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Liquidator Genco Distribution Systems recently found a correlation between the starting price of an auction and the winning bid.
As sellers become smarter about using online auctions, they continue to refine their approaches to maximize returns. Liquidator Genco Distribution Systems recently found a correlation between the starting price of an auction and the winning bid.
Pittsburgh, PA-based Genco, which sells surplus goods at eBay, used to start all bids at 30-35% of the original cost of the item. The average auction generated five or six bids and the average selling price was around $60, says Pete Rector, senior vice president. About four months ago, Genco dropped the starting price on all auctions to $9.99. “Bids have gone up and so has the average closing value,” Rector says. The average winning bid is now $75-$80. “We’re seeing pretty close to 50% of the original cost of the product,” he says.
Rector says Genco settled on the $9.99 price simply by experimenting. “We didn’t want it so low that we risked selling a $900 computer for $1.49, but we wanted it low enough to attract bids,” he says. “We have enough merchandise that we could just go out and experiment with it.”
That a lower starting price creates a higher closing price is part of the phenomenon of consumers getting caught up in the frenzy of bidding. The prospect of a low price draws them into the auction, and once they’re invested in the item, they continue bidding. “It’s like baiting a hook,” Rector says. “You get more with a bite-sized chunk of good bait than you do with a side of beef.”
Genco uses channels besides eBay for liquidation, sometimes splitting a lot so that some items are sold direct to the consumer on eBay, some are sold in pallets to re-sellers and others are sold by truckloads to buyers who re-sell the merchandise again, often to overseas markets.