrains customers in the Hamilton world; the free app not only serves lottery needs, but includes trivia and karaoke, which likely builds enthusiasm for the musical itself. This latter point conveys the main intention behind the lottery: publicity. For some, entering the lottery and checking the app is almost a daily ritual.

Supreme’s model is built on weekly product drops, and the hype feeds directly into a burgeoning secondary market.

Hamilton recalls the resale market for Supreme, which has built a brand on weekly in-store and online drops that attract around-the-block lines at its brick-and-mortar stores. Like the finite number of seats in a theater, the brand creates scarcity so that supply never outweighs demand, which means sell-through and high margins for the business: a time-based and product scarcity.

However, the small size of the inventory and the hype around the brand means that not all people waiting in line for the latest drop are there because they love Supreme—rather, many are there to buy up the new products and resell them online (others use bots to do so online), at as much of a mark up as 2,300%. This price increase creates a hierarchy of accessibility—it’s worth the wait to join the line for Supreme’s latest product release and capture new SKUs at retail prices than to purchase a new item online at an inflated cost. Plus, collecting products on the secondary market erases the experience of waiting for a drop in person, reducing it to a mere transaction.

While counterfeit Supreme products are prevalent just like fake Hamilton tickets, the more noteworthy issue in both of these scenarios is the fact that revenues from the resale market don’t end up on Supreme or Hamilton’s books, even though they clearly drive hype for their respective brands, which justifies scarcity. But even if the resale market doesn’t harm a business, it can hurt consumers, who can pay artificially high prices or fall prey to ersatz tickets.

However, there are a number of noteworthy differences when comparing Hamilton and Supreme through digital, physical and experiential lenses. For one, while some Supreme fans wait in lines to buy up new products—a form of collective experience—the end goal is always a transaction, whereas winning the Hamilton lottery or purchasing a ticket always leads to entertainment and discovery. With the musical, it’s the memory of the experience that counts, even if theatergoers walk away with merch. Perhaps Supreme could enact a Hamilton-like lottery, but the best prize would be first-in-line access to its in-store drops rather than a discount on a product, since the brand already offers a range of rather reasonable prices.

Secondly, it seems that consumers are more likely to be unaware they hold a counterfeit ticket to a musical than they would be to purchase a counterfeit Supreme item online—and more upset, especially as Hamilton is an irreproducible experience. Hamilton—a physical experience with digital ticketing—might be easier to fake than Supreme, which is a digital or physical purchase process with a physical result.

As brands like Hamilton and Supreme navigate their own hype, they can learn from other brands that are finding ways to show consumers that they are valued and offsetting negative consequences. Disney, for example, improves its brand equity by offering FastPass+ to theme park visitors—a free way for anyone with admission to reserve up to three rides a day that comes at no extra expense to the company. This allows visitors to avoid waiting in lines for a few attractions, giving them more control over how they want to spend their time at the park and improving their experience at Disney.