Natural Scarcity – What Makes A Product A Suitable Means For Status Signaling

From Stone Age pottery, to Renaissance paintings and modern luxury watches, there is strong evidence that using objects as status symbols is at the core of human behavior. This phenomenon has been widely studied across various research disciplines. Given that signaling high status through products (for instance, through luxury products) is a prevalent behavior, we examine the underlying factors that make a product most suitable for status signaling. In other words, we accept that a lot of consumers want to signal high status (socio-economic-status, SES) through the products they consume and we try to understand the characteristics a product needs to have so that it is preferred over another product as a means of status signaling. In this article, we propose an answer to this question, a construct that we call natural scarcity. Although scarcity has been frequently studied as a factor that enhances the value of products we contend that only in situations where a product of excellence is produced by naturally constrained resources, such as the unique skills of a craftsman, or scarcely available raw materials, will enhance the value of product in the context of status signaling. Other means of scarcity, such as artificial scarcity induced by the marketer, are much less effective in the long run. Typically, luxury goods are supposed to be of superior performance, made by hand, from traditional brands, require craftsmanship, have exclusive designs, or are limited editions, etc. As we will argue, natural scarcity provides the necessary mechanism to explain such instances (and all others). It explains under what circumstances a product’s performance matters and when products would signal high-status even when they are not made by hand or do not require craftsmanship. It is important to mention though that our intention is not to define when a product should be called a luxury product and when not, but to explain the underlying mechanism that makes a product a more suitable signal for high socio-economic status and this mechanism could also apply to products that are not typically considered luxury products, such as collectibles (e.g. stamps) or premium products. As we will show, suitability for status signaling also correlates with the product’s perceived value.