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Understanding the Art of Auction Pricing on eBay

More choices and information mean more complexity for auction format decisions

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Understanding the Art of Auction Pricing on eBay

Auction format listings are still with us, but these days discriminating sellers are more able to use them appropriately and to make decisions about them effectively.

Image: khz / Fotolia

Not so many years ago, eBay pricing was a simple matter. Since auctions were the dominant listing format on eBay, nearly all eBay shoppers were willing to bid on them, and eBay had little online competition as a space for buying and selling, the rule of thumb for auction selling was to start every auction low (even as low as a $0.99 or $1 starting bid) and let the market decide on its value.

The resulting price was usually "the best that could be hoped for" given market conditions, and in the case of used goods or personal sales, often wildly exceeded the seller's expectations, given the newness of eBay and the ability to sell just about anything online rather in a local shop, in classified ads, or in some other way that limited foot traffic and potential buyer attention.

Now, however, times have changed:

  • The rise of fixed-price auctions has reduced the proportion of auction bids
     
  • "Market value" has come to mean the total online market, not just eBay
     
  • Auction sniping has become more common and lowered bidding activity
     
  • Sellers can choose to sell on multiple online venues

At least in theory, the online auction, still a largely eBay-centric phenomenon, offers the potential to get the highest value possible for an item, including prices that may be higher than the "market value" of an item or the price that a seller might have asked for them. It seems a shame to lose this potential by listing items at a fixed price, whether on eBay, on Amazon, or elsewhere.

On the other hand, the online auction model also brings with it the risk of a "lower than market value" ending price, something that most sellers these days very much want to avoid, giving the other options available to them.

The trick, then, is to employ pricing strategies that maximize your chance of getting at least market value for your auctions, enabling you to sell at auction without having to face the potential for losses, and to be able to decide whent he auction format listing is likely to deliver this price, and when a fixed-price listing might be more appropriate.

Here's how to make this happen.

Use a Market Research Service

If you sell regularly, there's no excuse these days for not using a market research service like Terapeak or HammerTap that can tell you at what prices goods are actually selling recently on eBay.

Whether you're selling using auction format listings or fixed price listings, this is the only way to ensure both that you're getting as much as you can for your items (i.e. not selling them for less than market value) and that you're not wasting your time by listing items too expensively (i.e. with a fixed price or minimum bid that generates no interest before the listing is completed).

Check Items for Bid Activity

As you research your sales using a market research service, begin not by focusing on the recent sale prices of items like yours, but on the number of bids or the amount of bidding that they have generated. Use the following rule of thumb to help you to decide whether auction format listings or fixed price listings are more appropriate for the item in question:

  • If items are generating on average one bid per listing or less, consider using fixed-price listings
     
  • If items are generating on average more than one bid per listing, consider using auction-format listings

The logic here is simple: if there are fewer bids out there in the marketplace than there are items for sale, you're not likely to see lots of "bidding up" for your items unless they are very special or different from the norm in some way. If you're likely to get at most one bid for any auction format listing anyway, you're essentially listing at a fixed price—whatever you set as your minimum opening bid.

Check Item Pricing

Once you've got a good idea for demand (the number of bids that are out there) and have decided on a listing format, check the pricing if your item. Focus on the average sale price of sold items that are very similar to yours (you may have to narrow your search in your market research service to be sure that you're including only items that are like yours, not just in terms of make and model, but also condition, included accessories, and so on).

In general, you're more likely to actually generate a sale or bids if you don't list higher than the average prices of items like yours that have already sold. If you price yourself much higher than the average, you'll probably concede the sale of the same item to another seller, unless you have:

In most cases, the average selling price is a good bet for your initial thinking on price, assuming that you've run your search carefully and narrowly and the items you've researched are very similar to yours.

Think About Incentives to Buy or Bid

With the average price in hand, weighed alongside any of the competitive advantages outlined above that may enable you to get a little more for your items in some circumstances, it's time to think about how badly you want the bid and/or the sale. Your bottom line is important here—obviously, you want to have good records and to know that you're not ultimately selling unprofitably or at a loss.

At the same time, all things being equal, your best chance of winning the battle for the bid here is to start with the average price and listing format that you've identified and then discount your item relative to the rest of the market.

With fixed price listings, the discount limits what you'll earn on the item, so be sure not to discount yourself into unprofitability. With auction-format listings, the picture is fuzzier—if you're a standout seller for the reasons given above, there's a good chance that a slight discount will simply generate additional bids, which will in turn tend to generate still more bidding activity, something that could lead to a higher than average selling price.

At the same time, the risk still exists that after that first bid few or no additional bids will be forthcoming, and you'll sell your items for less than the average sale price they're currently seeing on eBay.

Your own judgment and business needs are the guiding principles here—you're basically working in marketing territory: how much are you potentially willing to sacrifice, as set of against what you could potentially gain.

If your risk tolerance and margins are higher, discounting relative to market averages or being slightly biased toward auction-format listings may be a good bet. If your risk tolerance and margins are lower, fixed-price staying close to market averages is a better idea.

Is the $1.00 Starting Bid Auction Dead?

All of this may lead to the obvious question of whether the days of the auction-format listing with the $1.00 starting bid are over on eBay. The answer is, of course, "not by a long shot," but these days you can do better on eBay if you're a regular seller by using this tactic wisely. List your items at auction and start them with a very low price to generate bidder interest only when as a professional seller:

  • Your search placement or search placement practices are reasonable, and
     
  • Market research tells you that excess bids are available for all stock on eBay

or, as a nonprofessional, casual seller:

  • You do not need any particular margin or price for your items, and
     
  • You want to preserve the possibility for the highest market price, even given the matching possibility for a lower-than-market price, and
     
  • You don't have access to a market research service and the cost of a subscription doesn't make sense given the amount of selling that you do

In short, there's still a lot of value in the auction-format listing for sellers, and a lot of value in the low-starting-bid auction-format listing, but these days there are more choices available to buyers—and more resources available to sellers to ensure that they make these kinds of choices based on sound research and actual buyer behavior, rather than on the law of averages and the (now defunct) uniqueness of eBay in the online selling world.

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