Episode 51: Psychology of Bidding, Part 2

Jeff: Okay, we talk about this all the time, right? Let's dive into a couple of these under the concept of creating a sense of urgency. Remember, auctions are about scarcity, and that's scarcity of time. Right?

Marissa: Yep.

Jeff: And then it's also competition. And when you put all those together, there's an urgency that gets created. So what are some things that we could do to create that sense of urgency?

Marissa: Well, I'll highlight the scarcity. So this is a one-of-a-kind. Can't buy it in store. Limited availability. And sometimes there's a hard to get.

Jeff: I mean, I get it. It's easy sometimes to just say, I'm going to go to Home Depot with all these gift cards and I'm going to buy a DeWalt drill and somebody is going to bid on it and it's going to be fine. But they're not scarce.

Marissa: No. But you can also, I think that's the other piece too, that organizations can dig deep and realize what do you have within your toolbox that can be that scarcity. So it's not always that, oh, you get to have dinner with the mayor. That's a once in a lifetime opportunity. It's like, what within our organization is something that a person would go, you know what, I get to do that with that person within our space. And that's huge. So it doesn't always cost the money, or it's not that most gettable item. It's something that means something to your donor base.

Jeff: For sure. And so for us at our event years and years ago, that used to be making ravioli with my mother-in-law, who is full-blooded Italian. I think she came back and she was shocked from 23andMe that it was like 99.8% Italian. And she's like, where'd the other point two go?

Marissa: It's like, I don't know where it went either. She speaks fluent Italian. She acts like an Italian. And she cooks like an Italian. And so she makes her own homemade ravioli. And so she would have people over and that's what you would do. And then you would eat it. So you'd come over one afternoon, you would do it, and then you'd schedule that dinner. And you had a gourmet meal with the wine and the salad and the ravioli.

Jeff: This sounds amazing.

Marissa: It does. Can we do that?

Jeff: Well, this thing would go for four or five grand for six people. That's scarcity. And I think we think about that one too. It's not even about the wine and the salad and the addition. It's that experience with your mother-in-law, right? That actual making of the item. That's huge.

Marissa: Now it's my brother-in-law that is making the ravioli. Are they as good?

Jeff: He's probably listening to this podcast. Yes. He's a very skilled cook. And so I would say he's learned from the best.

Marissa: That's awesome.

Jeff: But definitely they're good. But it doesn't have the Italian appeal because he's not Italian. But anyway, this one comes up a lot: talking about bid increments. And so in terms of creating a sense of urgency, there are different schools of thought on not only where to set bid increments, but whether you should adjust them and how.

Marissa: Right. And as an auctioneer, sure, you've seen this. I mean, if you've got a lot of people bidding and there's a lot of interest, you jump those bid increments, right? Because you're trying to get that thing up as high as possible. And then when the bidding slows down, you take it back a little bit.

Jeff: Exactly, because you want to bring them back in.

Marissa: Yeah. So it's like, it was at $5,000. I'm asking $6,000. No one's bidding $6,000. No one's bidding $6,000. How about $5,500? So someone bids $5,500. Then you go to $6,000. No one's bidding $6,000. You go to $5,600 or whatever. So, yes, that works, okay? And you're jumping those bidding cards around.

Jeff: It also works in a silent auction. I found that interesting because it's not something I honestly think about.

Marissa: Yeah. And I like that.

Jeff: So here's the thing. What would be interesting to do with software, and we've talked about doing this with Handbid, is to have the system intelligently bounce them around based on the engagement, not just the price, because price is kind of a dumb metric. It's the engagement that matters. It's not the price, right? So, sure, the starting bid increment does matter. And we have some clients that, like, we had a client that did a lot of Disney auctions and every item had a $5 bid increment on it. And they would do 15,000 bids in an auction.

Marissa: Yeah.

Jeff: And that's what they wanted. But what would have been more interesting to do is to say, what would I set the bid increment at if I were getting five bids, 10 bids, 15 bids a minute on this item? In some cases maybe 15 bids a second. So I think that would be something that would be way more interesting than what you see in a lot of the commercial packages out there that are like, if the item is from zero to five dollars put it at $1, five to $25 put it at a $2 increment.

