Tag Archives: undercutting

Controlling the Price

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In last week’s gaming column, I blasted the practice of steep undercutting on the auction house. I did, however say that I had a couple of exceptions to that rule.

The first is price controls. I have a few markets on my server where I have essentially instituted price controls. The price is not allowed below a certain point, nor is it allowed above a certain point. How? Why?

(No, I'm not doing THAT much math...)

The how is fairly simple. I monitor the markets closely, and if the prices get below the floor I have set, I buy everything beneath that floor. Then, if prices start getting above my price cap, I start selling at that price cap. It’s not 100% control, of course, but I find that in these markets, prices tend to stay in the ranges I set.

The why is a little different. Certainly, there’s profit. This is a fairly classic case of buy-low/sell-high, but given the markets I’ve chosen, it’s a lot of work for not much gold. The justification for spending that effort has a lot to do with what those markets are.

They tend to be the materials necessary for leveling certain professions. Over half of them are herbs (for alchemy and inscription), but I also do this for various metals, leathers, and enchanting materials. The reason I got into this was my annoyance at trying to level those professions. As I worked my way up through the various materials necessary (from the low level peaceblooms up to through felweed and goldclover), I was fairly annoyed that many of the necessary items could not be found on the auction house.

Yes, I could have gone out and farmed them myself, and in some cases I did, but escaping that kind of grind was one of the reasons I got into serious WoW auctioneering in the first place. Fortunately, I discovered that it was really just a matter of timing. One week there might be virtually no mageroyal at all, just a few sprigs held out for astronomical prices, i.e. a hundred gold each, but then the next week the market would be flooded by cheap mageroyal for mere silver pieces. So, through much of my profession leveling, it was sprints and waits as the auction house supplies came and went.

Eventually I realized that smoothing out that supply variation could be a nice profit center, but I also realized it could be a public service. Yeah, yeah, play the evil music. The capitalist is trying to justify his greed by saying it’s for the public good. But seriously, it is for the public good.

I buy when someone is dumping. They’ve farmed it and are trying to get cash, or maybe they’re cleaning out bank space and just want to get something more than what the vendors offer. I give them that money. Then, when supply gets tight and some leveler really needs that mageroyal, there I am offering at a reasonable price.

Ah, but what’s that reasonable price?

And here’s where I diverge from my earlier rant against steep undercutting. In other markets, I’d say that the price should be the highest amount someone is willing to pay, but in these markets, I try to stay within reasonable bounds. Now, I’m still making a nice profit, typically 70% to 200%, but I don’t hold out those few sprigs of mageroyal for hundreds of gold. I have the price ranges I have chosen, and if someone has posted for a lot higher, that’s too bad. That market is under price control.

For example, one market I keep control on is briarthorn. I set my buy price to about 1 gold, and I set my sell price range for 2-2.5 gold. Every now and then, someone buys up the entire market and relists it at 10 gold. Well, later that day, I’m back online and posting a decent supply at 2.5 gold. Often, that other guy will promptly buy me out, so then I’ll post some more. Rinse and repeat. Eventually, he gives up as other suppliers (often farmers) come on board and post even further below me. I don’t know if all of his briarthorn ends up dumped on the market days later, or if he just chucks it all the vendor and stomps off all angry.

But the key is that folks who needed that briarthorn were able to get some at a reasonable (though inflated) price, while I made a nice profit in the meantime.

Note: I don’t set my buy/sell prices arbitrarily. Rather, the market does a lot of that for me. When I find I have too much of one item (more of a gut feel than anything mathematic), I lower my buy price. When I can’t get enough of it to maintain a reserve, I raise my buy price. When I’m selling out too fast, I raise my sell price. When I find that too many of my items are coming back unsold, I lower my sell price. That has led to several different price spreads for my various markets, e.g. 0.30 to 1.4, 1 to 2.5, 2 to 5, 2 to 6, 5 to 12, even a 3 to 9.

