How to make money from the human ego: An online auctioneer’s guide
I found myself bidding on a limited edition Longchamp Le Pliage handbag on Marktplaats last week. Whether you know the iconic handbag or not, it retails for around €100, comes in many different colors/patterns and is a staple in many women’s handbag collections- including mine.
Did I need it? Not really…. but hey it is a different pattern than the one I already own (and it was limited edition duh).
How many bids had been made so far? 8…
What was the current bidding price? Over €150…..
I placed a bid anyway.
And guess what? Within 5 minutes my Marktplaats app notified me my bid had been overtaken and the current bidding price was €160.
I seriously considered upping my bid.
But I didn’t – because I am a strong woman with self-restraint (or a student with a restrained budget – same thing).
Anyways… morale of the story is that upon self-reflection I realized what an idiot I was in the first place for putting that bid. What made me do it? Would I have been willing to pay that much if it was not being auctioned? Was I rational? Answer = NOPE. Indeed, an estimate even stated that around half of all sales on Ebay auctions turn out to sell higher than the ‘buy it now’ button price (Lee, 2007). How irrational can people be?
Extremely irrational in online auctions apparently. We want to believe in the theory of homo economicus purchaser – the rational informed consumer in the internet age who knows what they want and what their willingness to pay is – however the rationality flies out the window once the online bidding begins. Bidding in an online auction is almost a game in itself, the excitement of a bidding war is many times thrilling – whether you are buying that 2nd hand minifridge you desperately need or, in my case, a limited edition Le Pliage handbag.
After doing some research on consumer behavior in online auctions I found a just-published study by researchers from the Karlsruhe Institute of Technology (Adam, Krämer & Müller, 2015), showing the influence of emotions on consumer behavior in electronic markets based on measuring bidder heartrate and skin conductance. Turns out humans aren’t as rational in online auctions as wished – they are easily morphed into what is known as ‘auction fever’ – unable to stop clicking the bid button. What drives auction fever is social competition and the need to beat other people – not the need to get the item they are actually bidding for. Indeed, bidders are more aroused in high time pressure auctions, leading to higher bids in the English style auctions – however this only happens when the bidder notices they are competing with other real contenders. If they are bidding with a computer, rationality suddenly reappears. Hence, for online bidders it is not is not enough to succeed. Others must fail.
So how can online auctioneers make more money out of irrational people?
Simple – show them they are competing against other real people. Make them not want to win the sale item, but simply beat the other bidders.
Marktplaats has a great illustration. The observational cues it displays are so subtle, yet perfectly created to bring out peoples competitive spirits. In the product pages it shows who is bidding, how many bids and how much they are willing to pay.
Marktplaats also has the courtesy to actually inform you if you have been overbid and by how much through their app or an e-mail. Not only that – but also WHO has overbid you. And this overbidder has a username – so he must be human. This facilitates the online bidding experience to be even more personal, and makes the auction even more competitive.
Bascially, by making the online auction more competitive through fostering social competition the auctioneer and seller always win. However, don’t tell that to the bidder – they may find themselves with a handbag they never really needed -but hey – they won the bid war right?
Where have you seen observational cues in auction sites? Have they influnced your ego? Let me know in the comment bar!
Author: 441696ts, Teresa Stacey
Lee, Y. H., & Malmendier, U. (2007). The bidder’s curse (No. w13699). National Bureau of Economic Research.
Adam, M. T., Krämer, J., & Müller, M. B. (2015). Auction Fever! How Time Pressure and Social Competition Affect Bidders’ Arousal and Bids in Retail Auctions. Journal of Retailing.