Explaining the scarcity principle

If you’re a suburban mom, or a good friend of mine, then you have almost certainly heard the term “buttery-soft leggings”. If you haven’t, a quick Google search will return hundreds of hits and articles primarily centered on a single clothing brand: LuLaRoe. Founded in 2012, I first encountered this clothing brand in late 2015 when a friend of mine became an independent consultant for the company. While originally put off by their seemingly overly-bright patterning, in the past year and a half my wardrobe has been taken over by LuLaRoe items. For someone who never before shopped so exclusively with one brand, I’ve been asking myself:

How did they get such brand loyalty from me?

LuLaRoe is just one of many companies that work exclusively through direct selling. With this sales model, products cannot be purchased in a brick-and-mortar store, but are instead only available for purchase directly from consultants; often those consultants are friends, or friends of friends. Think Tupperware, or Avon, but for the 21st century! I have friends who sell makeup, storage solutions, essential oils, skin care, and more. LuLaRoe is no different: their unique (and colorful!) dresses, tops, skirts, and most importantly, leggings, are purchased from independent consultants who sell exclusively through in person or online (Facebook) parties.

Direct selling

Direct selling has exploded in recent years due to leveraging social media for selling purposes. Instead of just inviting local friends to the Tupperware party in your living room, social media allows current direct sales consultants to have groups of hundreds or even thousands of women who can purchase their inventory. Direct selling can be “single level” (where consultants only earn money on what they themselves sell), or “multi-level” (where consultants earn money on what they sell, and a percentage of the sales from those they bring onto their team).

Unfortunately, the shady actions of a few have carried the whiff of impropriety over to other direct sales companies. LuLaRoe does encourage its consultants to recruit additional consultants “downline”, allowing consultants to earn money directly and from those who they recruit (hence, the “multi-level” nature of the company). However, unlike other companies that employ multi-level marketing, LuLaRoe does provide its consultants with a path to profitability. They do not require any additional purchase past the initial inventory, and are willing to buy back inventory from consultants who wish to close their business. I myself know multiple consultants who have used their LuLaRoe profits to get out of debt, add a second income, or simply for additional spending cash.

Business details

As a fan of these clothes, I eagerly read the articles touting the benefits of LuLaRoe, many posted by LuLaRoe consultants whose Facebook groups I have joined. Blogs by women on how the clothing makes them feel better about themselves. Longer articles on the success of the company, discussing both the pros and cons of direct selling in general, and LuLaRoe specifically.

Similar to these journalists, I questioned my consultant friends for information on the company. What was the onboarding requirement? What are typical monthly sales? How much time do you devote to the business (many have full time jobs in addition to their clothing business)? How many consultants are still onboarding (LuLaRoe parliance for joining as a consultant)? I was full of questions! The scientist in me wanted the data!

But above all, I think I was trying to figure out:

Why am I, and so many of my friends, drawn to this clothing brand specifically?

My company focuses on analyzing behavior, and in particular we are interested in identifying unconscious behaviors that people may not even realize influence their daily habits. I could ask my friends “Why do you like these clothes? How many items have you bought? How often have you bought them?”, but I know from our research that we often cannot fully remember our own actions, or explain why we make the choices we do. So instead, I had to look deeper…

Most articles written about LuLaRoe focus on the primary message of the company, which is “female empowerment”. LuLaRoe encourages women to become consultants as a means to own their own businesses. In the founder’s own words: “LuLaRoe exists to provide an opportunity for people to create freedom by selling comfortable, affordable, stylish clothing, and offering its Retailers the independence to set their own pace and schedule.” Their clothing is made for women of almost all sizes, with adult sizes range from XXS to 3XL. With many different cuts and styles, I can attest that there is a style for just about anyone!

The last part alone is enough to engender some brand loyalty, but is it enough to create the rabid fans (myself included!) that flock to online LuLaRoe parties, and in-home “pop-ups”? What none of these articles, or even the messaging of the company itself, have touched on is how LuLaRoe, unlike any other direct selling company, has capitalized on the scarcity principle.

The scarcity principle

Simply put, humans place a higher value on items that are hard to get, and a lower value on items that are abundant. This principle, studied widely in both economics and psychology research, explains why we aren’t willing to pay more than $3 for a mass-produced Hershey’s chocolate bar, available at any store, but will spend 10 times that on specialty chocolates only available in one store.

LuLaRoe has employed the scarcity principle from the beginning. This graphic is often shared by new consultants, explaining how their patterns are created and distributed throughout all consultants.

Each consultant can choose the items in her inventory, but she cannot pick the patterns – they are randomly sent with each order. Some patterns are highly prevalent, and can be found across multiple consultants, while other patterns are much rarer. This creates automatic “unicorn” status for certain patterns; in LuLaRoe parlance, a unicorn is a highly sought-after item that is very difficult to get your hands on.

The buying model

The buying model employed by LuLaRoe also capitalizes on the scarcity principle. During online sales, consultants post photos of all of their inventory, and the first person to comment “sold” on an item gets to purchase it. You may see your unicorn, and if your fingers aren’t fast enough, you lose out! This encourages buyers to join lots of groups, because you never know which consultant may have the pattern you are looking for. Variance across inventories promotes cooperation between consultants; buyers also appreciate that consultants will help search through teammates’ inventories to find the items their buyers are looking for.

So, has LuLaRoe happened upon the perfect sales model? In many ways, yes. Items range in price from $25 (for their signature leggings) to $70 for the Sarah, a long cardigan sweater; most items fall into the $35-$50 range (for shirts, skirts, and/or dresses). This pricing puts LuLaRoe on par with what you would pay for items from a high-end name brand store (think Gap or Ann Taylor, not Old Navy). The quality is commensurate with price (although extra care does need to be taken with the fabrics to prevent wear in the wash), so why do women choose to shop with LuLaRoe consultants over a known chain store? Why do I make this decision, over and over again? Obviously I like the clothing, but I also like my items from Ann Taylor, so something more must be in play.

This “more” must be the scarcity principle. By putting this into practice from moment one, LuLaRoe has conditioned me to feel that the moment I find an item I love, I need to purchase it. I can walk into any Gap store and purchase the same item that I saw in another store just a week ago, or I can order it online – that item is not scarce. In contrast, I might never find that LuLaRoe item, in my size, and in that pattern, again. Therefore, my reptilian brain shouts at me:

“You must buy this now!”

And so I battle against that part of my brain…oh, wait, is that new inventory with new patterns?