On my recent post about Manipulating Auction House Prices, Alcattle wrote a comment about selling at a loss. I was going to respond in the comments, but I started thinking about it and found enough material for a full post. For reference, Alcattle's comment was:
"My pet peeve is people who sell stuff at a loss. I know they get them for free, but if they look at the cost to replace the mats... I won't sell at a loss unless it is something I will not replace/relist."
Why People Sell at a Loss
- Push others out of the market. One of the primary reasons that someone might consider selling at a loss is to push competition out of the market. Let's say I can sell at a loss for 2 weeks, losing 5,000g in the process. But it also eliminates most of my competition. Once they're all gone, I raise prices and bring in 10,000 more gold than I would have with the larger pool of competitors. Essentially, I just spent 5k (the loss) to bring in 10k more than I would have made normally.
- They are ignorant of true costs. Some people are just ignorant. They don't understand things like opportunity cost, so they sell finished products for less than they could get by selling the materials raw. Or they don't value their time, and so sell below market because 10g/item is still profitable when materials are "free" for them.
- They aren't selling for a loss at all. I work under the assumption that my biggest competitors are able to get materials for cheaper than I do on a consistent basis. When I see them selling cheaper than me, I assume they aren't losing money, but rather have a lower production cost than me. Maybe they log in more frequently and can purchase cheaper supplies. Or maybe they have a farmer selling them raw materials directly and bypassing the Auction House all together.
- They're getting out of the market. Certain items just aren't profitable to make because they are used in leveling professions. Certain glyphs and enchants are notoriously cheap sellers because people make them to level their profession, then just dump them for cheap on the Auction House to get some of their money back. Other people are fed up with a market and just want to dump their stock and get out quickly.
- Some people just like to be obnoxious. They like to annoy others and consider it fun to mess with the economy or their competition.
- Buy them up and re-sell later. If you do your research, and have a little bit of patience, you can make gold by taking advantage of people selling items for a loss or less than the market will sustain. I rarely craft Inferno Rubies these days. Instead, I purchase any cut rubies from the Auction House behold a certain threshold. They sit in my bags and get posted when the price rises later in the week. My stock fluctuates between 5-6 Brilliant Infernos and 20-25 on most weeks. If I buy the rubies at 125g and sell them for 150, I'm making 25g/Inferno for little to no work. The key is understanding when prices will rise and fall. Heavy raid nights (especially post-raid for gems), patch days or after nerfs to content make great times to sell the cheap stock you've been purchasing from your competition.
- Get cheaper materials. Maybe you need to log in more frequently to get the best deals. Set up mobile alerts at The Undermine Journal or use the mobile auction house app from Blizzard. Start advertising in trade chat and build a relationship with the farmers on your server. Get people to send you supplies regularly and bypass the Auction House. Your competition is probably doing it, so why aren't you?
- Jump ship. If you don't have the time or resources to wage a war with a loss-seller, you might need to step out of the market for a period of time. Look for opportunities to get back in when their guard is down. If you don't have the stomach to outlast or outspend the loss-sellers, don't waste your precious resources trying.
I consider myself a somewhat casual auctioneer. I can be found via Twitter @Aleithia3. I also like getting email at Aleithia AT jasonthedce DOT com. Send me your questions and I'll try to write about them on the site.
13 comments: on "Selling at a Loss (Why, and How to Deal with it)"
jimmyolsenblues said... October 14, 2011 at 8:34 AM
There are times I must sell at loss, not often but it happens.
1) Bank space and Bag space eventually fill up and you don't need all that junk.
2) There are times you invest in Thorium ore or mithril ore and the drop rates or mining bots rate changes.
Don't feel bad sometimes about selling at a loss..because its better to have gold to reinvest than something that sits in your bank for two years doing nothing but taking up space.
J.E. Douglas said... October 14, 2011 at 9:23 AM
Another reason why someone sells at a loss is incorrect addon pricing
and "auto pricing"
Auctionator will list a price many times that's lower than the going rate or the value of an item. And if someone isn't paying attention and just listing without thinking, poof you get listed at a loss.
TSM is easily setup wrong so that an item can be listed at a "loss"
as well.
Excellent article. Both for the experienced as well as the new AH player
Kammler said... October 14, 2011 at 1:36 PM
Selling at a loss is distinctively different from selling at a lower margin.
Readers should be aware of this distinction, especially if they plan to buy out seemingly cheap products to resell later.
A story to illustrate this point:
Cut Inferno Rubies (Bold, Brilliant and Delicate) are very active on my server. Depending on the day they can sell for 170g or 110g. The undercutting and re-posting can become a bloodbath. If I don't camp the AH in peak times I can find my 145g 54s 19c Rubies undercut 15 or 20 times to around 135g.
Every now and again the fluctuations will dip down to 105g or even 100g. I will buy all the inventory out there around that price, sometimes as many as 15 or 20 items per category.
