Do you sell your wares in garage sale or through Craigslist classifieds? Before you read the rest of this long article see this on 4 things to consider.
Do you wonder how you can get the right price for the things you sell? One thing is for sure, you cannot price it anywhere closer to the full price you paid even if what you sell is like new and hardly used. People who buy at garage sale and through classifieds come to expect low prices and expect to pay lower than the best deal they can get elsewhere. Even if there are search cost, opportunity cost and transaction costs associated with purchasing a new item from another channel, the reference price (the price they expect to pay) is set by the context and the prices of many used goods people buy from garage sales.
Sellers tend to value their wares more than the buyers are willing to pay. There is proof in many previous works that show ownership increases perceived value and hence customer willingness to pay. Instead of these academic works you can read Dan Ariely’s Predictably Irrational or see his video on this topic. With higher list prices you will end up not making the sale and incur the cost of holding on to your “treasures” and running multiple garage sales. That is a high opportunity cost. On the flip side you may end up yielding to the pressures of an aggressive buyer who quotes a low-ball price.
So what is the right way to price? Go ahead and set your price the usual way you will despite the fact that you will overprice it due to ownership issue, let us call this ‘H’. Then set an absolute minimum price below which you will not sell it, let us call this ‘L’. Write down on Post-it notes (one on each) real numbers between (including) L and H. If you want to keep it simple write just the integers so it will be just few numbers to write. Have these Post-It notes folded and available in a box.
When a potential buyer walks in, quote your price as ‘H’. Your goal here is to prevent the buyer from low-balling and getting into pitched bargaining battle. She would probably ask for a price lower than that. If the price is not acceptable bring out the box and tell her this, ” Your price is not acceptable to me but I will give you another chance. In this box are numbers written between ‘L’ and ‘H’. You quote me a new price and then draw a Post-It from this box. If the price you quoted is higher than the number you draw I will sell this item to you at the price you drew. If not no sale, no more negotiations.”
By this you have eliminated negotiations and any of your weaknesses in that front. You also introduced randomness with that t the possibility that a sale will not happen. The buyer cannot anymore rely on their hardball skills to mow you down to agree to a low price. So if the buyers are serious and really want the item they are incented to quote a price that is their true willingness to pay. If they quote less than what they value the risk is no sale may happen and it makes no sense to offer any more than what they value. At this point you may just make the sale at the quoted price and not bother with drawing numbers.
If you want to get really fancy and have the time then you can practice more sophisticated versions of this pricing. For example you can set a very high ‘L’ or skew to numbers on Post-It to be more on the side of ‘H’ for the initial few rounds. Then you run this procedure on a few buyers who walk by and then know the possible price you can sell your item.
Of course this makes sense for big ticket items and not the trivial items, also note that buyers are reading this as well, so they will not participate if they suspect your distribution is not uniform. So you may be better off using the random number generator from Random.org.
You can find the academic research behind this here.