The Art of Undercutting

Undercutting is an art form in its own right. Some players undercut by 1 copper, others by 10-50% of the original price. Some use the Quick Auction addon which you can find detailed in this thread on the JMTC forums.

Many of you are probably wondering, well what does Markco do? Does he play the 1 copper fiasco and sit at his computer for hours waiting to be undercut so that he can return the favor? Does he always stick to a 10% reduction of price, hoping to infuriate his competition? Does he enjoy talking in the third person?

I'd have to say no to all three of those questions.

What I do is gauge supply and demand. Price is merely the bow with which I play the perverbial auction house violin. Undercutting is a powerful tool which will always negatively effect the price of an item. By being wise about how much and how many items you undercut with you can keep the price from dropping too drastically, or you can send it into the stinking pits of the earth, dragging your competetition down with you.

A normal undercut is what I like to refer to as a 5% cut in which I am selling one or two items and want them to be the best deal when I think they are going to sell rather quickly. A severe undercut is when I want to drive off competetition and force both the auctioneers and then buyers to grab my goods. I find that the latter is far more profitable because 1. people will not undercut someone who drastically goes below their profitable price range and 2. you're now appealing to another market entirely: your fellow auctioneers.

Take armor vellum III's for example, I can sell these for 2 gold each and still make a minimum profit. So I post three hundred of them for 2.5 gold each on any given day and every single one will sell in 24 hours. The next morning I wake up and there are my armor vellum III's sitting pretty and being sold for 500% markup from what I was selling them at. In comes another 300 armor vellum III's for the auctioneers and buyers to pick up. I make oodles and oodles of cash and the people buying me out relist for oodles and oodles of cash. I win, they win, and the consumers win. What's more, no one else has the cahonies to do the same, and if they do I will simply run the price into the break even point which I know they can't compete with. That's my favorite way to undercut.

Keep in mind that undercutting drastically effects supply and demand. If you want your goods to sell quickly and efficiently then do not preform a small undercut with so many items that supply gets too far ahead of the demand for the item. You'll be stuck with items that quickly become undercut and never sell. Remember that undercutting is an artform, so don't go in there wildly waving giant paint brushes while drawing stick figures on a torn canvas.

10 comments: on "The Art of Undercutting"

  1. I take the same approach and base my products pricing from the current market. Supply is up, price goes down and conversely if Demand is up so is price. Not a popular theory with many QA users who wish for sales based on their latest 1 copper undercut.

  2. Excellent points as usual Markco, however I do have one objection. Going in waving giant paintbrushes on torn canvas to draw stick figures can be useful. I successfully scared my competition because my new glyph alt came to the AH posting like an ADHD driven preteen (1c undercut here, 5% there, 75% over there) the point was to make the established scribes think "damn noon" and then they've taken much longer to react to my actual tactics than even I expected.

  3. Good article. Undercutting indeed is an art. Though I feel honored that you invited me a long time ago to write a guest-post and I suggested an article on undercutting, I ended up bailing out on you because I realized I would have spewed a load of garbage. Even though I learned a lot more about this art in the meantime, I'm still far away from being a master undercutter. The bottom line is that undercutting is situational and depends on what you want to achieve. You always have to adapt to changing market conditions and there's no clear-cut template for doing it.

  4. Darth don't underestimate yourself :)

  5. TonyRockyHorror said... November 8, 2009 at 6:04 PM

    This is pretty much what I do as well. I craft a batch of whatevers, then when posting, undercut by 5s the first time, and HOPE that they come back to undercut me. If they don't come back, I still sell first and win. But if they do comeback and undercut me by a small amount, I come right back and deep undercut down to a little bit over cost.

    Either way, I profit. If they try to undercut me again, I just buy their supply and save myself the time/hassle of crafting more supply because they are reposting so close to the cost of production that it doesn't matter to my bottom line. I then repost at my previous higher prices or higher.

    If they don't come back, I'm still selling higher than cost of production, so I just let it ride.

    I've frustrated a couple of competitors out of the market for long stretches on my server. They always come back eventually, but it takes longer each time. Meanwhile, I'm still making gold.

  6. Been using Auction Master for quite some time now, works great, scans the stuff I want to list, before allowing me to list. I normally pull 1-5% below everyone else. Gear goes for 500% bid - 700% buyout of the vendor price. If it doesnt sell, then it goes to my enchanter. If it's other stuff I haven't been able to sell, then I list for 50% of everyone else and let it go. If it still doesnt sell, then goes to the vendor.

    And yes, if there is no commonly sold trade items up to compare to what I am listing, then the items go up at 3x the normal AH price.

