Thursday, December 8, 2011

3 Secret Penny Auction Strategies Revealed!

To win penny auctions strategies are very important because they can make or break the deal that you can find. These auctions can be hugely profitable but they also run the risk of putting you below water. It is not at all uncommon to see people lose hundreds of dollars bidding on these auctions without knowing what they are doing and without any penny auction strategy to guide them. When bidding is arbitrary, your chances of winning will drastically fall off.
These penny auction strategies are highly useful not just for the beginner but also the experienced. You need to understand that these auctions involve a lot of study in important areas - economics of the auction, game theory winning principles, psychology of bidding, etc. It is through experience that these strategies are devised to help you win big.
Penny Auctions Secret Strategy - 1: Don't Run After Bid Vouchers
This penny auction strategy runs counter to everything you might have read. The reason is simple - the "experts" really never have any experience with hundreds of different penny auctions out there. True, bid vouchers can help you multiply your bids but there are serious limitations. The first thing to remember is that at all penny auctions, bid vouchers are the most competitive. You will see that bid vouchers sell much closer to their retail price than even Macbooks! You really don't want to be competing against 20 other serious bidders.
Also, many auctions give you the option of Buy it Now where your bids will count towards purchasing the item at the retail price. This is an excellent risk mitigation strategy that you can use. However, voucher bids do not count towards this price. Therefore when you are bidding on bid vouchers, you are replacing your "real bids" with "virtual bids" that are worth absolutely nothing. One of the best examples to illustrate this point is at Quibids, where bid vouchers don't count towards anything and also cannot be canceled for cash like real bids that you buy.
Bottom line is, don't overdo trying to win bid vouchers at any of these auction sites.
Penny Auctions Secret Strategy - 2: Know When to Bid
Knowing when to bid is the real secret to success at penny auctions. This is in fact one of the most important factors that determines you success. There are times that are less competitive and there are times that are highly competitive. Competition depends not only on the number of bidders at a given time but also on the number of auctions currently running. Therefore you will need to determine low competition times for individual penny auctions.
As a general rule, weekends are more competitive and so are times towards the night, nearer to midnight. You will need to factor in the different time zones as well. Newer sites do not have auctions at all times and thus you will need to determine their running times as well. Trust me, the hard work involved in collecting this data will definitely pay off.
Penny Auctions Secret Strategy - 3: Know where to bid
This penny auction strategy involves doing your research and determining which sites are the best for you. There is no universal answer because different people are looking for different products. You need to find a site that offers what you are looking for, be it high-end electronics or smaller gift cards.
If you are not looking for anything very specific, it is a good idea to check out the new sites because they tend to be far less competitive. This ensures that you have a very good chance of winning and at a very reasonable price too. You can also get some free bids in the process.
A new penny auction site that I recommend is OMGiWON where you get 12 free bids when you use the coupon code "wow" after registering. You can win gift cards for really cheap and can win significantly just from your free bids!

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Penny Auctions: Legalities and Realities

Penny auction sites are popping up everywhere on the Internet, like mushrooms after a storm. You've seen their ubiquitous banner ads, perhaps without knowing what they are: 95% off Apple iPad 64GB! 46 inch flatscreen LED HDTV for less than a hundred dollars! Why pay full price for a SONY Playstation ?
The basis of their appeal from the bidders' point of view is the old something for nothing - if all goes right and their bid is the winner, then they've managed to get valuable items for dirt cheap. But it's harder to figure out the attraction from the site owner's perspective. There is a potential for profits, sure, if many bidders subscribe to your auctions but the cost of acquiring those bidders is high and the auction must go on, regardless of the number of bidders, which raises the very real specter for owners that they may frequently be parting with merchandise for far less than its wholesale value.
The Penny Auction Business Model From the Bidder's Perspective
"Auction" is something of a misnomer when applied to the penny auction business model; it really functions more like a lottery combined with a game of "Chicken."  Bidders buy packets of 10 to 700 bids from the penny auction site's owner, at a price that varies between 60 cents to a dollar apiece, depending on the bulk discount and the owner's price point. Bidders use one of their packet bids each time they place an actual bid on an item.
At the auction's start, the item is priced at zero. Each bid raises the price of the item an incremental amount, generally between one and fifteen cents, that varies from site to site. Like EBay, an invisible stopwatch times the penny auction, and whenever a bid is placed on an item, the stopwatch advances by some measure of seconds. The bidder who manages to stay the course till the final countdown is complete wins the item.
Suppose yours is the winning bid on an iPad whose final price is $50. If you bid 500 times at $1 a bid - which, at a one penny hike in price per bid, will only raise the final price of the item by five dollars - the real price to you is the cost of the bids plus the item's final price which can frequently, as here, add up to more than the retail cost of the item.
Once bidders start bidding, an inexpert understanding of the laws of probability keeps them from stopping as though the 100 bids they've already made gives their 101st bid some kind of an edge. The same psychological mechanism drives slot machine players. Frequently, however, a bidder expends all his or her bids without winning the item.
The Penny Auction Business Model From the Site Owner's Perspective
Although some penny auction sites charge subscription fees, the main source of revenue for penny auction site owners is the sale of bids. At first glance, this may seem like a very efficient system for separating bidders from their money: after all, on an individual basis the bids do not cost very much so in the supercharged emotional state that attends an online auction, bidders can rationalize buying many of them.
But in order to offset the operational costs of the website - which includes buying the merchandise that's put up for auction - this effect must be multiplied by many users. And in order to make any profits, the effect must be multiplied by even more.
Again, suppose the winning price on an iPad is $50. This represents 5000 bids at a dollar apiece, or $5,000 less the price of the iPad (approximately $495) - a tidy profit. If, however, the winning price of the iPad is only $2.50, this represents 250 bids at a dollar apiece or $250 less the price of the iPad - which means the site owner is running at a loss.
For a penny auction site to succeed, it must attract a large bidder base But the cost of acquiring customers (bidders) - mostly through targeted, behavioral online advertising - can be very high. And those acquisition costs are a constant since most penny auction sites have a hard time retaining customers: bidders who fail to win items become disgruntled and walk away; and, too, there are always those rumors of auction bots artificially driving up final prices to contend with.
The Legalities of Penny Auction Sites
At present the operation of a penny auction website in the United States is legal. But will it remain that way? Many economists and game theorists who study the penny auction model have concluded that penny auctions are really a form of gambling. While Title VII of the Security and Accountability For Every Port Act, also known as the Unlawful Internet Gambling Enforcement Act, does not expressly prohibit Internet gambling, it does prohibit the transfer of funds from financial institutions to Internet gambling sites. If penny auctions were deemed to be a kind of gambling, these restrictions would also apply. Enjoined from accepting credit card payments, with PayPal as its only backup, penny auction sites would have a much harder time selling bids and we would begin seeing far fewer of them.

