How Penny Auctions Work
Don't make the mistake of thinking that penny auctions work like eBay. The only part of a penny auction that is slightly like eBay is when a particular penny auction site offers a "Buy It Now" option, and the similarity ends with the name. Not every penny auction site actually offers this option, which I will talk about in a minute.
The most significant difference between penny auctions and regular bid auctions is that you have to buy the right to bid! This is accomplished by purchasing credits that you will use to bid. Credits vary in price, but may cost anywhere from 25 cents to 75 cents or more. Many sites offer discounts if you buy packages of bid credits, and others offer a certain number of free bids to get you started.
Most penny auction sites start each auction at $0, and every time there is a bid the price of the item goes up by $0.01. Depending on the penny auction site, the the increase in price could be anywhere from $0.01 to 25 cents every time a bid is placed. Every time a new bid is placed, the time remaining in the auction is extended, typically less than 10 to 20 seconds. Some sites will add as many as 30 seconds to the clock and others have turbo features where only 5 seconds is added to the clock. The last bid before the clock runs out wins, just like in a regular auction. After you have won, you can pay immediately and provide your shipping information.
Plundr, QuiBids and BidRivals offer a "Buy it Now" option. If you were bidding on an item you wanted badly enough to pay the full retail price, "BuyIt Now" could make sense for you. Some sites will deduct the value of your bids from the total cost of the item, giving you an instant discount. Let's say you bid 25 times on a $100 gift card. Your bids were $0.50 each, so that would be a total of $12.50 that you spent on bidding. In a "Buy It Now" scenario, you could purchase the gift card for $100 - $12.50, for a total of $87.50.
The Total Cost
With a penny auction, you could win a great item for a tiny price - but be sure you don't forget to include the cost of the bids when figuring how much you really paid. Let's take our example above of the $100 gift card. If you win the $100 gift card for $15, don't forget the 25 times you bid on it that cost you $12.50. That makes the total for your gift card $27.50 - still a fantastic savings, but an expense that is easy to forget about when figuring up your real costs and savings.
Your Best Strategy
The best thing you can do for yourself is set a budget that you are willing and able to afford, and then stick to it. Don't bid on things that you don't really want just because they are cheap. It doesn't matter if you saved 75% on an item worth $500 if you cannot actually afford to spend the $125 + bids that you paid.
If you create guidelines for yourself and stick to them, you can have great fun and save a boatload of money on products you might not ever consider purchasing otherwise.