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Which Auction Method Works Best?

  • Sash Neser
  • 6 February 2020
  • 5 minute read

 

Auctions are a tried-and-true method for fundraising, yet there are many variations on the traditional methods used so often by charities and digital auction houses like eBay. You may have heard of reverse auctions, silent auctions, all-pay auctions and interestingly even the humble raffle or a lottery is in economic terms an auction.

In reality, an auction bid or raffle purchase is a calculated attempt to secure the rights to something that is much higher in value than the cost committed.

 
There are endless variations to auction formats with variations including:
  • The size of the bid / ticket cost
  • The timing of when you may bid or buy
  • Whether all bids or just winning bids are collected
  • The visibility of other bids
  • How many bids or tickets are available

 

You might assume that the most commonly used auctions and raffle methods are the most effective, but are they? This was the focus of research detailed in the 2017 journal article titled Auctions for Charity: The Curse of the Familiar. The authors conducted a fascinating experiment to compare five fundraising methods. The authors collected data from fundraising events at 96 Rotary Clubs spanning 11 states in the USA. Each event used two bottles of wine valued at $35 as the prize available.

 

The five fundraising methods tested were:

  1. Live auction – Bidding conducted by an auctioneer with the highest bidder winning the prize.
  2. Raffle – You may buy as many $5 tickets as you like, and a single ticket is drawn as the winner.
  3. All-pay auction – Each bidder submits a single bid in an envelope. The highest bidder wins and all bids are kept.
  4. Bucket auction – This uncommon auction format was conducted by providing all bidders with a stack of poker chips each with a value of $5. The auction was completed in rounds with bidders placing one of their poker chips into a bucket that moved from bidder to bidder. To stay in the auction, you must continue to place a poker chip into the bucket each time it passes by. The auction is complete when there is only one winning bidder left to place a poker chip in the bucket. All bids are kept i.e. all bidders donate $5 for each chip they placed in the bucket.
  5. Hybrid version – both a raffle and live auction were conducted. The raffle was a 50/50 raffle where bidders could buy a single $5 ticket and the winning ticket received half the money raised by the raffle. A live auction to win the wine was then conducted following the raffle.

 

Before reading on, pick which method you believe would be the most effective, but think about it from three ways.
  1. Which would have the highest participation rate?
  2. Which would entice the highest bids per person?
  3. Which would raise the most money overall?
It is important for fundraisers to distinguish between participation, bid size and money raised. Ideally you want to maximise all three.

 

So what were the results?

 
You may refer to the table of results below, but a summary of findings is:

 

1) Participation rate

The humble raffle and the hybrid version were the highest with 80% participation rates. The bucket auction was lowest at 60%.

These findings seem to make sense. Entering a raffle is less daunting than the escalating rounds of competitive bidding in a bucket auction.

 

2) Bid per person

The bucket auction was by far the highest with the average bid at $35.58 which is amazing considering that the prize was worth only $35. The raffle was lowest with an average bid of $14.

This is an amazing finding. You would expect that in any format where you forfeit your bid/ticket price regardless of winning your bid would be lower. This was the case for the All-pay Auction and the Raffle, but the Bucket Auction was opposite. Participants bids were much higher despite knowing they would probably lose their bids. Perhaps there is some psychology at play because of the competitive nature of the Bucket Auction.

 

3) Overall money raised

Last, in terms of highest revenue, the Bucket Auction dominated, raising double that of the Raffle and All-pay Auction formats. It also raised four times more than a Hybrid Version and amazingly five times more than a Live Auction.

 

Table of Results:
 

Participation

(% of attendees that participated)

Average Bid

($ per participant)

Total Revenue

(Total $ raised)

Live Auction

64%

$28.22

$63

Raffle

79%

$14.08

$179

All-Pay Auction

68%

$8.98

$211

Bucket Auction

62%

$35.58

$393

Hybrid Version

78%

$28.42

$103

 

So what does this mean?

Overall, they found it that Live Auctions are not really too effective and Bucket Auctions are much better by comparison. I guess that is why the authors title their findings ‘The Curse of the Familiar’.

If you are a fundraiser planning your next big event, it’s worthwhile to consider running a Raffle to maximise participation and then replace your Live Auction with a Bucket Auction to see if you can supercharge your fundraising.

If you do go ahead and try a Bucket Auction or if you have ever run one, please let us know how it went.

We wish you all success in raising money for your cause.

 

Reference:

  • ’Auctions for Charity: The Curse of the Familiar’, Carpenter, Damianov & Mathews (2017).

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