When the Cheapest Bid @Â Auction Wins
- Stephen Murphy
- 29 January 2008
Everybody loves a bargain. Combine that with online bidding and surely it’s a win win situation? Perhaps not. Internet strategist Stephen Murphy exposes the real reason you can buy an iPod for $1.67…
Online auctions have become hugely popular and, personally, slightly addictive. Many businesses have tried to challenge eBay’s worldwide domination, but the original online auction house remains a commercial juggernaut. eBay’s marketplace is truly active and, unknown to most people, it now moves more cars than the conglomerate of aggregated dealer sites, newspaper owned or not.
However, one of the latest buzz marketing promotions, or online trends, to hit our shores is a pure and simple classic that’s turning traditional online auction practices upside down.
In marketing terms, that magical word ‘free’ has long been one of the best calls to action to attract people’s attention, and while this over-used little adjective will be with us for many years to come, it’s not enough for modern consumers. These days, to stand out or, as the lonely media directors call it, cut through, society expects a different message. And we’re getting it. When you can buy a brand new plasma TV or iPod online for literally a few cents, you can imagine the social noise that is generated.
A brand new iPod for $1.67 or a new 50 inch plasma screen for $4.47 – you have my attention!
Welcome to the world of online reverse auctions where the cheapest bid wins! The beauty is the simplicity. To begin with, if you are the successful winner you will most definitely want to tell the world. Thousands of people are discovering this shopper’s jackpot, crowing about their bargain hunting know-how to their friends and endorsing the service in the process. This type of news travels faster than Santa Claus.
However, just like Christmas the cheap presents always break first, and here comes the catch.
The way the auctions are structured is that if there are two equal bids of the same amount, they cancel each other out and that price is removed from the auction. Hence, if you bid 1 cent and someone else bids 1 cent then that value (1 cent) is removed and the lowest possible bid price is now 2 cents.
Also, you are charged a single non-refundable fee to make the bid ($5 is quite common). Hence, your bid for the iPod Nano for 24 cents is really $5.24, non-refundable.
On the flipside, however, if you are running one of these types of auctions, you only need a small number of participants and your profit level can be enormous. For example, if you have 20,000 active bidders all paying $5 plus their bid price, you can pocket $100,000 plus their combined individual bids for an iPod Nano which retails for $299.
Just as someone will win lotto, the same odds apply to online reverse auctions, they’re just the newest type of ‘pure punting’.
What I do like about this new concept is that just as we’ve learnt the traditional rules with online auctions, the game has been reinvented in a wonderful way and taken to a whole new playing field.