Last week a player beat me to the punch and bought out 18 or so auctions including mine at 105g. He literally beat my a few seconds.
Since I have huge inventory I immediately posted 5 at 100g. He bought them too. Then I posted 10 at 110g. He bought them but it took him a couple minutes--as if he was considering the implications. Then I posted 40 at 100. He didn't buy them.
Instead, he posted 10 at 95g--which I promptly bought, cancelled my auctions, and re-posted at 145g. He undercut me down to 115g. I put up another 20 at 105g.
He passed on buying them. I bought his at 115g and cancelled my lower priced auctions, leaving my 145g as the low on the board.
This all happened in a matter of about 5-8 minutes.
When he finally put another auction up he listed a single gem at 144g 50s--which I left alone.
I sent a tell and asked if he wanted to sell in bulk. He said what do you mean? I said "my break even is 85g so I'll buy your gems at 80g, all your inventory if you want to sell".
He passed on the offer but he got the message: I have lower costs than him, I can sell much lower than he even saw, and I have the financial resources to make it work.
What does this story illustrate?
Most of the principles you describe in your article come into play--I'm protecting my market, he's ignorant of the true cost, I'm not selling at a loss because of cheap mats, and I'm buying his product to resell later. Oh, and I guess you could throw in that I'm just being obnoxious.
However, the real lesson here is one of time savings. If I can buy gems at or below my manufacturing cost, then I save a huge amount of time--which I can then use to make gold in other ways.
Does this strategy work all the time? No, but I'm willing to gamble, buying 10,000g worth of Rubies that I might only resell for 9,000g or 11,000g. The thing about high volume items like Rubies is that I WILL resell them so my cost to buy is really an investment.
Nice article, thanks for posting it.
Cold said... October 14, 2011 at 2:07 PM
"Pushing others out of the market" by selling for a loss is an absolutely worthless strategy.
Ok, so your competition stays away while you are losing money on sub par sales. Smart sellers won't list for a loss along with you. Then when you reclaim the market and return to your higher prices, what happens?
We come back and undercut you at your higher prices and we all make more money while it cost you sub par sales to think that you actually were buying the market out of competition.
Selling at a loss to scare away competition, may work in the short term, while you choose to keep losing money, but undoubtedly the wise sellers will just return to the market when the prices rebound.
So you gained nothing but market control of a sub-par loss leading sales.
Gear said... October 14, 2011 at 2:32 PM
The problem involving the concept of 'selling at a loss', or call it what you will, is 99.9% of people fail to realize the hub resource of the WoW universe. In the real world money has no real and useful purpose other than to serve as a benchmark by which we base the 'value' of every other good or service. In WoW the hub resource is not gold, the hub resource is time. There is no reason to ever ever EVER sell at a loss on the AH. Vendoring it takes less mouse clicks. If you're going to lose gold you might as well lose it quickly rather than slowly. As for the lack of bag space 12 slots x 50 mail per toon = unlimited space. If you don't like that option but another guild bank tab. Why not? You plan on losing money on the sale anyway. If I have more time I'll disect this post more thoroughly. In closing, you should never ever and have no excuse to ever sell at a loss on the AH.
The word, according to a non-blogger.
Gear
Aleithia said... October 14, 2011 at 5:42 PM
@kammler: Great story! It certainly does a great job of highlighting how this plays out in the game. Thanks for sharing it with the readers!
@Mommar: I've certainly made the TSM mistake before. I only lost a few hundred gold, but now I'm extra careful about settting my prices correctly.
And finally, @rachaels_dad: I have a full guild bank tab and a half of things I might need "someday". That's after selling some at a loss just to free up the space as you suggest. Thanks for the reminder that I probably need to finish what I started and clear that other junk out too.
Justkiddingmate said... October 14, 2011 at 6:10 PM
How do I deal with it ?
It depends on the market.
Lets say glyphs.
If someone wants to try and scare me , guess what he isnt.
I simply post my auctions on an amount Im willing to sell them for automatically ( fallback price if threshold is broken ). Because I know the herb prices and thus what he could possibly get of farmers, I set this threshold a bit above that.
If they want to spend whole day camping for little % profit gain then let them, they will get tired of it eventually.
The key thing is to be willing to be patient as well if needed. Just keep posting every day at your fallback/threshold until one day that guy gets tired of selling at loss/break even and you make more money in a few hours than he has in days with his burn strategy. Low walling doesnt really work against experiences auctioneers unless they get the mats >signifciantly< cheaper.
It doesnt happen often, but when it does, just keep praying till the day his bot gets banned ;)
Anonymous said... October 14, 2011 at 8:45 PM
Sometimes it's hard to classify. To keep the math simple, lets say there were an enchant requiring 10 dust, and that the scroll was free.
If dust cost 5 gold in the AH, people would expect the enchant cost 50g, and anything lower is a loss.
However, I might be primarily involved in prospecting and cutting gems. One of the side productions is dust.
