How to Launch a New Durable Good: A Signaling Rationale for Hunger Marketing
by    Hong Feng, Qiang Fu, and Lan Zhang

International Journal of Industrial Organization     Vol.70, 102621    

Keywords:Hunger Marketing, Introductory Offers, Quality Signaling, Supply Lim- its, Shortage, Word of Mouth


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.