COMPETITION DRIVES PRICE
By Zack Krone
Every so often I receive an email or a live auction list from a client that states what the opening bid of an item should be. Often times the school or nonprofit is subjugated to the will of the donor and placed in an awkward situation of accepting a donation under the pretenses that it either sell for a certain amount (reserve) or having a starting bid at a specific amount (minimum bid).
All too often people seem to think that a higher starting bid will equate to a higher sales price. Ask any experienced benefit auction specialist to find this is blatantly and unequivocally not true. This truth is universal; whether you are based in Orange County, Los Angeles, San Diego, San Francisco and all over the country.
To understand the auction method is to unravel the teachings of the modern retail world to which we are all indoctrinated with.
The auction method is completely backwards compared to the retail method of sales.
In the retail world the price is set…people come and go, some decide to buy and some decide not to. There is no sense of urgency and only a slight sense of impulse.
In the auction world a specific audience of attendees are offered a chance to buy an item at a price they wish to buy at and engaged with other potential buyers who continue to offer their willingness to pay more for the item until one person has out dueled all others by being willing to pay more than anyone else.
The auction method is successful especially in a fundraiser because you will have a ball room filled with emotionally invested individuals who care about your cause and are placed in a competitive marketplace for desirable and universally appealing items. Plus there is a strong human element of ego, competition and desire and a very high factor of urgency and impulse.
The mental alpha wave patterns of an individual engaged in the bidding process is very similar to that of gambling. The pleasure sensors are triggered the heart rate increases and the desire to win is a much more powerful emotion than the desire to buy.
Every one of the auctioneers in the California coast auctions team has experienced it time and time again. An event coordinator will say, “Zack we have a great vacation in Paris that’s worth $7000 so we’ll have to start the bidding at $3,500.”
I can’t blame them for thinking that. It’s my job to educate and consult as well as conduct your event. 90% of the time in which we work together I am dedicated to the consultation and advisement to set up the event to ensure that the auction is successful.
To the above I reply this age old believe in which the bedrock principle of all auctions exist, “competition drives price”
The first ingredient and the most important ingredient for an auction to be successful are to have bid cards in the air. The more bid cards the better. It gives the auctioneer more to play with and more people to engage with. A lower price will broaden the initial appeal and creates more competition…competition that’s necessary for the price to be driven up.
Why would a guest put a bid card in the air if they feel the opening bid is unappealing?
Plus a good auctioneer will be able to get to the desired sales amount quicker with a lower opening bid…it’s one of the main reasons that we chant quickly. I know that sounds weird but it’s the truth. Without a low starting bid there are no bidders, without bidders there is no energy, without energy there is no fun and without fun there is no elation and enthusiasm to buy.
When you start at auction with a high opening bid it’s like pulling teeth trying to get more than one person engaged in a bidding war. But when you start at a low opening bid an auctioneer can move very quickly and infuse your ballroom with more energy, enthusiasm, and participation… The exact atmosphere you were hoping for.
To give you an analogy; imagine that you have a glass of water that represents the money in the room. And the ice cubes are your bidders and your charity or school is the table on which the glass of water sits.
With each and every ice cube that goes into the glass the water rises higher and higher until eventually it overflows out of the glass and onto the table. If you only have one or two ice cubes the water will stay in the glass.
Personally I love the psychological element that occurs during the bidding war as well. When the bidding begins a bidder is operating from a logical place. They want a great item at a price that sounds appealing and within their budget. But as the call and response mechanism of an auctioneers chant engages them in a fast-paced humorous and enthusiastic round of competitive bidding their mentality changes, the Alpha wave patterns change completely. Their decisions become less about buying and more about winning and beating out the competition.
That’s why we see winning bidder’s high-five and cheer and throw their arms up in celebration when they’ve won an item even if they’ve paid way more than the items retail value. That’s just something you don’t see anywhere else!!!
When was the last time you high-fived the sales clerk at Nordstrom’s for paying way too much for a pair shoes?
So if I can leave you with a final thought;
I want you to have a successful benefit auction fundraiser and the first step is collaborating with a professional benefit auction specialist. My entire career revolves around raising money for nonprofits and schools. My job is to make recommendations and advise you in a way that will allow your guests to be comfortable, entertained and create circumstances where you will have an opportunity to raise more money. If it doesn’t raise you more money I wouldn’t suggest it which is why I wish to play an integral role in helping you determine how an item is presented and what the opening bid should be not only on live auction items but on silent auction items as well.
I want you to have a successful event. If you have a successful event it means a good cause has benefited and the world will be a better place for it. That is why I chose a path of becoming a benefit auction specialist and not a commercial auctioneer.
Whether or not you decide to hire me or any one of the amazing benefit auctioneers on California Coast Auctions team, or you simply decided to hire someone else I want you to have a good event which is why I wrote this. But regardless you should always and only hire an auctioneer with the earned designation of Benefit Auction Specialist (BAS) provided by the National Auctioneers Association.
So please talk to your auctioneer during your procurement process and ask him or her if an item with a stipulated opening bid is worth taking? I’ve even called the donor personally and explained that The live auction method is predicated on the basic economic principle that “competition drives price.”
It’s not just what your auctioneer does for you on stage but it’s what a professional benefit auction strategist can do for you in the days weeks and months prior to taking the stage.
Zack Krone (BAS)
President and Founder of California Coast Auctions.