Part III- Does the type of sale used affect the prices?
In the recent series of What determines Price in Part II we looked at how the price paid for a particular knife doesn’t always reflect the market value of that knife due to either an over-motivated buyer or seller.
Now in this final installment I want to examine these sales approaches (alternatives) from a price perspective. I know there are other factors and we examined those in What is the best approach to sale for you individually based on your personal criteria. Then in Part two- Sales Alternatives we looked at the pros and cons of the different sales approaches.
The question before us now is- “Are there times the method used actually affects the price (the outcome)?” I’m talking something like a glitch or problem with the system itself that would affect the results.
THE SALES METHOD RESULTS
We would think the result of a sale would be purely a reflection of the demands and goals of the buyer and seller, nothing more- nothing less. In other words, the sales method is a process and doesn’t cause or influence the final outcome- the price. Well that is what I want us to look.
Are there factors inherent in one approach that causes the prices inferior to that of another- the method affects the price.
Let’s look at eBay sale results and compare and contract it against traditional “live” auctions and one-on-one sales (the privately negotiated sales method).
LET’S HAVE AN AUCTION
We know auctions in general reflect “real-time value” supported by the market through competitive bidding, so the sale prices do reflect market price.
eBay is a different animal, however. eBay was designed around a business model for a specific corporation. Its sole purpose is to generate revenue for that publicly held entity. In order to maximize revenue eBay purposely incorporated certain elements (rules/limits/features) not found in traditional “live” auctions and not all of these elements are in the sellers best interest.
A list of these elements include-
- Proxy bids
- A predetermined specified ending time
- “Buy It Now”
- Increasing bid increments (larger required raises/increments as the auction price increases, which is the reverse of traditional auctions where typically the increments get smaller as the price increases)
- Then throw in the ability of bidders to “Snipe” in the closing seconds of the auction
All these elements are uncharacteristic of traditional “live” auctions and most are in place to increase revenue to eBay, not always to get more money for the seller.
I am a fourth generation auctioneer. 
My great grandfather started our auction business back in 1915. We have continued in the auction business for close to a century now. We have studied the art and science of auctioneering. The psychology of the auction method and how best to engage and retain bidder participation is of utmost importance to our clients, and our business.
I can tell you the elements eBay introduced to the auction method (and generally adopted by most online auctions) were created as a direct result of their auction format and business model (generating revenue for their stockholders based on a online computer operated bidding system).
IT AIN’T OVER TIL ITS OVER, OR IS IT?
While a couple of these elements can have a positive affect on the final sales prices the “pre-set ending time” of the eBay auction results in forcing bidders to consider it in their bidding strategy. One of the best examples of this is what is commonly called “Snipping.”
In a traditional “live” auction, the auctioneer engages the bidders, maintains their interest and continually works to increase their participation. A Round of Bidding, a technical term, theoretically could continue indefinitely. Crowd psychology, momentum and a little showmanship are the tools auctioneers use to accomplish this goal. In the end, each bidder must determine for himself the value a given item has.
One of the major factors that is limited is the affect in an eBay auction, that is present in a traditional “live” auction, is bidders being influenced by other bidders’ opinion of value (in an eBay auction most serious bidders Snipe it at the end, therefore, other bidders don’t see that price point until it is over….which is too late to influence other bidders to bid higher. Obviously in a “live” auction the bidding continues until the auctioneer senses the bidding is complete).
BEAT THE CLOCK
In an eBay auction with many of the serious bidders waiting until the closing seconds, the price could go from $50 to $1500 in milliseconds. It becomes a game to trying to beat the clock.
You may say, “Well Scott that allows sellers to achieve them maximum doesn’t it?” Well, in most cases, I’d say, No. The advantages of this element don’t offset the disadvantages. While in some cases, if you have two (or more) highly motivated bidders who have plugged in “win at all cost” bids in order to insure a win, then the sales price could go higher than a traditional auction. However, if the bidders never really get engaged in the “magic” of the auction and aren’t hyper-motivated, then the price can actually result in a lower final sales price than if they were “in” the bidding- back and forth with the auctioneer using his/her skill to entice, engage and prompt the bidders to bid “one more time” and keeping the bidding open while bidders are still interested.
