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Penny Auction List recently interviewed Dagny, a bidder based in San Francisco, California, to learn more about her penny auction strategy.

Dagny is a numbers person at heart, so her responses to our questions offer some great insight into the wild world of penny auctions. You can read the transcript of our interview below.

Penny Auction List:When/how did you first hear about penny auctions?
Dagny: I had heard about penny auctions in general several times from colleagues of mine over the last year or so, but didn’t pay much attention. After hearing about them, the Baader-Meinhof Phenomenon took effect (as well as targeted cookie-tracking techniques advertisers use), and I started seeing penny auction ads everywhere. 99% off an iPad sounded pretty tempting, but I still wasn’t sold.

Finally, out of professional interest and at the request of a personal friend of mine and fellow statistician, I spent a few hours going over the PA model on I was intrigued, to say the least. As an unapologetic complete number geek, I decided to delve further into the business of being a bidder. As I crunched the numbers from the small amount of data I collected over 6 or so hours of logging iBid2Save, I found some glaring differences between the win/lose ratio of the “top 1%” and the rest of the bidders. I made it my goal to emulate their behavior, and the rest, as they say, is history.

Penny Auction List: What was your initial impression of penny auctions?
Dagny: Scam. For sure. This is not my fault, but the fault of the advertisers, and nearly all of them are guilty of it. 99% off an iPad will get people to click on your ad, sure, but only to see “what some fools are falling for” — they might spend a few free bids, but who is going to put money toward something that is so easily debunked? The only way anyone would believe you’re likely to get an iPad for 99% off is someone who doesn’t understand how a penny auction works, which seems to be a borderline unethical business practice to be taking advantage of. If your entire profit comes only from the uninformed, you are benefiting from ignorance, and thus must seek to hide valuable information from your bidders. That’s not a good place to be in.

Of course, the 99% off is calculated using the retail value of the item, divided by the final price of the auction. The deception occurs when the cost of the bids is not introduced into the equation. Though the final ending price of an iPad might be only $10.50, if I had to spend 5,000 bids to win the auction, at 60 cents per bid (a typical average) that’s $3,000 already spent into an auction, on top of the $10.50 ending price.
It took a bit to forgive the PA industry for this bit of short-sightedness, and I eventually decided to bite the bullet and take advantage of a particularly lucrative promotion iBid2Save was running to get my start in the PA world.

Penny Auction List: Did you make any mistakes as a new bidder that you would encourage others to avoid?
Dagny: The cardinal rule in Penny Auctions — have enough bids to matter. Everyone legitimately bidding has a finite amount of bids. If you want to be able to win items for cheap without it being chalked up to pure dumb luck, you need to show your willingness to spend bids. This means going above, perhaps well above the retail price of the auction, for the sole purpose of winning the auction, not getting the item for a discount. I’ve gone into the red on many auctions, but as I made a name for myself as one who isn’t likely to back down, I stopped getting bid against as much, and can sometimes pick up a win without any other bidders. On a site like iBid2Save with many thousands of free bids constantly floating around the ether, that’s not an easy feat to accomplish.

Penny Auction List: Does your monthly income limit your bidding habits? If so, how do you budget for your penny auction hobby?
Dagny: I’ve been very fortunate to have been part of a buy-out of a well-known company fairly recently, which has provided me with sufficient capital to finance my hobbies. I was entertaining spending this income in several ways, but I ended up using a sizable portion of it to finance the building of my bidding name. I decided to invest in my future in penny auctions for multiple reasons — first, it’s time consuming enough to be a pleasant distraction, as any hobby should. Second, aside from the obvious emotional high one gets when winning an expensive item on the cheap, I simply love numbers, and penny auctions are all about numbers. Every day I am coming up with new metrics that I want to log that may improve my game. This is what I live for!

Penny Auction List: What do you do with the items that you win?
Dagny: I’ve been sitting on them. I have a sizable stack of $20 giftcards now that I’ll use at some point, but at only $20 increments, I think it’ll be a hassle to redeem them, unless I can purchase something online. I’m not really interested in reselling or anything. If I do win an item that I have no need for, I’ll likely just gift it to someone at a birthday party or something similar, or perhaps give it to my parents. My mom still uses one of those crappy old generic MP3 players — she would be thrilled to have an iPod :)

Penny Auction List: What is your best win so far?
Dagny: I’ve not yet delved into the more expensive auctions — I’ve already worked out a systematic approach to doing so, and the time just isn’t right yet. I would be spending more bids than necessary, and would likely have to prove myself against a well-known power bidder spending thousands of bids to get to the point I need. While that would fast-track me to where I see myself in a few weeks, I would rather conserve my bids and simply focus on maintaining visibility for my name, so that when the time comes, even power bidders will know that I don’t intend to back off.

For that reason, my “best win” would be a $20 gift card I won with over ~550 bids, and spent over 11 times the value of the card. This is my favorite win because it’s the deepest anyone has ever made me go, and I came out on top. This is exactly what I expect and am looking for in this stage of my bidding progression.

Penny Auction List: In one word, penny auctions are…
Dagny: Fun!

Penny Auction List: Is there anything else you would like to share with the bidding community?
Dagny: Get the data. The data is the only thing that matters in this game. If you can accurately determine what time is the best to bid, what day, which site, which item, against whom… then you will be able to accurately determine your average chance of winning in any condition. Don’t rely on or expect luck — you affect your own chances of winning by your bidding behavior. If you envy a bidder for their win history, look at their bidding history and emulate it to the best of your ability.

Also, don’t overextend yourself. If you think there’s a fair chance that the auction you are considering bidding on will deplete your bids, don’t bid on it. It’s not a race. Build up your name first, then go back to the higher-priced items when people know that you mean business.

And finally, thank you! I’ve met so many wonderful bidders already who were very open with me and accepted me into their little community with open arms, thank you all so much!