Fixed vs. Dynamic Pricing

Tips to help you determine which strategy will help your bottom line

by Dennis L. Prince
- Mar 16, 2009

Years ago, eBay responded to buyers' requests for an alternative to lengthy auction cycles by offering a method that mimicked buying in the traditional sense. The BuyItNow option was presented as a way for buyers to purchase items they want on the spot, with no bidding and no belaboring.

It was a quick-fix solution for those who avoided the competition and uncertainty of the auction format, but it presented sellers with a bit of a puzzle—and it still does: Which method best serves customers without impacting the bottom line, dynamic (auction-based) or fixed (BuyItNow) selling? The good news is both methods can coexist and, if exercised to their fullest, the benefits are worth the effort of adapting to the buyers' desires.

Defining 'fixed' and 'dynamic'

In a nutshell, dynamic selling is characterized by the back-and-forth bidding that ensues when an item is offered up for bid in an auction. The starting bid price, or "opening bid" amount, is established and potential buyers offer to pay that price or go beyond it through incremental bids. The highest bidder emerges as the victor in the competitive purchasing experience.

By contrast, fixed-price selling establishes a set sales price for an item, and the purchase is made when a buyer comes along to pay that price; no haggling nor competition from other would-be buyers.

The gains of gamesmanship

The underlying principle behind dynamic pricing is to allow bidders some fun in their pursuits

Many buyers were originally drawn to the online auction experience not only by the goods they coveted but also by the excitement and suspense of the "game." Sellers found they could tally up some incredible profits when they offered goods to an audience of prospective buyers, those who would tug and tussle over an item that could only have one owner at the auction's close.

Often, the game itself drove prices higher—since nobody wants to lose—sometimes establishing final values well beyond an item's usual market value. Sellers, whether offering up their otherwise unwanted castoffs or parading goods that were in high demand and low supply, have considered the following factors when determining if dynamic pricing is best for a particular sale, and so should you:

  • If items like yours are consistently selling at an acceptable price, allow bidders to enjoy the back-and-forth bidding experience along the way.
  • Items of little or no value to a seller might spark a "Why not?" or "I haven't seen one of those in years!" response from bidders, so let them decide whether it's trash or treasure.
  • Items that are in high demand at a time when supply is low will generally spark an old-fashioned bidding war, generally bringing home a healthy final price.
  • And if you're uncertain about the value of your item but willing to let the market decide, take the bidders to task and see what happens. You might be pleasantly surprised.

The underlying principle behind dynamic pricing is to allow bidders some fun in their pursuits. Allowing the market to set an item's price is an enticing draw for many and will typically motivate some spirited bidding. Equally, when an item is known to be popular, it's in the seller's best interest to let bidders battle it out, usually resulting in pricing in excess of what a fixed-price sale might garner.

A quick, noncompetitive alternative

There's definitely a population of eager buyers who aren't interested in competitive bidding

But there's definitely a population of eager buyers who aren't interested in competitive bidding or inclined to wait for an auction to run its course. They prefer a quick purchase, plain and simple. Likewise, some sellers prefer the fixed-price format as a way to lessen the risk of relinquishing items too cheaply, not trusting or simply uncertain of the market, while generally effecting a rapid transaction.

When might you opt for a fixed-price format in your listings? Consider these situations:

  • Your item is in demand and you've found the current market value to be acceptable. Offer to let buyers take it at that price and be done with it.
  • Your item is in high demand and you stand to gain above-market value from a buyer who doesn't wish to lose out in the bidding wars any longer.
  • Your item is of "time boxed" demand (e.g. seasonal or trendy goods), and a fixed-price sell ensures the buyer will get it in a timely manner.
  • You're in no particular hurry and can afford to set fixed prices to see if the market will bring a potentially higher price.

As you can see, fixed-price selling can also enable a bit of well deserved profiteering from a marketplace, especially when buyers want items quickly and are willing to pay a premium to make a quick sale.

What else is in store for your customers?

The increased ease of establishing Web pages and simple online stores have also gained greater traction, allowing sellers to properly present themselves as much as they present their merchandise. Challenged to develop lasting customer loyalty in the relatively transient auction spaces, savvy sellers now take full advantage of the opportunity to firmly establish a virtual shop to better attract repeat customers. Beyond merely presenting items for sale at fixed prices, storefronts allow sellers to preview future sales items, provide details of past sales and, most importantly, communicate knowledge and information that allows buyers see you're a seller who's in the know.

Let buyers decide

In the end, your best bet is to give buyers what they really want: options. Whether they choose to battle other bidders for your goods or elect to buy your items outright, give them the opportunity to decide for themselves. Though this doesn't imply that every item you offer has to be presented in dual strategy, utilize the different methods to ultimately give your buyers the goods—and experience—they prefer most.

About the Author

Dennis L. Prince has been analyzing and advocating the e-commerce sector since 1996. He has published more than 12 books on the subject, including How to Sell Anything on eBay…and Make a Fortune, second edition (McGraw-Hill, 2006) and How to Make Money with MySpace (McGraw-Hill, 2008). His insight is actively sought within online, magazine, television and radio venues.

Opinions expressed here may not be shared by Auctiva Corp. and/or its principals.

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