Marissa: I was like, well, you also get fatigue, right? There is a point that I still want that item, but if I've bid 25 times at $5 increments, I'm kind of done. And I've seen people just massively jack up the price. And I used to see this on paper bid sheets too.

Jeff: Really?

Marissa: I would see people go through on a paper bid sheet and say, you set it low, which people historically didn't do. But you'd sit there and you'd see $5, $15, $20. And so after this guy bid five times, you see some guy at the bottom right, $75 bucks. Like, I'm out. I'm done. I'm sick of coming back to the table. I don't want to wait in line. I really want to enjoy my cocktail and my friends. I'm done writing my name down.

Jeff: Exactly. So I do think that adjusting bid increments is something that can work, but not in the way that I think historically it's been done. Because auctioneers are human, they're smart, they can do this on the fly. But software needs to do something very similar to that.

Marissa: Right.

Jeff: Okay, let's talk about duration. You want to talk about duration and time? Yeah, like a reasonable auction duration.

Marissa: Yes. Don't run your auction for two months.

Jeff: No. People get bored.

Marissa: Even like two weeks, they do. That's why I always think about it. I tell people, my preference is always like the Tuesday or Wednesday before, if it's like a Friday or Saturday auction. Because if you open it that Sunday before, they look at it, and then they're bored and they forget by the time it's time for the auction.

Jeff: Well, I love early bidding in the concept that it gets people prepared. And excited and engaged and all the things that you want. So this whole idea that auctions should only run for two hours at the event, it doesn't work because people are too distracted. If that's the only thing they're doing for two hours, fine. But it's not, right? They're at the bar. They're chatting with their friends. They're eating hors d'oeuvres.

Marissa: Totally. And you find that that's when the auction manager comes to you and goes, we have no bids. Like, what do we do? And you're like, well, the auction needs to stay open longer. Because check-in and then chatting with your friends and hanging your coat just took an hour.

Jeff: Right. Not that the check-in takes an hour, but sometimes the bar takes an hour.

Marissa: Exactly.

Jeff: So anyway, I think the other thing with that is communicating the time that you're going to close. Being flexible, but don't keep extending the time that it's going to close. If you have to extend the auction, go ahead and do it as a one-time thing. But continuing the extension, I don't agree with that. And then using a countdown timer to create that sense of urgency.

Marissa: Exactly. And that's when you make that decision, right? And I think that's one thing that a lot of people walk into thinking, well, this is the time I want to close the auction. What tends to work better is walking in with an open-ended mindset. Feel out what's going on with the crowd, how's the event. Are the bars stocked? Are they going fast? Are they not going fast? And then you just make that decision. 8 o'clock, yeah, we're done. Start your auction timer. So now every time that someone standing in the bar line looks, they see, oh, there's two hours left. There's an hour and a half left.

Jeff: Totally agree. But those timers drive behavior.

Marissa: Yes.

Jeff: So going back to my video game days, especially like Super Mario Brothers or whatever, you're playing that level, it has a time limit. Right? And the reason why is because it forces you to make decisions. It forces you to do things. So anyway, those things definitely, it's all part of this gamification concept. And so when we're talking about competition, gamification is basically taking game-like elements, leaderboards, countdown timers, you name it, and applying those things to business tasks like an auction. So anyway, we have those in Handbid, and I think they do work very effectively at the auction category or item level.

Marissa: Yeah. So if you want to promote an item, put a timer on it.

Jeff: Totally. Right? And get people to drive to bid on it. When your ability to reach them, like you said, the push notifications are huge. Where you can not only do I get the timer, but now as the auction manager, I can message and say, you've got five minutes left. So maybe I wasn't looking. And that almost goes into one of our other topics with that, which is providing live updates and communicating.

Marissa: Live updates and communicating. And it also brings up a sensitive and touchy subject around extending items.

