Making An Offer They Can’t Refuse

You’re listing a product to sell. What price should you ask? How do you decide?

Selling on Trade Me is all about encouraging early bids and creating emotional attachments with the items. Your pricing strategy has a very real influence on whether early bidding is successfully achieved. To understand exactly what pricing strategies are right for you, you first need to understand the psychology of bidding.

THE PSYCHOLOGY OF BIDDING

Scenario 1: The high starting bid
You have a widget for sale. You bought it for $20 and you think it’s worth $40. You list it with a minimum starting bid (same as the reserve) of $39.95.

After a few days you’ve attracted some casual viewers but no bids. Then a widget-lover finds the auction and looks over the listing details. He sees the high starting bid price and wonders to himself:

  • Is this widget a must-have addition to my collection or just a passing fancy?
  • Should I bid for this or save my money for something special?
  • Is it really worth $39.95?
  • Why isn’t anyone else bidding?

If his widget-addiction is strong, he’ll make a bid. If your product description is mind-boggling and everything else stacks up, maybe that could tip the balance. Otherwise, no sale.

Scenario 2: The $1 No Reserve Auction
Same widget, different pricing. You still think the widget’s worth $40 but this time you start the auction at $1, No Reserve. Right from the start, you get more traffic — your widget shows up in the Widgets category and also in the $1 No Reserve Category. You attract a few casual viewers who have some interest in your item. Since the price is so low, they’ll place a bid on it if they have any interest at all, or if they think they can resell it and make a quick profit.

That mere act of someone making a bid transforms the fate of your widget. Now it attracts more interest — someone’s bid on it; it must be worthwhile. More people see the widget listing and more bid on it. There’s an increasing perception of the value of the widget (based on bidding behaviour which is really the blind leading the blind).

The bidding gets up to $10 or $15 when those with a merely casual interest stop bidding. Now your widget-lover comes along. When you started the bidding at $39.95, the price was high and he had to try to justify the purchase to himself. Now it’s a low price, obviously a great deal — and a host of others are interested in the widget. But our hero is a widget-loving expert and right away he develops a sense of ownership — ‘I know and understand widgets; this one is mine!’ He bids $20 and becomes top dog, leading the bidding.

Enter Widget Lover #2. He sees the widget, he sees all the bids and maybe recognises the user name of Widget Lover #1. The opponent effect kicks in — a bidding war erupts. Up, up, up goes the price, past $30, past $35, past $40. Widget Lover #1 finally gets the prize, for $49.77.

Why was Widget Lover #1 willing to pay more in this second scenario? Suddenly he really wanted it — but might lose out. The widget’s relative value had changed as a result of the auction itself. It wasn’t just a case of ‘do I really need this widget?’ any more. Now it was serious: ‘I have to win this auction — this is my widget. I’m the widget-lover.’

So how do you tap into the psychology of bidding to increase the potential return on your widget? There are five primary pricing strategies used by sellers at the start of their auctions:

1. STARTING BID = MINIMUM AMOUNT YOU WISH TO RECEIVE FOR THE ITEM
(Often flagged in listing headlines as ‘Start = Reserve’ or ‘S=R’.) This is a fairly straightforward pricing strategy: set the starting price (and the reserve) at the amount you think the item’s worth.

Recommended when

  • You’re selling an item that appeals only to a very small niche market. If you’ll only get a small number of bids for an item, make them count — and make them profitable.
  • You have absolutely no idea what the item is worth. List it for the minimum profit margin you want to get for it (after factoring in your acquisition cost).

2. STARTING BID = $1, WITH NO RESERVE (HEADLINE SHORTHAND: $1NR)
Simply start the bidding at $1 and set the reserve at $1. [NB: A word of warning with this strategy: be mentally prepared to let your product go for as little as one dollar. Not every auction proceeds according to plan.]

Recommended when

  • You’re selling an item with wide appeal. If you’re offering a product that potentially appeals to a large target market, casual visitors will be willing to bid on your item at an early stage because it seems like a great bargain.

3. LOW STARTING BID + HIGH RESERVE PRICE
You could start your auction at an attractive low price (even as low as $1) with a significant reserve price (say $40) as protection in case bidding is too low.

Recommended when

  • You want to attract as much interest as possible in your auction, but don’t want to sell the item unless the bidding reaches a minimum level.

4. STARTING BID = ENOUGH TO COVER YOUR PURCHASE PRICE AND LISTING FEES
This pricing strategy (where Start also equals Reserve) is a halfway-house between strategies #1 (high minimum bid) and #2 (no minimum bid).

Recommended when

  • You previously opted for a high starting bid strategy but your item failed to sell. You’re not prepared to try a $1 No Reserve alternative because you wish to at least earn back your investment.

