Do auctions encourage customers to pay more or less than fixed pricing? Or do they just create confusion and speculation about willingness to pay that rogue sellers want to exploit?

 

It’s a question to not only ask before you attempt to redesign your pricing and revenue models based on customer willingness to pay. But it’s also something you’ll likely ask yourself every single week or month you’re in business from now on. As one thing is for sure, the business was tough before. And it is only going to get much tougher from here onward.

 

What is a customer’s willingness to pay? It’s the maximum price range or amount of money that a customer is willing to pay for a specific product or service. It is highly influenced by factors such as age, income, and lifestyle. You need to understand why your customers buy your products. Then, design the right revenue pricing model to extract the right dollar value from the market without losing your hard-earned volume and revenue. 

 

Figuring out what value your business really holds for your customers and why they continue to buy your products is no longer “nice” to know. It’s “essential” to stay in business. What’s more, understanding the buy-sell dynamics in an auction is a great way to help you understand your customers’ maximum willingness to pay for the services you sell, even if you are in a traditional B2B or B2C business. 

 

Customer’s willingness to pay is based on innate risks and desires.

 

Why? This is because your customers’ maximum willingness to pay and accept from you is based on innate risks and desires inherent to us all. And, auctions are a great place to see how people really respond to internal and external pricing cues and marketing suggestions. 

 

When you go to a property auction, for example, you can see people’s clumsy attempts of understanding and justifying the price of very expensive items. You can hear people say the price is fair. When in reality, it’s completely disproportionate to the cost of the property or even the market value.  

 

Another example is when you go online on eBay or Amazon; you feel your purchase decisions are driven not only by your internal drives and motivation to buy. But also by external pricing cues, pop-ups, and suggestions. All of them are persuading you to upgrade and buy more for less. 

 

So, in this article, we will discuss what auctions teach us all about our customers’ maximum willingness to pay for our goods and services. We will argue that auctions come into their own when nobody is quite sure of the value of what is being sold.

 

 

We believe that the buyer-seller dynamic (i.e., sellers want to be where the buyers are and the buyers want to be where the sellers are) makes auctioneering a natural monopoly. This means there’s always a greater risk that large auctions abuse their price positioning in the market and push the price ceiling higher than they should (i.e., price gouging).

 

But before we begin, we’d just like to explain the ins and outs of this sales method to help you understand the power of auctions on human spending behaviour and price decision making. This includes the best customers’ maximum willingness to pay formula for your business and how to understand how your customers perceive the value of your products and services.

 

What is an auction price guide?

 

A price guide is an estimation of price, based on recent sales of comparable products. Sometimes, it’s a set figure or a guide that gives a price range of about 10%. It’s very handy to have access to price guides when doing your initial searches, particularly when trawling through the hundreds of items on websites.

 

However when you start to filter through and isolate the handful of products you want to inspect and investigate further then it can be handy to do your own research to determine an item’s realistic sale price.

 

Price guides (sometimes intentionally) cause disappointment to potential buyers, not to mention wasted expenses such as getting hidden defects or expired warranties and letting the appraiser check the authenticity of the product.

 

willingness to pay

 

More buyers mean more competition and, in theory, a higher-end price. A busy and active auction site will also help with consumer confidence during quiet sale periods.

 

For example, 600 years ago, Herodotus describes men bidding for the most attractive wives in Babylon.

 

“The rich men who wanted wives bid against each other for the prettiest girls. While the humbler folk, who had no use for good looks and couldn’t afford it, were actually paid to take the less attractive women.”

 

Problematic, yes – but ingenious. This auction was a community affair in which funds raised from the high bidders used to compensate the poorer men.

 

Auctions seem to be almost as common as the marketplace itself.

 

By making it clear what others are prepared to pay, such auctions make it hard for the unscrupulous to exploit the gullible.

 

 

Here are the reasons for customer’s willingness to pay in auctions:

 

Auctions are the best place to search for anything from cars to furniture, even arts to cocktail dresses. Why do people buy from auctions? What are the reasons and how can you capture their maximum willingness to pay?

 

Below are some reasons why:

 

  1. People can find almost anything under the sun

 

Yes, you can find almost anything at an auction nowadays. With a lot of auction houses worldwide you will surely find what you’re looking for. May it be jewellery, fashion, art or furniture. People trade valuable goods and history from around the world.

 

  1. The pleasure

 

People find it exciting, pleasurable and personal buying at auction as they look for fashionable items or something to add to their collections. Also, there’s the part where an item’s history adds to the satisfaction of owning a special piece.

 

  1. Quality goods

 

When people buy at auction, it gives the possibility of getting good quality products. In other words, items are durable and are made to last. In the future,  you can resell the item for a fair amount.

 

  1. The variety

 

The wide array of goods accessible in the auction market has grown aggressively and become more diverse as bidding audiences have increased over the past few years. People can bid on anything from rare ceramics, vintage fashion to pre-loved furniture, exclusive design, to souvenir items.

 

  1. Easy to sell at auctions too

 

When you start buying at auctions, you will also notice how easy it is to sell at an auction too. Thus, you may also want to share your once-loved items and promote sustainable consumption.

 

Implications

 

  • Auction details can matter a lot; if an auction opens up a loophole for cheats or discourages bidders from bothering, it can fail miserably.

 

  • Each bidder makes use of their own information. 

 

  • The best way to make more money in auctions is to go for higher-end products with higher price tags. To do that, you need to think about what it is peoples’ marginal willingness to pay the most for.

 

Conclusion

 

  • People will pay for admiration, acceptance, and approval when auctioning. They want to belong to a group or community, seeking both admiration and appreciation.

 

  • People will pay for items that are rare yet they do not know the real price determines its value once put on auction. It’s called speculation to see if a person is willing to pay for it.

 

  • Humans pay for more pleasure to obtain a rare object and satisfy a passion for collections. Nothing excites a collector than an object he has been looking for. The prestige of owning a one of a kind object is something every human always seek.

 

  • Auctions are a way of finding the value of an item. If unknown, they will put it on display to see if someone wants to buy it.

 

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