If I sell the dust for 5g, I get at best 4.75g per dust I sell. But I'm making much more dust than I can sell.
If I try to sell all my dust, I'll drive the price down. but if I sell scrolls for 47.5g I'm loosing nothing. It's a 0% profit margin, but it allows me to continue to sell more cut gems, which is where I'm making my profit.
And if people are buying my scrolls, my dust is used, if they buy someone else's scroll, the dust could come from anyone.
Selling at or below cost in this case allows me to process much more than I could, and keep the price from falling.
The reverse of this argument holds true, if you've got too much of a side material, processing it and selling it at cost can allow you to keep up the volume you want, and your cost is lower than the cost of buying the mats.
J.E. Douglas said... October 14, 2011 at 11:49 PM
@Gear
Losing gold is a misnomer as far as
the definition. But it's an easier explanation than "giving gold away by choice".
I give gold away anytime that I'm nice to a guild member and drop blanks of items in the Guild bank. Or cut an item for free. Because in the long run my time in the game either translates to activities I do, or gold I create through different ideas (AH, Trade Barker, manufacturing, creation/vendoring etc).
It's easier to define it as 'losing gold" because that's how the masses have chosen to present the idea. You have something of determined value in your mind, you set a price or regain an amount of gold at a lesser price than the value you mentally set for that item. By the illogical statement set there, you "lose" gold.
But then who ever said WOW was ever logical.
Alcattle said... October 15, 2011 at 3:37 AM
Interesting points made by all. I have also found my error, or misled logic. I looked only at AH price as being costs when as many of you point out there are more ways to get costs down. In my markets, I see many items being sold "in the red" on TUJ but I don't think they are losing money/gold/time. I just to do more research on where and how it lower my costs to compete.
Aleithia said... October 15, 2011 at 8:22 AM
@Cold: Using this tactic to push the hard-core Auction House seller out of the market is, as you correctly point out, not likely to work.
But it certainly puts the casual gold maker in a tough situation. You have years of knowledge and understanding, so you know to wait them out and come back later when the price is up. You probably don't even need to make that decision yourself as your addons just stop posting below a certain point and start back up when it's above that point.
The casual or just-starting-out gold maker, however, doesn't know these things and could be pushed out of the market. Either they don't have the knowledge and understanding to wait or the time to put up an honest fight. They don't have the addons set up and configured to manage price swings, so they just get out of the fight.
At the end of the day, there are a lot fewer "smart sellers" than we all realize. My server only has 3-5 consistent, competent gem sellers. Others come and go, but they don't get in the bigger fight because the big guys squeeze them out.
Skorpsy said... October 15, 2011 at 2:38 PM
Nice read.
Oh and excellent post by Kammler!
Anonymous said... October 17, 2011 at 7:36 AM
I am a Major Auction Toon on Cairne Horde side! My bank toon sells and resells 500-1000 items every 48 Hours! I'm not bragging I only stated the numbers to prove this advice comes from an experienced player!
Knowing that here is my opinion on "Selling at a Loss"!
As to selling due to lack of bank/bag space. It cost 100g for the first guild bank tab! You can make a Storage Guild on a Level 1 alt! Ten silver for the charter and a few gold for each of the four signatures! This provides plenty of storage for anyone selling on the Auction House!
I use the Auctioneer Addon! Yes, if you "auto-post" then you will post at a loss! A simple push of the refresh button when posting an item will help to avoid that mistake! Also be aware of sellers with very low bid prices! If you don't pay attention you will undercut their very low bid price!
As to "Selling at a Loss" as a tactic to gain market control! It will work for beating newer players only! Hard-core auctioneers know how to beat this tactic!
As to lowering mat costs by getting mats from a farmer! It works and I Highly Recommend buying mats from a mat farmer! My Main supplies many craftsmen including a gem seller! Since I enjoy gathering and I have the time to do so, I can supply mats cheaper than the overpriced ones on the AH! I usually give a discount for bulk orders and to repeat buyers! I will even give a small discount if I can avoid paying the auction house fees!
As to buying in bulk! Yes indeed it is a Huge investment! You can buy in bulk and sell the item one at a time! Just be aware this is Very Risky and takes Lots of Time! Be prepared to "wait it out" and repost the item a few times!
As to doing research on the item you intend to sell! Yes, I highly recommend doing so! There are many websites that offer 411 on all wow items! I use "The Undermine Journal" website! It is very helpful to see what other players have sold the same item for over a period of time!
As to the "Bigger Guys" pushing you out! It happens often! If you have a small stock and little patience then you will be pushed out! If your not planning on selling an item often it isn't worth the time or gold to take control of the market on that item! If you see a player selling lots and you only have a few try sending an in-game mail to that seller politely asking if he/she would buy the few off you so that you may avoid a selling war! I usually will respond and do buy to avoid losing control of the market on that item! Just remember to always be polite!
I hope this helps!
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