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Tips and Tricks to Winning Online Penny Auction Sites
Update: Sites That Actually Pay Out
My second hub that seeks to review online penny auction sites is complete. If you wish to see the top sites of my choice and my video proofs for these sites, please follow the link here.
In the meantime, let's take a look at how to actually win these auctions!
How It Works
I'm pretty sure we've all seen internet advertisements showing Apple iPads won for a mere $0.43 or a bar-b-que grill set won for $11.78. To your right is probably the best known penny auction advertisement to entice amateurs into joining up and blowing a hole through their wallet. This is just one of the wonders of online penny auction sites. So just how exactly does it work? Like any auction regardless of online or offline, an item is put up for bidding. Except for a reasonable starting value, a penny auction site will list an item for a starting price of just $0.01 or one penny. After being listed, users have the option of bidding on the item, but here's the catch. Bidders aren't allowed to specify the amount they wish to bid so it is not possible to heavily inflate the price by an increment of $100 to drive away half the competition. With that said, you can get the idea that each bid is a fixed increment on the current price. This fixed increment is, you guess it, one cent! To make things even more interesting, these penny auction sites feature a bidding fee ranging anywhere from $0.50 to $1.00. In essence, each bid really costs anywhere between $0.51 and $1.01 if you choose to look at it this way. Furthermore, you will also be responsible for paying the final auction ending price.
Doing the Basic Math
Let's get a better understand of just how much you are paying. In the ad, the Apple TV was sold for $12 (let's round it down to make it a bit easier). So we know the ending price and we know the beginning price ($0.01), therefore we can pretty much say the difference between the two is $11.99. Now, if we were to convert this into bid increments, we would have a total of 1199 bids before the auction is won. Since this is a QuiBids ad, I went on their site and found out that each bid costs $0.60. Given the total number of bids and the cost per bid, the total revenue generated by QuiBids amounts to $719.40 (1199 x $0.60). Compare this to the selling price of the Apple TV from the official Apple store of $99, QuiBids is effectively making $620.40 from one auction item.
On the other hand, let's look at the bidder's side. In order for an auction to progress and not end immediately, here has to be more than one bidder so let's keep it simple and say there are two bidders - you and someone else. Since there are a total of 1199 bids placed, we can infer that you placed half of them and so this amounts to 599.5 bids, which we will round to 600 bids. Therefore, in the worst case scenario, you placed 600 bids amounting to $360. After placing $360 worth of bids, you win the Apple TV device for $12 and as a result you are effectively paying $372 for a product that should have been only $99. As mentioned earlier, this is the WORST case scenario where there is only one other bidder. In reality, there are more than one, several in fact, and this can dramatically work in your advantage.
Finding the Right Site
Penny auction sites don't always last. While there are legitimate sites out there, many have been closed down due to fraud or mal-practice of various types. Wavee LLC was one that was shut down in the USA due to a continuous delay in the shipment of goods while PennyBiddr was accused of 'shill bidding' and also later shut down. In most cases, penny auction sites can be quite profitable to the site owner and there should be no reason for shill bidding. However, one of the easiest ways of identifying shill bidding is to simply watch an auction. If the auction never ends and there's a pattern of the same few people rebidding, chances are it's no longer the automated bidding feature at work but rather a bot to drive the price up to a point where the individual bidder lost a considerable sum of money making it unworthwhile to pullout. Here are a few tips to finding the right bidding site:
1. Automated Bidding
Automated bidding is a feature that can work to your advantage. However, we will go in detail later on as to how this works. As for the moment, you should know that having an automated bidding feature can scale out the competition, but you should not use it yourself. And again, more information will be mentioned later, but you should be go for a site that offers such a feature.
2. Avoid 'Buy It Now'
Some auction sites have an option allowing bidders to buy the price at retail price. It is best to avoid this as you could be shelling out quite a few bucks only to have a disgruntled bidder with an itchy trigger finger purchasing the item because, as said before, they sunk too deep to pull out and so they have to see it through.
3. Cost Per Bid
Keep in mind that lower may not always be better. A site with a cost per bid of $0.50 may have three to four times as many bidders compared to a site that charges $0.80 to even $1.00 per bid. This is really a personal choice, but you, like everyone else, are thinking along the same lines. You can place twice as many bids on a $0.50 cost per bid site in comparison to a $1.00 cost per bid site, but this can quickly drive the price up to an unfavorable zone.
