What’s Your Impression of the Current Penny Auction Model?

Would you say that the overall penny auction model is flawed? What would you do to change and improve it?

One forum member, a  penny auction owner’s, response to our post, “Steps to Take When a Penny Auction Goes South” he shares his overall perspective of the current penny auction model and advice to penny auction sites and bidders:

The latest victim in the long list of Penny Auctions that have gone south, out of business as of today is Winno. here is their most recent post.>>> Winno.co.uk closing.

In their post they seem to be very concerned about those whom they are indebted to and want to do right by them, (a rarity). hopefully their good intentions will prove to be fruitful to those who they are trying to settle with. Regardless of their outcome, the cold hard reality of it is, another penny auction bites the dust. So what if anything can we do about it? After all, we are very much affected by the penny auction attrition rate.

This post, or maybe I should call it an article is going to be lengthy so I warn you ahead of time., hopefully the things I say will reach into the minds of BOTH the Penny Auction Owner and the Penny Auction User alike and give Both food for thought. Believe it or not, PAW has already become a powerful enough tool that can wield enough influence in the penny auction industry at large, so why not take full advantage of the resources at your fingertips and help mold the industry to where it should be, which is to be profitable to all who take part in it? PAW members have a golden opportunity to help set the standards for excellence within the PA industry.

Message to the Penny Auction Owners. Forgive my bluntness, but your Swoopo style concept is flawed and it is dangerously flawed. It doesn’t matter if you created a brand new script or revamped an old script, When making your changes, if you have inserted some of the old code method of operating, then all you have accomplished is a sure fire way to continuing problems. Attacking me for my bluntness in this post won’t change the dilema you are in one bit, only you can do that, this is not a contest or even a debate. Believe it or not I AM ON YOUR SIDE, all you need to do is keep an open mind when reading what I have to say.

Here are the areas that you need to pay close attention to, if you ever hope to survive in this business and in the process make a nice business for yourselves. You need to closely examine your present format, chances are you will need to make some drastic changes and make them fast, not to do so, means that its only a matter of time before you become a statistic.

Forget about your pride, forget about what the other guy is doing, forget about being opinionated, and most importantly of all, forget about thinking that you are the exception to the rule and that for you things will be different. Yes I am also talking to those of you who think that you are invulnerable and think that your model is different from all the rest. Adding a glitzy new feature here and there means nothing if you don’t attack the root cause of the problem. Here they are, there are not that many….

HOLD YOUR SITE CURRENCY (BIDS) AS BEING SACRED. Don’t give away your bids for joining your penny auction, don’t put them up for auction, don’t give any discounts on bids, don’t hold any 2 for 1 sales, don’t give any bid incentives of any kind, or anything that even smacks of using your sites currency for anything other than the FULL CASH VALUE that they NEED to generate in order to pay for the products you sell.

I know these incentives attract a lot of business, but believe it or not, under the present method you are operating the more business you attract through the bids promotion method, the closer you are to closing your doors. If you would like to see in detail the detrimental effect that promoting with your sites currency (bids) has on your business, I will post it for you.

The second serious chink in your system is allowing your auctions to open with only one bidder placing bids. This is economic suicide at its best. I think it is safe to say that we both know that if an item sells for pennies, then in order to provide the winner with their item, you have to supplement the cash shortfall with your working capital. Remember this, your working capital is NOT supposed to pay for your losses, it is supposed to pay your normal overheads such as normal operating expenses and wages etc.

Only in extreme cases is it wise to inject your working capital into covering your losses. even then, only under special and rare circumstances, you should already know that you are able to make a profit under the general scheme of things and that your injection of working capital is only a rare and circumstantial event.

Undercapitalization! Not much to say on this as it really should speak for itself, you need operating capital to cover your general overheads while you go through the start up process. There will always be those who no matter how perfect any system is, they will never make it in business.

Now a Message to the Penny Auction Users/Bidders. Based upon the above comments to the auction owners, I can readily see why you would want to take advantage of any freebies that are being handed out by the various penny auction sites. But like anything else, there is a cause and effect, meaning, there is a price you will pay for those freebies. That price will come in the form of the cash and merchandise that you will lose when the penny auction goes out of business, or when they refuse to provide refunds that you know are rightfully yours.

Considering this, you need to ask yourself a question, do you want to grab what you can while you can and take your chances that you won’t be affected when the auction goes belly up? Or, do you want to say to yourself, I am not going to be one of those who will contribute to the eventual demise of the penny auction and possibly hurt my own finances in the process?

Also realize, that one of the first clues you will receive of a penny auction in financial trouble is when you see or suspect Shill Bidders or when you see many of the auctions being won for pennies on items that normally cost hundreds of dollars. Another signal is, when you see posts by the penny auction that they expect to lose money at first but don’t worry because we are well funded to cover losses. This is a sure sign that they have not recognized the inherent flaws in the Swoopo style system which 99.9% of penny auction’s are fashioned after.

I will even go as far as to say this, Swoopo itself is not immune to the discepancies in their own auction format. They are very lucky to have had the 10 million injection of capital, without it, they would be having some major financial concerns right now and it is my opinion that if they don’t change their mode of operation, they will be scrambling for more injection of capital.

I know there will be those of you who will vehehemently disagree with me because it looks like I am trying to destroy the goose that lays the golden egg, but I am not. I happen to like the penny auction industry very much because conceptually I think with improvements it can become a terrific industry., What I really hate to see, is the constant unnecessary loss of money by both the penny auction and the penny auction user when with a few simple adjustments it can be avoided. Please don’t take my comment for anything other than me trying to be helpful, I just needed to finally point out where the real problems are located. Do you agree or disagree?

Discuss the penny auction industry and more in our forum!

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