Monday, January 16, 2012

Pricing & Your Realm’s Population Part 1

This is part one of a five part series of articles concerning; Pricing Theories, Criteria for Pricing, Methods of Pricing, Customer Influences on Pricing, and Pricing Walls. When you have finished reading this series of articles you should have an excellent understanding of the many tactics used in the auction houses in every realm regardless of faction. You should also come away with an understanding of the basics for how to manipulate markets, and a grasp how much of an influence your servers population has on the “value” of items placed on the auction house.

Pricing Theories

Pricing Theories are the most common methods for people to follow when listing items on the auction house. There are several theories used when listing items, they are as follows; The Lowest Price, 300% Rule, Trade Price Check, Supply & Demand, What the Market Will Bear and The Lazy. As you read through them consider that every choice is a valid pricing scheme. Not ever theory works to turn profits every day, and not every theory is designed to be helpful to the realms population. Many of them do not work consistently over time and have to be adjusted for.  

Lowest Price
As the name suggests the Lowest Price theory states that, “I list my items for less than the lowest available items on the auction house, I should therefore sell mine first.” To some extent this is true and several of the addon developers have built this functionality in to their products. There is a fallacy in this thinking though; automated pricing to below the lowest available price can interfere with your making a profit. Often individuals that use this price theory end up selling their items for less than they would receive if they had just sold it to a vendor. This leads to a loss of profit and a potential bonus for another banker who buys it and then re-lists it for a high price.

The idea behind the 300% theory is “I list my items at 3 times the amount if the listing fee or 3 times the amount of the vendor’s price.” This theory will provide a relatively low price on most items when compared to their item level (more on that in the criteria article). As with the Lowest Price theory the potential loss of profit can be relatively high. An Hyacinth Macaw sells to vendors for 10 silver, if you only marked it up 300% then your price would be so low that it would be snapped up the minute you put it up on the auction house. Leading, as with the Lowest Price theory, to a loss of profit.

Trade Price Check
This theory states that “People are honest and will answer my question honestly when I ask what I should charge for an item in Trade Chat”. To paraphrase a great statement; there are lies, statistics, and replies in Trade Chat, none are to be trusted implicitly. Consider that when asking in trade chat, a large portion of the responses will be useless and scrolling through them will be time consuming. Of all the theories of pricing this is the worst option. If by some chance a price is determined, it is most likely not going to be very profitable for the seller.

Supply & Demand
The theory of Supply& Demand states that “Prices vary as a result of a balance between product availability and demand for the product.” The issue here is that in a digital environment this situation is turned topsy-turvy. In the game there is nothing that cannot be acquired by every player that wishes to spend the time doing it. With very few exceptions, there is no effective limit to the amount, or type of items that can be acquired. Demand is often easily satiated at the high end, for equipment and materials in a relatively short period of time. After all a character can only use one copy of an item at a time and materials build up. Over time until there is a huge supply and no demand. This has happened with every expansion and patch, it will continue to happen unless Blizzard fundamentally changes the game’s drop system.

What the Market Will Bear
Unfortunately Blizzard has made this a very viable method of pricing. The theory states “I price my stuff at a highest possible price because people can pay it.” This is tied directly to the over abundance of in game gold. It is not unreasonable to expect to make a thousand gold in a single day. This has lead to the preponderance of extremely high prices for basic crafting supplies and low end gear. The negative impact of this is as follows; new players easily become dissatisfied with the prices on the auction house and leave the realm. This may be fine for one person but it is happening all over in every realm and Blizzard is directly to blame for it by making the in game currency so easily available at high levels but not equally available at low levels.  

The Lazy
The theory of The Lazy is my single favorite and the one I use the most when pricing. The theory states, “People that do not wish to perform the content of the game will pay extra gold to not have too.” Or as I prefer to sate it in my chats with others, “The Lazy and their gold are soon parted.”   This theory presupposes that the market is flexible enough to allow some over pricing of items, but not at the level of What the Market Will Bear. Individuals that do not wish to do the content will buy the items in question so that they may continue along with their game playing, and other bankers will not buy the items because the price is such that they will make a minimal profit. This theory is the most research intensive of all the other options.

I hope that this article has given you some ideas on how to look at your inventory and consider your pricing theory. All have their good points… except Trade Price Check, and all have their drawbacks. Part two will cover Criteria to Consider when Pricing.

Until then, remember, Time is Money, and if you spent time reading, then this article was worth the money.

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