Posts Tagged ‘penny auctions scam’

Pitfalls of Penny Auctions

Flat-screen TVs for $48? iPads for $9? A $50 Gap gift card for 60 cents? Penny auctions have been growing in popularity, advertising on the Internet and TV with promises of killer deals and unbelievable steals. It’s true that these sites, which allow consumers to buy bundles of bids then wager on consumer goods with the hopes of winning them for pennies on the dollar, can be a great source of entertainment—and occasionally a great bargain. But experts say that the bottom line is buyer beware.

“If you want to do it, do it for fun,” says Tony Giorgianni, associate editor for Consumer Reports, who recently investigated penny auctions. “While there certainly are some great deals to be had, for every person who gets a great deal, there are many others who are spending money for essentially nothing.”

Since penny auctions’ 2008 inception in Germany as “entertainment shopping,” there have been government and consumer advocate investigations and criticisms. The Better Business Bureau reports complaints in the thousands, and in May, the Federal Trade Commission sued the owner of three penny auction sites for bilking customers out of $450 million.

How they work

Penny auctions work like this: Customers register on the site and use a credit card or PayPal to buy a bundle of bids, which are usually priced between 50 cents and $1 per bid. Then participants are free to bid on any of the dozens of products up for auction: electronics, gift cards or appliances. Each auction has an end time, and the highest bidder wins when the clock stops.

For example, if you were to make 20 bids for a KitchenAid standing mixer, which you eventually win on your $50 bid after paying 50 cents per bid, your final cost would be $60 (plus shipping). That is $10 for the bids, plus the $50 winning price. On the other hand, if you made 20 bids on the mixer but did not win, you would be out $10—the price of the bids. Some sites including QuiBids credit the bids you spend toward the final winning price, but for auctions won by other bidders, you lose all bids.

These sites make their money mainly from the bids purchased, which create the savings for the winner. A Consumer Reports story cited a $650 stereo receiver that sold for $57.74 on QuiBid. Because each bid increased the price by 1 cent, the 5,774 60-cent bids brought the site $3,464.40.

Most observers and critics agree this model is not unlike other forms of gambling—after all, you lose all chips wagered at the craps table unless you win. And like other forms of gambling, the house always wins.

Shopping or gambling?

Amanda Lee, who runs the blog and forum Penny Auction Watch, says that some penny auction aficionados insist on elaborate tactics that can be learned to outsmart these sites, but she is dubious. “A lot of people argue that this is not gambling because there is a lot of skill involved, but these sites really are unpredictable,” Lee says. “I’ve spent hours trying to win and eventually do lose.” Additionally, some less reputable sites have been known to employ technology that jacks up prices and outbids real human bidders.

Some more established sites offer a “buy now” feature—not unlike eBay’s option in which you can purchase an item for a listed price, no bidding involved. These can be a good deal but not always, says Penny Auction Intelligence blogger Louis-Marius Gendreau who is preparing to launch his own auction called Winzee.com. Gendreau recommends researching the product price on Amazon and Google—just as you would any retail website. Consumer Reports found the “buy it now” prices on penny auctions typically higher than other retailers.

Deal or no deal?

Gendreau’s top tips, however, are to pursue less popular items like smaller electronics and avoid the hottest brands like Apple and Bose. “The single biggest mistake people make is to jump on a dream auction item like an iPad or a plasma TV,” he says. “The competition on these items is horrendous, but the lesser-known brands are good bargains and ripe for the picking.” Gendreau has run statistics on thousands of penny auction transactions and says that the average product savings is 69.5 percent, while the average savings is a whopping 88.8 percent on products made by Logitech, the maker of affordable computer accessories like keyboards and webcams.

One major risk is investing in bids on an auction site that then goes under, never to ship won items or honor bids purchased. Lee says 150 penny auction sites have shut down in the past two years. She suggests reading over a site’s legal documents to get a sense of whether it is a legitimate business, and to run a Google search to see if others endorse or complain about the site. Both Gendreau and Giorgianni point to Lee’s Penny Auction Watch blog as the go-to source for information on the industry.

Another way to hedge against shaky sites is to be conservative about the number of bids you buy in advance, Gendreau says. That way you are not left holding unusable bids should a site suddenly disappear.

Manage risk and reward

Experts suggest these tips for maximizing penny auction fun and profit:

Set a budget. It is easy to get sucked into the gamble in an effort to make back the bids you spent only to win (or worse, lose!) by spending more than an item is worth—or more than you can afford.

