Right now, you might be wondering if I’ve spent too much time in Denver wonder cookie dispensaries. Hear me out. The Internet is a weird place with a secret subculture unto itself. There are sometimes shockingly different etiquette rules and a whole different set of exceptions about how to do business. Brick and mortar concepts usually don’t apply. Unfortunately, there’s no set of instructions available on how to do business on the Internet — you just have to know. And learning takes time, money and lots of careful observation.
Let’s consider auctions as a classic example. You can list an item (a gun in this case) and make all the listing decisions using common sense you’ve acquired over years of doing business in the store. You set a starting price or minimum bid. If you’re risk averse, you might set a hidden reserve price.
You might sell some guns, but you almost certainly won’t be kicking butt and taking names. That’s because there are totally different buyer expectations on the Internet. Heck, the whole marketing concept is radically different. If you put a used gun in your display case, how many people will see it on an average day? One? Five? Ten? Fifty? Put the same gun on the Internet, and it might be seen by 10,000 or more — many, many more.
This exponentially larger set of prospective buyers means you can do things that simply won’t work in the store. An auction is a great example. With a small set of potential bidders, you have to be careful with things like setting minimum or reserve prices. There are simply not enough prospective bidders to be able to count on market forces driving the winning bid up to a fair price. When you have a lot of bidders, the numbers mandate that a certain percentage of those folks will want the item, and, therefore, will bid on it. The more people who want your items, the more likely it will sell for a fair price.
On the Internet, you can take what seem like big risks, but really aren’t. For example, you can start the bidding at a penny, and know with confidence that enough people will engage in the bidding process so that the price will eventually be driven to a fair level determined by that law of supply and demand.
There’s a flip side to this concept, and that’s “expected seller behavior.” No matter what anyone says, buying decisions are emotional, not logical. Internet auction bidders want to see that penny starting price with no reserve. Yes, their logical brain tells them the final price will end up at market value, but darn it, a penny item is exciting! You just might get it for really cheap! It’s the same “buyer hope” that sells lottery tickets. When you list an item for a one-cent starting price with no reserve, you’re actually buying a large group of really enthusiastic watchers and prospective bidders. And that’s exactly what you need to get top dollar for your gun.
The expected seller behavior dynamic works in reverse too. When buyers see that minimum bid or an indicator that the item has a reserve price, their enthusiasm drops faster than Piers Morgan’s ratings. They move on — to items your competitors have posted with no associated buying buzzkillers.
It’s all about numbers and follows the same principle that enough monkeys with enough typewriters and time could write this article. OK, so that number might be three monkeys and 20 minutes, but you get the idea. With enough prospective bidders, you can count on reaching the correct market price, and usually more.