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Penny Auctions Vs Traditional Auctions - Differences and Similarities

While online penny auctions and traditional auction websites, like eBay, both occasionally offer a Buy-it-Now feature, they differ in terms of the time limit system, payment process, and entertainment value. In short, penny auctions are more intense versions of sites like eBay.
Time Limit Rules: Traditional Auctions
Traditional auctions, like those available on eBay, often drag the auction experience out to a week or more. When the time runs out, whoever bids highest wins. For instance, they may auction off an iPod for 1 week with a minimum bid rule of $20. However, there will be stiff competition to get such a low price on the item. After a whole week of everyone trying to outbid each other, the item may sell fairly high, close to the retail price, or even higher.
Time Limit Rules: Penny Auctions
The time limit system on penny auctions is much shorter and more intense, by comparison. When the clock dips below a certain time (some sites make it 15 seconds), the auction will end if no one bids again. However, if someone else bids the clock will reset (to 15 seconds again) and keep resetting until no one else bids and the clocks runs down to zero. This makes penny auctions so thrilling that they are now commonly referred to as, "Entertainment Auctions," whereas traditional auction sites like eBay do not offer that fast-paced level of experience.
Payment Process: Traditional Auctions
In traditional auctions, if you bid the highest amount by the time the clock runs out, you pay that amount plus taxes and the shipping and handling fees. So if you won an auction where you bid $5 on a book and taxes and shipping and handling fees added up to $3.50, in order to claim your item and receive the book you must pay $8.50.
Payment Process: Penny Auctions
The main difference between entertainment auctions and traditional auctions is that in entertainment auctions, you pay for the auction end price in addition to bids you have placed plus shipping and handling.
For example:
There is an iPhone auction with bids fixed at 75 cents each, and price increments of 1 penny per bid. One person bids once and you win by also bidding once, just before the timer runs out. When you win an auction, you pay for your bids (1 bid of 75 cents in this example) and the total number of bids in the auction times 1 penny (2 bids x 1 penny = 2 cents). So in this example, you won a brand new iPhone at a penny auction for only 77 cents. Even if you won the auction but bid 10 times (10 x $0.75= $7.50) and there were 100 total bids (100 x $0.01), you still won a brand new iPhone for $8.50. That is the same price for a book in the traditional auction example.
The Buy-it-Now Option
Some traditional auctions and some entertainment auction sites have a Buy-it-Now option. On eBay, you can forgo the usual bidding process and immediately buy the product for retail value. Penny auctions also have this feature, which is convenient if you don't win. The money you already bid in the auction counts towards part of it, and you simply pay whatever's left.
The best entertainment shopping sites couple the risk-free, Buy-it-Now option with an intense bidding experience with an unmatchable entertainment value. As opposed to traditional auctions which often use hidden fees to even out the seemingly low price, auction winners can save up to 90% with penny auctions.
Savvy shoppers seek penny auctions with bid prices under a dollar and price increments at a penny. The largest discounts are most feasible on the newest sites, because less people know about them they have much less competition, and therefore, are easier to win-and most importantly, win without too many bidders jacking up the price like in traditional auctions.

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