Jeff: Yeah. So let's talk about extending items for a second since we're on it. I mean, there's a popular tactic these days to turn on extended bidding on items to basically combat that last-second bid that comes in, the bid snipers who, like, there's software on eBay that does this for you, right, that will literally steal the bid from you at the last second. And there are ways in most of the software these days to get around that, like a max bid, right? You could put a max bid on an item and it basically should reflect the maximum price you would be willing to pay. But people don't put the max in. They put like a little bit below their max. And then they get mad when they get outbid.

Marissa: Totally. But if you had a max bid in there and it went above that, you should be psychologically okay and emotionally okay with losing it, saying I didn't want to pay that price.

Jeff: And so that would combat that. But people don't put those in. And you see that more on the commercial side than the charity side, right?

Marissa: Yeah, agreed. And when you ask people why not, it's like, well, because a lot of experienced commercial auction bidders do not trust the auction houses.

Jeff: And even in in-person bidding, I worked for a very reputable auction house, but you still had this feeling from some of your bidders that things weren't always above board, which they were. But I think it's a normal skepticism of a buyer.

Marissa: Yeah, there's a concept of something called shill bidding. And when you employ shill bidding, what ends up happening is, it's illegal, by the way, so don't go off and do it. But if you had, as an auction host, internal knowledge of where somebody's maximum bid price was, you could conceptually bid against them. Or have your friend bid against them to get them to their maximum price. And so in all these mobile bidding softwares, you typically know that. Because it's posted in the system for bid auditing purposes, so you understand why items went for whatever price. That doesn't mean you can use that information to your advantage.

Jeff: And so you have extended bidding. Extended bidding is supposed to address the issue of last minute bids. And in a lot of cases, you can expand your revenue with extended bidding, but you can also upset your bidders.

Marissa: Yes, you've lost your donors for next year. You could. So it's a trade-off. You break that trust.

Jeff: Yep. Because you will always have somebody who's going to say, you said the item was going to close at 8. Why did it get extended? It got extended because we have this tool that will extend it if a last-second bid comes in. Well, they were emotionally done at eight. Eight o'clock came around and they didn't even look at their phone. They went off to the dance floor thinking they won and they didn't realize it got extended, even though they've been notified, texted, whatever. So anyway, we had extended bidding in Handbid and we took it out for that specific purpose because it was upsetting people. And we're adding it back in now. We rebuilt it to work quite differently. But either way, it's just one of those things to be careful with.

Marissa: One of the parts that's hard is, if you're in a commercial situation, there's T's and C's, right? You've got your terms and conditions and nobody reads them if we're being honest. But at least you can always point to them and be like, there's my T's and C's. You are an experienced auction buyer. You know what it is. But your gala event is completely different, right? Because Joe, who's there, this is his first auction ever, and he doesn't understand how it works. So exactly what you said, communication, right? That we're going to be doing this. If you communicate that, it goes a long way.

Jeff: Well, and I think a similar one to that would be item reserves.

Marissa: Exactly. We don't see these a lot on the charity side.

Jeff: No. But they're quite common on the commercial side. And I think reserve prices are okay.

Marissa: Yeah. But people don't understand what a reserve is, in my experience.

Jeff: Explain what it is for our audience in case they don't.

Marissa: So the reserve price is the minimum that the item can sell for. So you can have a reserve price of $500 and you can start the bidding at $100. But if I bid at $100 with a bid increment of $20, the available bid is $120. I'm the highest bidder, but I'm not winning it. Because the item cannot sell below $500. So if I want to win that item, I've got to continue bidding. And this is when I can outbid myself to get the item up. In Handbid, yes. Handbid does let you outbid yourself if you're below the reserve.

Jeff: We're that generous. Well, I think that's the part that is hard, right? And that's where organizations have to make a determination because it can confuse the heck out of bidders. So again, if you're a commercial space, people know. They're like, this is an auction with reserve. I understand that there's items that aren't going to go below a certain amount. But as an auctioneer, you're supposed to announce that, correct?

Marissa: Yes. And more often, you would make an assumption that all auctions are with reserve, unless someone says it's an absolute auction. If they say it's an absolute auction, then it sells for whatever the price. If I say $1, if I ask for $50, you tell me $1, it's selling for $1, because that is the best price I could get. So you would make the assumption that all auctions are with reserve unless it's otherwise stated.

