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Setting a Pricing Strategy


Setting a Pricing Strategy

The first thing you can do to affect the results of your auctions is to set an initial bid price that attracts the maximum number of bidders. It's a tricky process, though. Set your price too high or too low, and you could end up with disastrous results.

Think about it. If you set your minimum price too high, you might scare off potential buyers. If you set your minimum price too low, you'll probably get more interested bidders, but you might end up selling your item for less than you want or than what it's worth. You have to determine the starting price that attracts the maximum number of bidders while ensuring that you eventually cover your product costs and generate the highest selling price.

So what's the right starting price? It all depends on your pricing strategy, which we'll examine next.

Set It Low Enough to Be Attractive...

To a customer, a lower price is more desirable than a higher one. Think about it. If you see two similar items and one is priced a dollar lower than the other, you're going to be attracted to the lower-priced item.

For that reason, I like setting a price that's low enough to get some interested initial bidding going. That could be as low as 99 cents, or at the very least competitive with the lowest starting bids on similar merchandise also for auction on eBay.

On the other hand, you shouldn't set the initial price so low that it won't eventually rise to the final price you think the item can really sell for. If you think the final selling price will be $100, setting the initial bid at a penny might leave too large a gap to be bridged.

So how do you know what the final selling price will be? Well, you don't for sure, although the research tools discussed in Chapter 2, "Researching Your Business Model," can help you get a pretty good idea of what to expect.

At the very least, you want to be sure you're not setting the starting bid higher than the final selling price for similar items. If you do a search for completed auctions and find that Star Wars DVDs have been selling between $10 and $12, don't put a $15 starting price on the similar discs you want to sell. Ignore precedence, and you won't get any bids. Instead, gauge the previous final selling prices and place your starting price at about a quarter of that level. (That would be two or three bucks for our Star Wars example.)


...But Don't Set It So Low That It's Not Believable

A low initial price is good, but it's possible to actually set the starting price for an item too low. That's because if you set too low a minimum bid, some potential bidders might think that something is wrong with the item. (It's the old "if it's too good to be true, it probably is.") Although you might assume that bidding will take the price up into reasonable levels, too low a starting price can make your item look too cheap or otherwise flawed. If you start getting a lot of emails asking why you've set the price so low, you should have set a higher price.

With an ultra-low starting price, you also run the risk of the final selling price not making it up to the level you'd like to hit. Sometimes the difference between here and there is just too great for your bidders to distance.

Make Sure You Recover Your Costs...

Another factor in setting the starting price is what the item actually cost you. Now, if you're just selling some junk you found in the attic, this isn't a big concern. But since you're running a real eBay business and selling a large volume of items for profit, you don't want to sell too many items below what you paid for them. Many sellers like to set their starting price at their item costso if the item cost you $5, you set the minimum bid (or reserve price) at $5, and see what happens from there.

...But Not So High You Pay Too High a Listing Fee

Of course (and there's always another "of course"), if you set a higher starting price, you'll pay a higher insertion fee. Here's where it helps to know the breaksin eBay's fee schedule, that is. Table 20.1 shows the fee breaks as of August 2006.

Table 20.1. eBay's Insertion Fee Breaks

Price Point

Fee

$0$0.99

$0.20

$1.00$9.99

$0.35

$10.00$24.99

$0.60

$25.00$49.99

$1.20

$50.00$199.99

$2.40

$200.00$499.99

$3.60

$500.00 and up

$4.80


Let's think about what this means. At the very least, you want to come in just below the fee break; coming in above the fee break will cost you an unnecessarily higher fee. For example, you probably want to list at $9.99 (which incurs a 35-cent fee) and not at $10.00 (which incurs a 60-cent fee). That extra penny could cost you 25 cents!

Obviously, it's in your best interest to minimize any and all fees you have to pay. If you're almost positive (based on completed auction activity) that your item will sell in the $20 range no matter what you price it at, price it as low as is reasonable. And rememberif you set the starting price for anything under a buck, you pay only a 25-cent listing fee!

Make Sure You Can Live with a Single Bid

What happens if you set the starting price at $5 and you get only one bidat $5? Even if you thought the item was worth twice that, you can't back out now; you have to honor all bids in your auction, even if there's only one of them. You can't email the bidder and say, "Sorry, I really can't afford to sell it for this price." If you listed it, you agreed to sell it for any price at or above your minimum. It's a binding contract. So if the bidding is low, you better get comfortable with itit's too late to change your mind now!

Go with a Fixed Price

The closer your eBay business is to a traditional bricks-and-mortar retail business, the less comfortable you're going to be with the whole online auction thing. If you sell large quantities of a single SKU, and if you're used to selling each item for a specific price, consider forgoing the auction process completely and listing your items on eBay for a fixed price. Alternately, you can run all your auctions with the Buy It Now option to spur quicker sales. More and more eBay sellers are using eBay as a fixed-priced marketplace; you can go strictly fixed price too, if you want.

So What's the Right Price?

As you can see, there's no one set "best" pricing model. Some sellers set a start price equal to their desired selling price; others like to start much lower and let the price work its way up over the course of an auction. Some swear by 99-cent initial pricing; others would never set their prices that low.

Myself, I typically set the initial item pricing at 2550% of what I think the final selling price will be. (That's higher than how I used to set it; as more sales are moving to the fixed-price model, the gap between listing price and selling price is narrowing.) But you should come up with your own pricing strategy, based on sales over time. You're the best judge of your own eBay prices!


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