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How to Launch a New Durable Good: A Signaling Rationale for Hunger Marketing

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  • Feng, Hong
  • Fu, Qiang
  • Zhang, Lan

Abstract

We study the increasingly popular “hunger marketing” strategy (the combination of an artificially low price and a supply limit) adopted by many high-tech startups to launch their products. In a two-period model, a firm offers an artificially low introductory price and also imposes a limit on the quantity available for sale in the first period, which leads to a shortage in the equilibrium. We show that when effective word of mouth is present, such a strategy allows a firm to credibly convince the market of the premium quality of its product. We demonstrate that word of mouth plays a critical role in catalyzing the signaling mechanism. When word of mouth becomes more efficient, e.g., enabled by social media, shortage is larger in the equilibrium, and the introductory price falls further. Our study provides a rationale for hunger marketing.

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  • Feng, Hong & Fu, Qiang & Zhang, Lan, 2020. "How to Launch a New Durable Good: A Signaling Rationale for Hunger Marketing," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:indorg:v:70:y:2020:i:c:s0167718720300448
    DOI: 10.1016/j.ijindorg.2020.102621
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    References listed on IDEAS

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    2. Ying Gao & Xiangpei Hu & Qingkai Ji, 2022. "Quality signaling strategies of experience goods in online–offline channel integration," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2967-2981, October.

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