Jeff: And so that is the hard part. As an organization, how many items do you want to offer in your silent auction that have a reserve? Because then that confuses people. They're like, wait, I just bid $100. Even though it says reserve, they don't get it.

Marissa: Well, in Handbid, the way it works, if you set a reserve price, which again, 1% or less of our charity clients do it and 99.9% of our commercial clients do it, they'll set that reserve price. And if you bid below the reserve, Handbid immediately tells you, you're the highest bidder, but you're below the reserve. You need to bid again.

Jeff: Awesome. And it tells you that versus saying you're winning. So you're never really winning the item.

Marissa: Correct. So you are the highest bidder. And so that's kind of the distinction there.

Jeff: But it is something that can confuse bidders if they don't understand what's going on. And what we see a lot in the commercial space is those reserves are set by the seller. In a lot of cases that's not the auction house, it's the consigner. And sometimes they're running into the back room saying, do you have any flexibility on this reserve? Because we're really close to it. Like, your reserve is $200,000 and we're at $175,000. Are you willing to come down?

Marissa: Yes. Absolutely.

Jeff: Just to see if we can get something sold. And a lot of times those reserve prices, if it is a consigner, that's an emotional price a lot of times. Or sometimes it's a cost.

Marissa: Yes. No, I agree with that for sure.

Jeff: All right, let's talk about promotion, which I mean, is another good tactic to kind of get people emotionally charged about things. Because we talked about promoting the item in the room, making it snow, or the live band, or whatever else we saw with some of these things. But let's talk a little bit about what can we do in advance to kind of get people emotionally attached. So they are driving in the car saying, oh, I am on that beach sipping that Mai Tai.

Marissa: Yes. Put me in. Sharing stories. If the item is a repeat item, sharing stories of somebody who previously went on that trip.

Jeff: I love that idea.

Marissa: And it's also just that general promotion. So it's like picking the two weeks leading up to your event. How are you using social media? Are you showcasing your donor as well as your item? Hey, look, this came from Marissa Walters, and it's her beach house here. She's a member of your community. Look at what she's offering us. And now, again, I'm seeing it. I know Marissa. I want to honor her. Like, oh, that's so great that she donated that. And then I see her beach house and I want to be there. So I'm seeing it on your Instagram story or on your Facebook post or TikTok, however you use your marketing.

Jeff: I think it's very smart. So it helps to have your stuff kind of organized and prepared.

Marissa: Yeah. But if you've got a really cool item, showcase it. Get people excited about it. And it doesn't always have to be the live item either. Like I tell you all the time, you may have something that's really cool that maybe you don't feel is live auction worthy or your auctioneer doesn't want to sell it live, but it's really cool. Promote the heck out of it because now you're also making people look at your silent auction. Because they're like, wait, where is this item? And now they're in your silent, seeing all your other items along with that really cool one.

Jeff: Yeah. I love it. I love it for sure. So when we're doing this, when we're promoting items or we're displaying them and everything else, the thing that works really well is being up front.

Marissa: Yes. All the information needs to be there.

Jeff: So we talked about T's and C's. This is not the batteries not included in fine print in the very corner, right?

Marissa: Right, exactly. And I think that's the one thing I do love about the Handbid display, is it says fine print so that I can look at that and I see this awesome beach house and I'm so excited to go to it but then I look down and I say, oh, it's only offered one week a year. Well, at least I know. And I'm walking in with open eyes and I'm not surprised after the fact that there was a cleaning fee that I had to pay or I wanted to go over the 4th of July and you're like, no, more like Thanksgiving.

Jeff: I think that's huge. We see a lot of disputes in this area, you guys. A lot. And we don't see a lot of disputes, let me just point that out. But when we do see a dispute, it is always largely around this. And we're dropping in fine print. We worked with a fairly national organization that's a hotel chain that had a lot of properties auction off and it looks amazing. Oh my god, I have a week in Napa. This is awesome. And then when you read the fine print, and it wasn't even in the brochure, it's in the certificate. Read these, you guys. And it's like, available August 8th through 16th. Must book by a certain date. And it's like one week of the year, that's it. Right. It's some free week they had. No. Like, we put it up in the auction. It has to work for somebody. But at least they could see it up front.

