Penny auctions are becoming a popular way for people to engage in online auctions. Tons of happy customers everyday walk away with bargains such as high priced electronics and gadgets for only a few dollars and change. "How do the companies selling the merchandise do this" and "are the buyers really getting these items for that cheap?" To answer the first question accurately, you must look at the size of the online auction in question. It's common for small online penny auctions to actually buy the product after the winning bid has been taken place and simply ship the item to the winning customer. This is usually because smaller auctions don't have the funds to keep the large assortment of items they need. For larger online penny auctions they typically have a middleman so to speak that will ship the items to the winning bidders. Either way you look at it, the seller is paying for the items they sell because the buyer certainly isn't paying enough to fund them. However, even though it only looks like, for example, one particular bidder is getting a brand new flat screen television for $5.16 what is he really paying? Well depending on the website he's using it's more than $5.16. The way penny auctions work in order to generate revenue for the seller is the concept paying to bid. Each time a bidder places a bid of one penny they pay a set fee to make that bid. For example, if each bid costs fifty cents and the bidder places ten bids on the flat screen and wins then he's getting the t.v. for $10.16. This, of course, is still a great deal and much cheaper than buying a t.v. retail. When there are many bidders paying this same price to bid and the bidding reaches a point of $5.16 then the company has made $258. While that's just an example, it shows how these companies make their money. Quibids reportedly makes a 5-10% profit margin each day which can be compared to Wal-Mart's 3.5% profit margin. Penny auctions can be very lucrative and if the bidder is smart and a little lucky he or she can walk away with whatever they're looking for a fraction of the price.
Sources: http://bidpenny.blogspot.com/2011/01/where-does-quibids-get-their-items.html
http://www.quibids.com/en/quibids101/blog/7-Does-QuiBids-make-excessive-profit-on-their-auctions
2 comments:
I was not familiar with penny auctions before I read this blogs, and I am very intrigued by it. I had actually seen a commercial before promoting the website you mentioned in your blog, but I thought it was just a market scam to get you to visit their website. I had no idea that people actually got reasonably expensive items for a fraction of the price. I like how you explained the process about how these companies actually become profitable because I was wondering how these people could afford to give products away at such a low price.
I believe the penny auction is a great idea for the person that created it. To me its a huge money maker. The idea of making money over someone placing a bid while only making a penny bid at a time!
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