4. Watching An Auction End
This is by far the most tedious, but also the most crucial. Auctions usually end somewhere between half an hour to two hours. Sometimes for some products it can be even longer. The idea is to pick an item that isn't worth much such as a digital camcorder and watch it end. If it does come to an end, then there's a very good chance that other items put up for auction will also end.
5. The Endurance Run
The only site I know of that does this is MadBid.com. Their business practice is a sly one where it involves pausing a bid to give bidders rest. The bidding will resume the next day at a specified time. This is a complete waste of time as bidding could go anywhere from a few days to a few weeks even before anyone gets anywhere close to winning.
6. The BidRodeo Enticement
BidRodeo was a penny auction site, but it also got shut down. The story goes from being a well established penny auction site to bought out by an offshore proxy owner to eventually shutting down. However, for anyone that has followed BidRodeo long enough like myself, it's a clear red flag in the very beginning. BidRodeo was like any other penny auction site except for one factor. Rather than offer straight up bidding, visitors had the option of viewing bidder profiles and see past bids won. For the longest time ever, this bothered me. I visited a few profiles and it seemed too good to be true how one person won six Apple iPads and another were just stacking up on digital cameras that were simply too many to count. I don't know about you, but who in the right mind would be interested in owning six iPads? Was there a way to see the actual proof that these were legitimate Apple fanatics? The answer is no and so this leads to the next lesson - if the behavior seems suspicious, it probably is.
7. Active, but Not Too Active
Another site that was shut down was Swoopo.com, which apparently filed for bankruptcy. I mentioned earlier that having too many bidders swarming on one site will generate quite the competition, but then again, having no bidders will also pose a potential problem. The idea is to let the auction site profit, but only making sure that you're not one of the losers hence the saying 'you want activity, but not too much'.
So following these major review points, you should have picked your bidding site by now. If you haven't, that is fine as you do not have to make the decision right away. Now we will move on to the actual strategies to tipping the bidding to your favor.
Strategy 1: Better No Force Than Brute Force
It might seem like a good idea to jump the gun as it sends a flat out message to all the other bidders that you want it and you're going to have it no matter what. The brute force approach basically means that you place a bid right when someone outbids you. Do this a few times and it sends quite a message across the board that you are aggressive and it's probably best for them to leave as you'll just instant outbid them. The only problem is psychology. Not everyone shares the same thinking as you. If you see someone playing it aggressively and outbidding at every possible opportunity, what do you do? You simply wait it out as paying as low as $0.50 per bid will eventually kill off their account balance leaving them with insufficient funds. Of course, the problem is if you don't place the bid, then wouldn't they just win? This leads to the next lesson on analyzing the psychological factor of the other bidders. As for right now, just note that the brute force approach is not an approach you want to take, in fact, you should never ever take it!
Strategy 2: Analyzing the Psychological Factor
Looking at the bid history can tell you quite a bit about the bidders. Of course, there are multiple ways of interpreting how the bidding works and there is no one right way to do this. In order to beat the other bidders, you have to think like the other bidders. Take a look at the screen shot to your right which features a bid on DealDash. DealDash, like most bidding sites, show historical bids as well as user names, which you can use to your advantage. Take a look at how I've drawn on the bid history. What do the blue arrows mean? What do the red arrows mean? What do the yellow dots mean? Bidders can be classified into three categories - (1) Automated, (2) Casual, and (3) Passer-bys.
Let's take a look at the red arrows. The two bids were 18 minutes apart, but that doesn't mean anything because the bid timer and the timer increase increment is all that's important in determining who the automated bidder is. Automated bidders are very passive and could potentially not be in front of the computer at all. They simply set a stop out point where no more automated bids are placed or they simply let it run till their account hits insufficient funds. Either way, waiting out the automated bidders is by far the most tedious and crucial of all. The red arrows show a potential automated bidder, but this isn't guaranteed. It takes time to analyse whether or not the person is automating their bids through the interpretation of the live timer. If this person tends to make a bid as soon as the price hits a certain point such as 1 second left, then chances are they are automating it rather than bidding at the last possible moment.
On the other hand, the blue arrows show casual bidders. These bidders are manually entering the bids and aren't bidding on every single one of the outbids. You can tell as there are several other bidders in between. The most logical explanation is that they are multitasking while bidding so it is very easy for them to miss the moment, which you can use to your advantage.
