Should sellers offer “Buy Now”?

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:

  • In Used items the category with the highest percentage of auctions sold using Buy Now is Gaming at 40%, followed by Mobile phones at 39% and Computers at 36%. The category with the lowest sold using Buy Now is Pottery and Glass at 15%.
  • In the case of New items,  Mobile Phones are at the top of the list at 73% sold by Buy Now, followed by Movies & TV at 71% and Pets and Animals at 68%. The category with the lowest sold by Buy Now rate is Jewellery & Watches at 28%.

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:

  • Over the last year on average 50% of auctions with Buy Now have the Buy Now matching the Start price, although that jumped to 61% in December 2010 with more sellers taking advantage of the busy Christmas season.
  • Overall, Buy Nows are on average 13% greater than the Start price, although this dropped to a 10% difference in December 2010 (NB Needless to say, auctions that started at $1 and had a Buy Now were showing a premium many hundreds or thousands of percent higher).

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:

  • You might set your Start Price below the normal selling price to attract interest, with the Buy Now price still attractive but not quite so low
  • You might have a product that is in significant demand, so your Start Price is the recommended retail price but the Buy Now offers instant gratification for those who just can’t wait
  • Or your product might be readily available offered by a number of sellers, so your Buy Now price is set at the same as your (competitive) Start Price, to meet the market

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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