Wednesday, January 03, 2007

Auction Pricing Strategies - Lowest Price for Highest Final Value?

Dr. Robert Cialdini's site, Inside Influence Report, has an interesting article on eBay, auctions and general bidding processes that occur in the regular world. It talks about how bids with low starting prices tend to generate higher final sale prices than bids utilizing high starting prices. The research is based on a study by a couple of social psychology researchers.

The article offers three general insights:

1)Lower starting prices encourage participation by as many bidders as possible

2)Increased traffic and bidding generated by low starting prices acts as “social proof” to other prospective buyers. In other words, the prospects notice that something must be good because of how many people are crowding around it.

3)Those who get into the bidding early invest time and effort updating their bids and following the auction. This makes it more likely that they will commit to winning the auction and bidding up the item.

The researchers also noted that when traffic to a listing was limited (due to something like a misspelled word in the item description), lower starting prices were less effective – thus bolstering their social proof observations.

Bottom line: Auctions need traffic, and they should start out with low prices in order to attract the optimal number of bidders. Perhaps this is why eBay stores are so tough to get off the ground. Those of us who have been successful with auctions cringe at the idea of fixed prices perhaps.

What's your experience? Do your observations support these findings? Chime in and let us all know. Thanks.

Popdex Citations