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.
- 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.]
- 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.
- 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).
- 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.
- 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.