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Should sellers offer “Buy Now”? May 11, 2011

Posted by Michael Carney in : Buy Now, selling , add a comment

One of the intrinsic appeals of any auction is the uncertainty surrounding the final amount to be paid. For the buyer, there’s the tantalising possibility that they will score the item on offer for far less than it’s really worth. The seller, on the other hand, is ever hopeful that a bidding war will erupt that just might result in a windfall being paid, if two or more eager bidders drive up the price.

These days, many Trade Me auctions offer a “Buy Now” option — a chance for buyers to grab an item without going through the auction process. “Buy Now” does remove uncertainty from the equation — but at the same time it also takes away some of the fun (and the possibility of unexpected outcomes, for better or for worse).

So is “Buy Now” a good option for sellers to offer (and buyers to use)?

We took a recent look at the numbers to find out.

If we start with the total number of Trade Me general auctions that closed successfully over the last twelve months, on average 36% of auctions closed using Buy Now, 54% by Auction and 10% by Fixed Price Offer (after the auction has closed).

That’s the result across all general categories on Trade Me, but there are variations depending on the type of product on offer (and whether the items are new or used). Some highs and lows:

The conclusion we draw from those results: that where items on offer are more easily understood and evaluated (especially with new products featuring well-known brands, in sectors such as technology where product specifications and comparisons are readily available), buyers are comfortable with what they are purchasing and willing to make an rapid and informed decision (and commit to that decision via Buy Now).

However where the value of items on offer is more subjective (eg art, jewellery and the like), consumers are less confident and more likely to look to the market to set the price. As a result, they’ll either simply add the item to their watchlist (and check in later to see how the auction is going) or place a bid at a price they’re comfortable with — and see what others are bidding for the item as the auction nears its close.

So if you have products to sell in the right sorts of categories, a “Buy Now” price is likely to be reasonably effective in encouraging instant purchases.

If your products fall into more subjective areas, then you’ll need to provide more objective reinforcements — eg testimonials from happy customers, external price comparisions (“Recommended Retail Price is $X so you’re getting a great deal”) or compelling reasons to act now (“only three left so click on Buy Now to claim your copy”).

Another possibility, if you want to encourage Buy Now usage: offer a bonus if they click on Buy Now (eg “free shipping with Buy Now”). Of course you’ll need to set your Buy Now pricing to cover the cost of providing such extras, which leads us into the next topic:

How Much?

Another issue for sellers to consider — if you’re giving up the possibility of bidding-war windfalls, how should you set the price of your “Buy Now”? The same as your Start Price? A premium?

Again, we look to the statistics for guidance:

Here, we suggest that other pricing dynamics are in play (and we refer you to Chapter Eleven of TRADE ME SUCCESS SECRETS, which covers in much greater depth the pricing possibilities on Trade Me). Briefly, however:

Three-quarters of general auctions on Trade Me now offer “Buy Now”. As we’ve seen on our romp through the numbers, that works well for some categories — but not for everyone (or at least not without other encouragements or sweeteners).

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