Avoid addiction by setting a time limit to penny auction playing.

“You might have fun but you really need to understand what the limits are and have really low expectations to protect yourself,” Giorgianni says.

Beware of Penny Auction Sites That Cheat Bidders

Penny auction sites are becoming increasingly popular with eBay having lost faith. However, while you may find some genuinely awesome deals on these websites, there are quite a few scam websites on the rise. So, in order to avoid these pitfalls, you must first educate yourself in the art with which penny auction sites work. If you know how a typical or a genuine penny auction site works you may be able to differentiate a cheater from a real bidder.

On a typical penny auction site merchandise is offered for sale at bargain prices. A reliable site with a large number of users may have several auctions going on at one time; a maximum number of eight per hour. A new site may have one auction per hour of every day or if it’s really staggered than it could be just one auction per day. Some reliable websites may also feature one auction per hour just on principal. To bid on penny auction sites, users must buy bids and then try to outbid each other on a certain product being auctioned. On penny auction sites, unlike standard auction sites, the bid only increases the price by a penny. The more people bidding on a product, the more times they bid, the more time there is to bid. The last person to place a bid generally wins the product at a bargain price.

The basic issue at hand for a new penny auction sites is to get users. The more users they have the more products will be auctioned resulting in more money made for them. However, most penny auction sites start off with earning a lot of losses before they gain user attention. What scammers do is that they tend to create fake users on their websites and these fake users place fake bids on their products so that the final bidding price is very high. So, if a real user does buy a bid, he will either not be able to win the bid because of all the fake users or he’ll get the product at an absurdly high price. These scam sites place bids via software called ‘bot’ or through actual employees or friends, which makes these websites entirely useless when trying to win an auction.

Though it may seem impossible to distinguish between a real penny auction site and fraud, we have some pointers to help you recognize a fake. Firstly, you can check if the users who are bidding are all the same, that is, are there the same users bidding all day consistently. Secondly, by Googling a site’s traffic statistics you may also see if it’s fake or not. If it has a lot of bidding going on but the traffic is low then that site is definitely a scam and you better run away fast. Another step to take is to Google a site’s name along with ‘bot’ or ‘cheat.’ Or you can check websites like the Penny Auction Watch where frauds and other penny auction news is published regularly.

Are Penny Auctions scams or luck?

A penny auction site iѕ а great wаy tо get уour hands on a top brand product fоr juѕt pennies. Those whо havе worked tо understand hоw thesе sites truly work and have developed thеіr оwn strategy havе bееn lucky enоugh to use penny auctions sites tо buy all sorts оf desirable top brand products fоr јuѕt pennies.

Penny auctions sites oftеn hаvе ‘Big Users’ whо cаn sоmеtіmеѕ dominate an auction site. Below we have listed the top 5 tips to tаke on theѕe ‘Big Bidders’ аnd be successful.

Don’t Believe That It’s All About Luck!

You wіll nеed skill, judgement and and a money management/bid strategy if уоu wаnt tо win consistently and not blow уour bids оn sоmethіng you’ll never win!

Watch And Learn

Every penny auction site will work differently аs will other bidders. Make ѕure уоu take thе time tо fully understand how thе site works аnd hоw its users work. Watch hоw thе auctions work, watch оther users and trу to identify any patterns оr prolific bidders. Do уоur homework аnd lоok fоr what recently closed auctions have gone fоr so yоu сan get аn ideal price point to start bidding.

Bid When Others Are Not

If уоu cаn place уоur bids when othеr people аrе at work, оn the school run, asleep or elsewhere. On еvеry site there wіll be regular times and days when thе site іѕ muсh quieter whісh will dramatically increase уour chances оf winning and the price will оften be lower thаn at other times on the site.

Set Your Limits And Start Small

Start by setting уoursеlf a limit аnd sticking to it. So buy а bids package and don’t buy anymore thаt day. Then start small, bid on auctions that аrе leѕs popular аnd thе smaller ticket items. This іѕ а great way to gain experience and grab уоursеlf a fеw small bargains іn thе process.

Take Advantage Of Special Offers

Good sites оften havе special offers оr promotions on such аs 50% extra or Bids Back offers. These аre а great way tо stock up оn bids and wіll give уou mоrе firepower аt nо extra cost ѕо іt means уou hаve mоre chance of winning without spending morе money.