The Cronut: A Case Study on Demand

by

Feb 17, 2016

 

The Cronut. A seemingly simple pastry. The perfect marriage of a flaky, buttery croissant and a soft, sugary donut.

The Cronut debuted in 2013 and exploded with popularity. Every morning, hundreds of people line up around the block for a chance to try one.

Despite the increased demand for the Cronut, the bakery makes a limited supply. Only 350 Cronuts are made every day. Customers are restricted to 2 Cronuts if they buy it in store, and 6 if they buy online. A black market system has even sprung up, with people selling their Cronuts on Craigslist and similar sites.

Popular franchises like Dunkin Donuts are trying to get a piece of the Cronut craze, going so far as to add their own imitation Cronuts to their menus.

Business owners and customers alike are curious regarding the phenomenal success of the cronut. Why has such a simple dessert become so widely popular? What has Dominique Ansel done to create the persisting hunger that people seem to have over his Cronut?

Ansel has tapped into a tried and true consumer motivator: perceived scarcity. When customers are told there are only a limited amount of Cronuts made, they begin to inflate its value.

Numerous studies have been conducted on the psychological effects of scarcity and consumer behavior, stemming from Brock’s official Commodity theory in 1968. In a famous study conducted in 1975, subjects were asked to evaluate two jars of cookies: 1 jar contained 10 cookies, while the other contained only 2. Despite the fact that the cookies were individually identical, the jar with 2 cookies was valued higher by participants.

It is theorized that scarcity has this effect on consumer behavior due to the assumptions surrounding it. If an item becomes scarce, we reason that it must have inherent value to create such high demand.

Additionally, we tend to want what we cannot have, especially when competition is introduced. In order to obtain one of the 350 coveted cronuts, in a city of 8 million people, you will need to “beat” the competition by arriving earlier than they do.

So now that the phenomenon has some background and reasoning behind it, how can this be implemented to help restaurants or other food industry business? Following are a few methods to replicate “the Cronut effect” for your restaurant.

 

Create a Unique Product

One of the cardinal rules of scarcity is uniqueness of the product. If other restaurants are offering your same product, it is no longer scarce. A product is generally considered unique if:

  • It is the first of its kind: Though there is some debate regarding the origination of the Cronut, Ansel was the first chef to aggressively patent and protect his hybrid creation. Even as Cronut imitators have cropped up, Ansel benefits from the name recognition as the first. The reputation as originator lends the Dominique Ansel Cronut a particular mystique.
  • It is the best of its kind: Artisanal specialization allows small business owners to create more genuine, quality products than mass-production can yield. Items that are more difficult to make, requiring more time and individual skill, can be good investments for those looking to outshine competition. It is not necessary to be the first if you can somehow differentiate your preparation process as the best.

You can create the public perception of uniqueness through marketing and recipe innovation. Hybrid food items are a hot trend that doesn’t show any signs of stopping (Think: Doritos Taco, Ramen burger). Brainstorm ways to combine food items you already offer or introduce a surprising new ingredient to the mix. Something as simple as food dye can take your item from basic to sensational.

 

Offer for a “Limited Time Only”

Offering an item for a limited time period is another method used to create “scarcity.” Time frames for food generate curiosity and sometimes necessity.

You see this occurring in many larger companies, such as McDonald’s with the McRib or Starbuck’s Pumpkin Spice Latte. Though the items may not be scarce while they are offered, the time limit places an urgency on access. Consumers are more likely to make a purchasing decision if they believe it will not be available to them in the future.

Limited time offers double as trial testing, so you can gauge the success of an item without severely modifying your inventory. If an item takes off with popularity, consider integrating it into your menu year round, but in limited supplies, in order to maintain the demand.

 

Be Careful with Expansion

If your new item is proving to be a financial success, what should your next step be?

There’s high demand, and you’re just one restaurant, with a few employees, and a 50 person line out the door. Some may be tempted to open new locations so that the supply can match the demand. However, exercise caution with this line of thinking. Many businesses, after finding success, have expanded to other areas and become bankrupt because the demand was no longer the same as before.

Demand is necessary for a business. Following the Commodity theory, your supply should actually fall short of demand.

You may feel like you are letting money slip through your fingers by not matching demand. With an understanding of consumer behavior, however, you will see this isn’t the case.

Try raising prices slightly rather than quantity. If the perceived scarcity is high, customers will be willing to shell out a few extra bucks. In fact, a higher price can even boost the perception of scarcity and work in your favor.

If you do decide to expand, offer a different “hot item” at that location. Though Ansel has expanded to a larger bakery in the West Village, his original Soho location is still the only place Cronut hopefuls can snag his famous creation.


Perception is Key

The most important factor to keep in mind when trying to create scarcity is perception. The “inherent value” of food items is difficult to determine, as availability and preparation layer on top of the actual price of the ingredients. This gives restaurant owners significant leeway in pricing, with no objective method for valuation.

Use the idea of perception and context to your advantage.

You can take bigger risks on limited time food offers while making minor changes around your restaurant, bakery, or café to boost the idea of scarcity. If your facility has adequate space, keep the majority of items stored in the back rather than in the displays. Use the “cookie jar” method for more basic items, restocking only a few at a time.

These are simply a few ideas to get you started in the “scarcity” mindset. While you may not have the next Cronut, using these tactics is a low-cost method to increase demand without significantly modifying your budget.