Marissa: Absolutely. When it's even, it's hard because you want your presentation at the event to be real pretty and gorgeous. But there's also those moments that sometimes you want to add that if it's a really key thing, like it's only one week, you would have it on the brochure, but you might even add it to that slide that's behind the auctioneer so that I already am looking at that. I'm invested, but then I look at that date and I have an open mind, okay, I can only go that date. I look at my phone. I can go, cool. But I'm not after the fact dismayed that I can't do it.

Jeff: Right. And if you can mitigate some of the stuff, mitigate it. Like, I remember we used to sell these Costa Rica luxury homes. We had like four or five of them. Zero transfers. Okay. I'm thinking, okay, we just sold a house for $7,000, $8,000 for the week, and they got to figure out how to get from the airport two hours away to this place. And so I'm arguing with the host, who we were doing this consignment item with. I'm like, you got to fill this gap in. I don't even want this to be a fine print item. People do not want to hassle with transportation when they arrive in Costa Rica. So figure it out. And they're calling me up, like, we can't figure it. I'm like, figure it out. That's selling it. That's the bundle you need. So sometimes some of these little fine print things, you should probably just fill in yourself.

Marissa: Right. Agreed.

Jeff: Oh, that's a great idea. And then, last but not least, trust and reputation.

Marissa: Yeah, so let's work with people that we trust and we admire and we respect. And don't go with the fly-by-night consigner. Ask your friends. Vet them.

Jeff: That's always the thing. If you are a nonprofit and someone reaches out to you, go to your other professional nonprofit fundraisers. I'm sure you're part of an organization. Ask them, have you ever heard of this company? Because there are a bunch of them out there and they approach us all the time. So use your resources.

Marissa: Have you heard of this airline? It exists. There's a curtain between the people and the livestock in the back. Don't worry. There may be a seat belt. We'll see. It may cost extra.

Jeff: It's funny. I went on a mission trip to Rwanda, and I thought about this would be an amazing auction item, but there's some things you have to reveal.

Marissa: Yeah. There's a lot to tell. Where you're going, you're going to leave the highway after three hours and you are going to be on four-by-four rocky dirt roads for an hour and a half. Just to get to this place.

Jeff: Yeah. You will take a shower that is coming out of a tank. It's gravity. It's someone above you just pouring a bucket. But the place is great. I mean, you can talk about all the good things and how spiritually awesome it is. But at the same time, there's some things to make sure you're revealing. You got to disclose this information.

Marissa: I think so. Totally. And you can put a little cute spin on it. Like, it's so charming. Oh, look at the verbiage she's using.

Jeff: For sure. This is your wordsmith. Don't you worry. My daughters, and actually your daughter went on this trip with me. And the interesting thing was, I said, you've got to be a good sport. You're in a foreign country. They were all great sports. Trust me. As teenage girls, trust me, they were great sports. The funny part, though, at the very end was when they walked down the stairs with the roasted goat. That still looks like a goat.

Marissa: Oh, my God.

Jeff: It was fantastic, by the way.

Marissa: I'm sure. They're looking at it going, I'm supposed to eat that?

Jeff: His name was Bob.

Marissa: Bob. Dude.

Jeff: I set that up and I didn't even mean to. That was amazing. We don't have any fun on this podcast. We're going to leave it with that. And there we go. That was awesome. You guys, that was great. We talked about a lot of psychology stuff, competition, fear of losing, where you start your items, configuring bid increments, social influence. Remember, be the first to order at the restaurant. All of the stuff around presentation. It was a great conversation.

Marissa: Yeah.

Jeff: So let's wrap this up because I think people are sick and tired of hearing from us. This will be the end of this episode of the Elevate Your Event Podcast. We really appreciate Marissa. Elise, thanks for being with us today as we've talked about the psychology of bidding. And we wish you all the best in your next fundraiser. Until then, happy fundraising.