That last one of 3 to 9 is an odd one (Goldthorn) that is frequently needed in small amounts of 5 to 15 but almost always shows up in sporadic dumps of 60 to 200 at dirt prices. That one has been a real challenge to keep in stock because of how volatile the supply is, and that’s what led to that 3 to 1 ratio. It used to be 2 to 1, but I kept running out, leaving folks at the mercy of that one guy who posts everything at 999.99.99 hoping you’ll click by accident.

So anyway, I do price controls on some key professional leveling markets, and if you’re going to make some profit there, er, I mean, do some public service there, then I think it’s perfectly fine to do steeper undercuts.

(But don’t think it’s all charity and soup kitchens. I make 25% of my overall WoW income from these markets.)

The second area where I think it’s acceptable to do steeper undercuts is a fairly simple one. Namely, we set our prices at what the market will bear. If the cheapest thing out there is ten times the market norm, I’m not going to slip in at 9.999 the market norm. I’ll be wasting my time and my deposit. It’s not going to sell. Instead, I’ll come in at perhaps double or even triple the market norm and hope I snag a sale before everyone else comes back to undercut me.

I’ve been nailed by other auctioneers for that sometimes. Their argument was that the market could truthfully bear that price if only I would let it. One case was for netherweave bags, a staple item for setting up alt characters with enough bag room to level without investing in some of the pricey high level bags. On my server, they had been going for between 9 and 14 gold, and then someone came along, bought everyone out, and relisted for 50 gold. I shot for 19, was bought out, reposted, was bought out again, and then discussion ensued.

His argument was that the market could support that price, and that it did so on other servers. I checked (The Undermine Journal is awesome!), and sure enough, other servers did manage to sell these at 35-60 gold. However, on those servers the material cost was much higher. On my server, I can make a bag for as little as 3.5 to 4.5 gold, but on those expensive servers, I would have been looking at 10-15 gold for materials. Nevertheless, I decided to play ball for a while and convinced a few of my fellow tailors to do likewise. I figured it was worth a shot, but ultimately the price collapsed as more tailors came out of the woodwork and this fellow dumped all his inventory for under the original market prices.

So, yeah, maybe you can raise market prices, but not in one jump and not in a market with a lot of competitors. If you see someone making that jump, my best advice is to price for what the market really will bear and profit while you can from his doomed efforts.

But other than those, I strongly urge you to stick with minimal undercuts. Otherwise, you’re just hastening the race to the bottom with lost profit for everyone.

The Art of Undercutting

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Posting on Warcraft’s auction house is both simple and complex. You can post one or many. You can make them cheap or expensive. You can be a good citizen, but you can also be a dick. At the root of this is the practice of undercutting your competitors on price to make sure yours sells first. There’s nothing wrong with undercutting. It’s just a tool, and you can use it like a scalpel, a hammer, or grenade.

The Scalpel

In almost all cases, I encourage minimal undercutting. If the lowest price on that piece of armor is 420 gold, price yours at 419.99 gold. Very likely, the next person to come along will price theirs at 419.98. Each successive undercutter shaves off a trivial sum, and the prices stay high.

Yes, high prices are good for sellers. Sorry buyers, I’m in business mostly for myself, not for you. You go run three more daily quests and get back to me with another 50 gold.

The Hammer

I see bigger undercuts all too often. Someone sees that piece of armor priced at 420 gold and decides to whack a chunk off of that and sell for 400 or maybe even 350. There are a few possible reasons for this, but they’re all wrongheaded.

Bad Reason #1: “Round numbers sell better.” This is baloney. The items are sorted by price. Buyers don’t look for the round number. They look for the cheapest. And they’re not waiting for a round number either. They go with the lowest price at the time that they want to buy.

Bad Reason #2: “A bigger price drop will get me noticed.” Again, the buyers don’t care. They just want the cheapest at the moment. The only way it gets you noticed is by your competitors.

