This is a Guest Post by Thies Lindenthal, Sedo.com’s product manager for domain pricing, and a visiting scholar at the Massachusetts Institute of Technology (MIT) Center for Real Estate. Mr. Lindenthal holds a PhD in Real Estate Finance from Maastricht University, and frequently publishes on both housing markets and on Internet domain names as a form of ‘virtual land’.
Dr. Lindenthal developed IDNX, the first scientific grade price index for Internet domain names.
Here is the Dr. Lindenthal post:
Pricing domain names is as much an art as it is science.
Though opinions differ on the merits of automatic appraisal services (at Sedo, we believe in the benefits of fast, automatic price suggestions), statistics show that one very simple strategy speeds up sales.
The retail world has known for a long time that using charm prices—for example, $499 instead of $500—increases sales and helps a consumer make a faster purchasing decision. Extensive research in retail and housing markets also shows that charm prices are not an urban legend, but a legitimate sales tactic: consumers really do react positively to the “odd” 99 prices.
We wondered whether domain owners might also benefit from this nugget of retail psychology, so we took a closer look at Buy Now domain listings with different price points and the amount of time those listings spent on the market, using Sedo’s sales data as our basis.
A one-off comparison of average time-on-market for domains that ultimately sold for $500 rather than $499 shows that domains priced with a round number took, on average, 22% longer to find a buyer on Sedo’s marketplace.
However, this figure is too high for a handful of reasons.
Firstly, this increase in sales velocity could be caused in part by aggressive sales strategies used by domain investors. Those sellers who often list their domains with low prices and do a lot of additional marketing might also use charm pricing already – which makes it difficult to disentangle the different factors.
As a means of controlling for differences in sales strategies, we compare time-on-market for domains listed by sellers who use both round and charm prices. This ensures a fair comparison. In the case of these domains, we can assume that those with round prices and charm prices are promoted in the same way and that the seller has applied a similar pricing rationale.
Taking it one step further, we look into difference in the quality of the domains in each seller’s account. By using Sedo’s automatic appraisals, we can tell whether a seller is over- or underpricing specific names in their portfolio. This factor takes into account different strategies used by individual sellers.
After fairly accounting for these factors, the empiric exercise shows that charm prices clearly increase the sales velocity for Buy Now domain listings. On average, a Buy Now domain with a charm price will spend 16% less time on the market in comparison to a domain with a round price.
This compelling result has also been put to use in Sedo’s new Big Data Pricer. After calculating the price suggestion for a domain based on real sales data, the Big Data Pricer optimizes that suggestion by selecting the closest relevant charm price. This ensures that our sellers have the best chance of selling fast within the desired price range for that name. Sometimes it just takes one dollar to help sell faster.
A final recommendation is that our sellers should tailor the currency that they’re listing their domain in to the most likely buyers: if the name is country- or language-specific, then take the price suggestion, convert it into the most relevant currency, and then use the charm pricing principle to make the best of that domain!
Get more information on pricing and domain value at Sedo.com/IDNX
I agree with Dr. Lindenthal comments. We price our domains in odd numbers as well even though we don’t do Buy it Now pricing when we respond to offers. I think this is something that Mike Mann has also preached for years and