TAKE ANOTHER EXAMPLE
Have you noticed the difference between an eBay auction where the opening bid was very low verses one where the opening bid/beginning bid is set to give the seller a chance to sell it in case there isn’t much bidding (these sellers actually create the very scenario they are trying to avoid). What have you seen to be the differences in the prices and number of bids (and sometimes the number of bidders too) between these two scenarios? The auction that starts low creates the allure of a bargain and entices bidders to get into the bidding. Some of these bidders may not have bid at all if the opening bid was 70% of its value. Low starting bids actually help bidders decide to try to buy a knife they hadn’t thought about buying before.
The opposite happens when the bid starts high. Those eBay sellers took away the opportunity to “get the ball bouncing.” In the end, only those bidders who are what I call “retail buyers” tend to get into the bidding (if at all). I know I have bought items on eBay I really didn’t need or intent to buy but because the starting bid was low (usually no-reserve auctions) I decided to “buy” it (at the price I bid) and usually continued to try to win (I had already bought it in my mind when I entered my first bid).
Bottom-line- eBay auctions with higher opening bids negates the magic of the auction (and creates more revenue to eBay than low opening bids. As you may know eBay not only gets a percentage of the final sales price, but gets a fee based on how high or low you start the auction bidding for your item, as a seller. The higher the opening bid a seller sets the larger the fee).
In a traditional auction the bidders begin the auction. Yes, the auctioneer will “ask” for an opener but can’t actually start the bidding until he receives a bid. Therefore, must start where the bidders want to start (which usually is a lower number, as opposed to a higher number).
WHERE IS THE EGO FACTOR?
Traditional live auctions provide and play on pitting ego against ego- visibly, right there in front of an audience. The human psyche when in public doesn’t want to lose. Instead it wants to win, and yes, it still wants to win when sitting in front of a computer, but take my word for it, when bidders are sitting in a crowd of onlookers, the ego comes into play substantially more. It can actually cause bidders to act irrationally.
So, in the end- whether eBay realizes a knife’s true value is a function of having highly motivated bidders- bidders motivated to win almost at all cost. If, on the other hand, the bidders are your “average bidders”- folks who want the knife, but know what its worth is and are willing to pay that but not much more, then, eBay’s sales result in an inferior price to that of a traditional auction.
When you compare it to a one on one sale (a privately negotiated sale), the same comes into play, the only difference is, unless the knife is ultra rare a buyer may pay whatever it takes, otherwise, there is not magic- no hook to engage the buyer to action. Then it becomes a “wait and see” game. Waiting on the seller to come to reality and lower the price or accept less.
WRAPPING IT UP
So does an eBay sale affect the price- yes, my observation and experience says, it fails to realize the true market value due to the elements it has set up under which the auctions must run.
The traditional live auction, all things being equal, allows for a higher price primarily because the bidding remains open until there is not further interest.
The one-on-one privately negotiated sale, assuming both parties are equally motivated, can at times produce a higher sales price than either auction format, provided the buyer is substantially more motivated than any other buyer (I’m talking a lot more motivated here), but if not, then the auction method will produce a higher price simply due to competitive bidding.
IN THE END IT COMES DOWN TO DEMAND
Setting aside for the moment the time frame goals of the seller, as to which approach is best, let us assume that the overall objective is commanding the highest price. It really comes down to price maximization. In order to accomplish this objective, we must consider the demand for the specific knife, or knives, if a collection. If the demand is very limited then one-on-one sales approach most positively affects the price allowing the seller to realize a higher price, if on the other hand, the demand is strong and fairly equal, then the traditional live auction is best suited positively affect the price. The eBay auction, in my humble opinion, is only best, when there is no live auction to participate in because of the overall negative affect of its pre-set parameters.
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