Bad Reason #3: “A bigger price drop will keep my competitors from undercutting me.” This is maybe 20% true, but that’s not enough to save it. The truth is that most profitable markets will have multiple sellers, especially towards the end of an expansion. A small fraction of these will be fleeting competitors, just trying the market out, and an aggressive price drop might scare a few of them off. But the majority of your competitors are there to stay, and they’ll be right back, undercutting you by a minimal amount.

Bad Reason #4: “Minimal undercutting is too much work.” Yeah, typing those extra characters is just soooooo hard. I’ll admit there’s a shade of truth to this, and it’s one of the reasons I rarely bother to undercut by 0.0001. But I almost never undercut by more than a single gold. Typing 400 is as many keystrokes as typing 419.

Basically, this level of undercutting is an annoying move, and if you do it repetitively, you will earn the reputation for being a dick. It’s also stupid.

Why?

Because you left money on the table. That’s almost 20 gold you left out here. I wouldn’t care if it were only you, but when I come back to undercut – and believe me, I will be back to undercut – that’s also almost 20 gold that I had to leave on the table. Now instead of selling my item for 419.98, I’m selling it for 399.99.

Get enough of you hammer-heads together, and before long, we’re having the same price war as before except it’s around 200 gold instead of 400 gold. Usually it takes a server shutdown before the prices can rise back up.

So, in short, DON’T DO THIS. Keep with minimal undercuts.

The Grenade

That is, unless you’re trying to blow up the entire market.

Some items sell at very high markup. They cost next to nothing and sell for hundreds of gold. There are lots of competitors working that market, and your only hope for sales is to time your undercuts just before the buyer shows up. It means you’re camping at the auction house, reposting every hour or two to undercut the other five guys who are doing the exact same thing.

One approach to get out of this reposting trap is to nuke the market. Figure out your costs down to the copper. Do what you can to get that price down. Remember to include posting costs and auction house commission costs. Know your down-to-the-bone minimal price.

And then start posting just a little above that.

Suddenly, items that had been selling for 120 gold are now being priced at 10 gold.

Holy hate-mail, Batman, but that’s going to stir up trouble. Competitors will argue with you. People will say you’re ruining the market. People will ask you to play along and bring prices back up. They’ll buy you out and repost at the original prices. In short, they’ll do anything to keep those prices high.

But if you’re committed to doing this, you have to press on. Keep posting at these rock-bottom prices. Sooner or later, your competitors will stop posting their wares. They’ll stop buying you out and realize they have bags full of items they can’t sell. Eventually, you’ll own the entire market. Then start raising your prices. You never get back to the original prices, but with 100% of the market you can sell enough to be making more money than you did before.

I admit this is a serious dick move. Asshole mother-fucking cunt-shitting dick move. (Thanks to George Carlin for that…) But in many ways, the auction house is the ultimate player vs. player arena, and sometimes you decide it’s necessary to be a dick. The biggest proponent of this goes by the moniker “The Greedy Goblin”, and if you read his blog, yeah, he’s a real dick, and apparently anyone who disagrees with him is an idiot living in the world of rainbows and unicorns.  (And I would know — by the time you read this, I’ll be holding on to Poonalooey’s mane as we ride across the rainbow fields of Everjoy!)

You want some idea of how much hatred you’ll get for this? Look at how many folks in the book industry (from bookstores to publishers) hate Amazon. Yeah, we’re talking “with the passionate heat of a thousand fiery suns” kind of hatred.

And yeah, you can also say that Amazon is providing a great service to the customers by cutting out all this bloat and middleman profit. I suppose you can also say the same thing about the Greedy Goblin, that he’s trying to bring cheap armor to the masses. Except Amazon at least talks the talk. Greedy Goblins make no bones about being in it for pure profit.

But ultimately, we’re all just playing a game. We’re all here to enjoy ourselves, not to pay the bills or finance our retirement. There really no joy in fucking someone else over, or at least, there shouldn’t be. As the great Wil Wheaton said, don’t be a dick.

Future gaming columns will include the way to beat the Greedy Goblin, thoughts on posting in quantity, some exceptions to my suggestions above, and even an argument for when it’s not so bad to pull a Greedy Goblin.