Finally, the yellow dots signify passer-bys, which are just one time bidders to get a piece of the action then are predicted to never return. These are usually the ones in here to 'test the waters' and when they find there are other bidders still in, they simply leave.
So how do you interpret all of these categories? You will have to devise your own strategy as to how to getting in the action at the right moment. To help you along, there are a few preliminary steps to take before getting in on the action. The first is to wait out all the automated bidders. There's no sense in trying to compete with a bot that places trades on the other person's behalf as this drives the price up and causes you to pay a higher bidding fee. It's better to save on the bidding fees and let the casual bidders and passer-bys bankrupt the automated bidders. In the worst case scenario where the automated bidder seems have more funds than anticipated, the rule of thumb is to never bid on an item that cost more than the retail price as otherwise one can just purchase it from a retail store.
Waiting out the casual bidders can be tricky. You may be tempted to take on the brute force method to send a message to these casual bidders and make them call quits. Just remember, they are casual bidders for a reason. They are multitasking and have something else on their computer than they are doing to wait out your bids. However, that doesn't mean you should completely stop bidding as if they don't see someone else moderately bidding, they will believe they have a good chance of winning, which will drag the auction out longer. By moderately bidding, I mean to bid to the point that it shows the others that you are keeping a watchful eye on the item and that you do reclaim your highest bidder title once in a while. This causes the casual bidder to lose faith as they see someone else taking it slightly more serious than themselves.
In the mean time, it also dissuades passer-bys to stay in the game for too long. if they don't see anyone bidding, passer-bys, like casual bidders, will get their hopes up into thinking that they have a good chance of winning. You want to bid to the point where the passer-bys see that someone else is still running up the price and activity has not died down.
Strategy 3: It's not a relationship, it's a bidding war!
You're not in a relationship so it's perfectly fine to be window shopping. Don't be so focused on the item you are bidding for that you lose track of your surrounding. Sometimes, the other bidders could be bidding on multiple items at once. If you see a familiar name popping up all over the place, chances are they will drain their account quite quickly. You can analyse this by looking at their activity. If they started out actively bidding for 10 different items but pretty soon went down to just one and two, it's an indication that they are running low on cash and are playing it safe with the item they want. Again, why not use this to your advantage? You can quickly filter out their bids on the item you want as insignificant and focus on the bidders that are also gunning for your item and finding their bidding style.
Strategy 4: Fork in the road
Yep, just like below:
Ok, so not literally a fork in the road, but the idea is to analyse a change in behaviour. More specifically, it lead to the idea of looking for the ones that one to give up, but have sunk so deep in that it's just not worth it. If a manual bidder switches to automated bidding, the indication is that they no longer want to sit in front of the computer because they are:
2. Have something else to do
3. Need to Sleep
4. Losing hope, just want to give up so let the machine determine their fate
This can also give you a good idea of how many serious bidders are left in the playing field. If they don't know better and didn't realize this change in behaviour, they are pretty much bidding against a machine which will burn out the funds of both parties leaving you in the game ready to pounce.
Strategy 5: Keep an eye on the prize, but look elsewhere
Like they say in every spy novel and action film, do not let the 'high value target' leave your sight. With that said, it doesn't mean you have to get to it right away. In fact, every bid you make not in favour of the item you want is better preparing you for the item you want. This sounds confusing and it is.
Let's imagine there are two types of items listed for bidding. These two categories are high value targets (HVT) and low value targets (LVT). To categorize these, we would look at the retail cost of these items. For example, a Mac Book Air would be considered an HVT while a Flip camcorder would be considered as a LVT. The higher the retail price of the item, the more people will want to win it in auction as it could be 80% off the retail price. Meanwhile, LVTs are insignificant as they do not cost much on a retail level to begin with. With that said, it doesn't hurt to bid on LVTs to eventually get to your HVT. LVTs can have less bidders which allows for a better winning chance. If you can successfully win several LVTs 80% to 90% off retail price, you can resell them locally at a profit. Using this profit, you can buy even more bids better funding yourself for the HVT. This seems like a lot of work and it is, but can be quite worthwhile especially when it comes to lowering your risks of being stopped out doing insufficient funds.
Note: For the reselling process, you will have to abide to local laws. Better be safe than sorry.