5. STARTING BID = PERCENTAGE OF LISTED VALUE (AND START=RESERVE)
With this strategy you price your starting bid in relation to an existing price guide or published price. For example, you might sell DVDs and start all of your auctions at 60% of recommended retail prices. Or you might sell a collectable item such as stamps or comic books, where price guides and catalogues exist and you can quote them in your listings.

Recommended when

  • There have not been any recent trades in the products you’re selling, so there are no Trade Me benchmarks with which to work.

MAKING A FIXED PRICE OFFER
At the end of an auction, the seller has one final opportunity to offer the item at a fixed price. It’s a blunt instrument – price is the only variable under the seller’s control at this stage. If you just want to be rid of the item, offer it at that legendary “price they can’t refuse”.

Otherwise, choose a price that you’d be happy receiving — if someone accepts, it’s a done deal.

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12 thoughts on “Making An Offer They Can’t Refuse

  1. Rusty

    You overlook an important ingredient – TOTAL price.
    There is a world of difference between between a vendor who offers a good enough item price but either doesn’t do the homework on the shipping (ignorance) or tries to make a big buck on the freight (Hong Kong drop shiper).
    You can safely ship it in an envelope for 50c, but the vendor wants $6 for a courier who will call when you are out at work and you end up having to drive somewhere else to pick it up!, and it sells for less than the courier…

    Otherwise, love those $1 no reserve suckers!

  2. Richard

    Great tips. I’m about to sell a motorbike perfect for learners and the like as a 1$ reserve and at the start of winter (not that it’s time yet, but who told mother nature?)

  3. Sonya

    Awesome. I so needed to know this. Got a whole heap of stuff to sell but just didn’t know the right way to go about getting bids. This will be such a help.

  4. Susannah

    I’m so pleased to read all this info, I’ve got a few things to sell but had no idea about the ways to do it. Thanks so much

  5. Glenn

    This is all good info but one should also be mindful of the method of payment.
    I am a kiwi living in Australia (along with many thousands of others) so items with paynow , paypal, or a credit card payment are going to get my bids ahead of bank deposit only items.
    Also I suggest a cost of “postage to Australia” be included in the listing for the same reasons.
    Good luck and good selling.

  6. Eligius

    Well, I am obviously missing something here. What exactly is the point in S = R? It seems to defeat everything I ever learnt about auctions. To me, if the reserve is the minimum you are prepared to accept, it seems logical to start the bidding at some lower figure.

    Could someone please enlighten me.

  7. Michael Carney Post author

    Eligius: The main benefit of S=R (i.e. the starting price of your auction being the same as your reserve) is that Trade Me will provide a little yellow flag alongside your listing price, telling potential bidders that as soon as they start bidding the item is in play — so any bid is not a waste of time but could potentially win the auction. Psychology is again at work here — if you see a product listed at, for example, $40 but without the little yellow flag, it could mean that the actual reserve price is well outside the range of what you’re prepared to pay.

    The S=R strategy can attract more bidders if the reserve price is actually realistic (and looks good to some prospects). And (at the risk of your listed item appearing too expensive for some) it does mean that you sell your item at least at your preferred price — or, of course, don’t sell it at all.

  8. Eligius

    Thanks for your lucid explanation Michael. I’ll try to adjust my thinking, albeit maybe with some difficulty. I see what you’re saying but it still seems like an outright sale, rather than an auction. Guess I’ll get over it. Thanks again.

  9. micki

    Fantastic to get free info on how to make bucket loads of money when selling misc stuff at home. As the old saying goes “one man’s trash is another man’s treasure”. Now I feel fully informed on how to make someone’s treasure hunt more fun to them and beneficial to me.

  10. Chris

    I wonder about the mentality of traders who having sold a $1 reserve Buy Now $40 item, for (say) $20, then go on to make a fixed price offer of an identical item for $40 to watchers and bidders.

    If a watcher didn’t want to bid $21 on the original item, they certainly aint going to pay $40 later on when they know the item is selling around the $20 mark. This is very prevalent in the computing section.

  11. Michael Carney Post author

    I suspect they’re clinging to an outmoded notion based around the old model of scarcity of information: they either forget or don’t know how open the Trade Me marketplace is, so don’t realise that it’s so easy to find the selling price of past listings.

    Either that, or they’re hoping for ignorance on the part of potential buyers, which is never a particularly smart (or longterm) business strategy.

  12. Terry Neilson (Tejayn)

    Very Informative. However there’s the old approach of “this is what it is worth to me, and until someone appears who is prepared to meet my price its not going anywhere”. Of course you will have to put up with the inevitable disappointments, but not every trader is looking to make a quick buck at your expense. Some actually have a practical use for the item your selling.

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