  7. To me, undercutting depends on the item that I'm posting. When I post cut gems, I'll undercut by as much as a few gold to get under the competition and cut into their profits if they decide to cancel and relist. With stuff that will always sell and is always in demand, like infinite dust, I don't bother undercutting at all. I just use the same flat rate every day, and let the nubs play the undercutting game. I'm often the most expensive lister but I sell 100% of it every auction cycle.
    And if I'm playing in a new market, I'll keep my cuts low-- in the silver region, so I don't hurt whoever thinks they own that market , AND so they don't buy me out out of spite.

  8. I personally list my vellums between 2.5g and 10g (that is threshold and fallback). Weird thing is that I hardly get undercut on them, no matter what price I set, so I keep posting them high. And they will always sell.
    And I don't mind that I don't sell 100 a day, since it requires me way more work to mill/craft than to just do a simple "post". So I prefer the ~5g profit over the ~50s profit, simply because it is 10x fewer needed to sell and mill for same profit.

    Don't get me wrong, I totally agree that the 1c undercutting is annoying and just not efficient. But I also use the QA undercutting strategy at the moment. Although I do let my undercuts vary between 5s and 1g, and also my threshold varies from posting alt to alt. My main aim is to get as much profit as possible, with as little effort as possible.

    I just think that undercuts should be based on the market itself, and not that you try to dictate the market with your undercuts.
    Or does that sound like nonsense?

    ps. Want to know the best thing that happened to me last two weeks? The fact that my main competitor (together we have like 60%+ of all the glyphs posted) reset the prices of glyphs by buying out all glyphs below 3g. Was really marvelous to see all glyphs sold (with profit, of course) and being able to post all glyphs at a much higher price again ;).

  9. Why do people have this thing about getting bought out? Like it's a loss.

    If the price is profitable, then you *want* to be bought.

    I don't care if they buy out of spite, out of calculation or need for the item, or just because they misclicked. If I listed it, that means I wanted the gold more than the item and I'm happy.

    In general, a 5-10% undercut is to drive the price down, because it is not profitable to resell for 5-10%, so you'd have to buy out not just me, but the people above me.

    A 20% undercut is ideal to sell quickly, because that's roughly where it makes sense to buy me out to resell for people who know the market. I almost never do this in a market I know though, unless the deposit is high. But then I usually offer the item in trade, because I hate listing a lot of stuff with a high deposit unless it sells like crazy, in which case I don't really need to resort to a 20% undercut.

    5% is a special strategy. Generally I don't worry too much about driving the price down. Other people will do it for me because so many people think it's a good idea to play with deep undercutting. I just follow the market down with a tiny undercut (usually 1s or so), then buy everything up and reset the price.

    The one time I will deep undercut is when I believe the price is wrongly high, way above the market equilibrium price. I do a lot of work in enchanting mats, and I'd rather have an expectation of selling 50 LBS/LPS/DS at the high end of market range over 48 hrs. than 10 at some ridiculous price. Because at high market range, I can sell about as fast as people will put on cheap enough to buy or I find stuff to de or otherwise arb. If I try to go too high, I invite competition and also people waiting out the ah, farming themselves, buying on trade, etc. There's an equilibrium that you start to see when you know a market. And when you really know a market, you can spot when the equilibrium is changing based on how much you sell and who undercuts you by how much.

    IMO, it's stupid to undercut a reasonably fair price in an active market by anything other than 20-25% or a negligible amount. 20% will sell much faster because it will sell to speculators. Cutting less than 20% will not, cutting much more leaves money on the table.

    Cutting in between serves to drive the price down, but if you are selling, that is not valuable. You will still be undercut again, unless you drive the price down to where there is no profit in the game for anyone, in which case you are wasting your time. Driving out competition costs too much time. I let myself be driven out. Then I come back. Sure you sell plenty while I'm gone, then I get higher prices when I come back. If you wish to continue working like a dog for mcdonald's wages by selling at miniscule profit -- you obviously need the gold more than me, market is yours. If you take advantage of my absence by raising prices, I will be back soon enough.

    People go too ape-brain over ah pvp and wanted to *own* markets, even supposed goblins. The market is free, nobody owns it. The only way you can drive me out and keep me out is by making the gold per hour in that market less than I'm willing to spend time making.

    So try lowering the price -- if you sell enough more that your gold per hour goes up, awesome, you win. But look at your gold/hour, not total gold. Suppose you make 1000g a day with a half hour crafting/listing by competing and splitting the market with me, or by infrequently listing many items low for me to buyout and resell (so we split the market vertically, you wholesaling and me retailing), driving the price down and keeping it there to get rid of me maybe has you making more gold, but if the price is lower, you are getting less gold per item, and probably making less gold/hour, since crafting is more time consuming than relisting.

  10. proverbial

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