Price Perceptions

Last night I attended a fundraising event for an independent school, where I am on the Board of Trustees.  The fundraising consisted of a silent auction and a live auction, both of which provided fascinating insights about price perceptions.

First the silent auction, where items are placed on tables and there is a slip of paper for participants to “bid up” the price of each item.  There is usually a minimum bid that starts the bid and the bids must increase in at least a set increment.   You bid using the number you were given at the beginning of the evening so you never know the identity of the people you are competing against on a specific item.

There was a $150 gift certificate to the McCarter Theater in Princeton.  The McCarter has well-attended runs of A Christmas Carol and The Nutcracker in the holiday season and excellent plays and concerts during the year.  It is about a one-half hour drive for most of the people attending the fundraiser last night, so I would assume many of the attendees take in a show there occasionally.  I noticed that a few people had bid for the gift certificate, but the last bid was only $100.  So I bid $110 figuring it might move the bidding up and if it didn’t move the bidding, I would get a bargain, since my family and I go to the McCarter at least once a year.  There were no further bids so I made a great purchase, while contributing to the school.

I found it fascinating that none of the other bidders upped the bid.  If you were going to use the gift card worth $150, wasn’t it worth at least $120?  Or the way I looked at it, even at $120, I would be getting tickets at a 20% discount.  I bet if the McCarter advertised they were having 20% off tickets, they would have a lot of takers!

In the live auction, where an auctioneer tries to move the price up by encouraging open competition between bidders, I noticed another interesting phenomenon.  On one item, the bidding started at $500 and the auctioneer tried to move the price quickly to $750.  There were no bidders.  He backtracked and started moving the bids in $50 and $100 increments.   The bidding moved past $750 and finished somewhere around $900 or $1,000 for the item.  This backtracking happened on a few items and usually resulted in a final price higher than the “stalled” price.

So if people were willing to buy the item for $900 or $1,000, why didn’t they bid when it initially moved to $750?  My thinking is that the $250 jump from $500 to $750 was 50% and too large in one step.  People were very happy to move the bidding at $50 or $100 and barely noticed that the price moved beyond the $750 that everyone balked at.  The big price jump is too shocking, but increasing the price by smaller degrees isn’t that staggering, even when it eventually is higher that the “shocking” price.

I am not sure how useful this information is in the real world of marketing, but to have two interesting examples of price perception occur in one night was too much to pass up.

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