Imagine working your way through a ridiculously difficult obstacle course with lots of twists and turns, and getting a glittering prize at the finish line. Shopping for the year's "must-have toy" during the holiday season is a lot like that. In previous years, the glittering prize was the Tickle Me Elmo, or the Furby, or the Tamagotchi Pet.  During the 2016 holiday shopping season, it was the Hatchimal.

Hatchimals are interactive, fuzzy toy creatures. They come in five types with names like Draggle, Penguala, and Bearakeet. The Hatchimal hatches out of an egg after the child has given it a lot of attention and effort; even after that, it requires frequent nurturing and training to perform new activities and tricks. If you are one of the few people who haven't still encountered the Hatchimal in some shape or form, see the video below.

The Hatchimal was a huge bestseller during the 2016 holiday season. Because of the colossal demand, many parents found it virtually impossible to buy the toy in a store. So they turned to secondary markets like eBay, paying significantly more than its $60 price tag.

In a recent post, I wrote about the optimal time to buy a bestselling toy like the Hatchimal during the holiday season on eBay. This was based on an analysis that I conducted of 34,000 plus eBay Hatchimals auctions. In this post, I want to share other interesting findings from that report. Based on lessons learnt, I also want to give readers five tips on how to shop smart and spend less for hard-to-find, must-have toys during the holiday season.

Dataset details

Christmas gift by Viktor Dobal Flickr Licensed Under CC BY 2.0
Source: Christmas gift by Viktor Dobal Flickr Licensed Under CC BY 2.0

First, here are some relevant details about the dataset on which these findings and tips are based. To assemble my dataset, I used a web crawler during late December 2016 and early January 2017, and gathered information on completed, successful Hatchimal auctions (i.e., auctions that received one or more bids) by sellers located within the United States. The time period covered was from October 13 - December 24, 2016. After excluding Buy-It-Now auctions, auctions listed by international sellers, those without clearly stated shipping charges, and auctions that also included other toys like the Nintendo NES besides Hatchimals, I ended up with a total of 34,657 auctions in my dataset. This discussion that follows is based on this set of auctions. (If you're interested, the entire report with even more details of the method, the analysis, and all the results is available on SSRN here).

Findings on how to shop smart and save money

Here are the five findings from the analysis that provide tips on how to shop smart and save money when buying a bestselling, hot toy during the holiday season.

1) Buy early or late in the holiday season, avoid the week before Thanksgiving.

As I discussed in my earlier post, the best times to buy the toy on eBay were either during October or in early November, or after December 15. The worst time to buy was the week before Thanksgiving, and the worst day, when prices were highest, was Thanksgiving day. A detailed discussion of purchase timing is in my blog post "When is the best time to buy the holiday season's hot toy?"

2) Avoid buying store-exclusive versions of the toy if at all possible.

Store exclusive products have become a popular trend for toys and fashion. For example, Jennifer Lopez sells her line of clothing and décor only through Kohl’s. So if you like J-Lo and want to buy her brand, you have to go to Kohl's. As this example illustrates, store-exclusive products create differentiation, reduce purchasing based only on price, and give shoppers a strong reason to go to the retailer's store. The company behind Hatchimals, Spin Master, introduced three store-exclusive versions of Hatchimals: Burtles were only sold in Walmart, Owlicorns in Target, and the Bearakeet in Toys R Us. The other two, Draggles and Pengualas, were sold everywhere. The next graphic shows the prices for these different versions in eBay auctions.

Prices for Store-Exclusive Hatchimals by Utpal Dholakia
Source: Prices for Store-Exclusive Hatchimals by Utpal Dholakia

My analysis showed that shoppers paid 4-5% more for the Walmart and Target versions, and they paid a whopping 23% more for the Toys R Us version. The tip for smart shoppers is clear: Unless you are a collector, or a rabid fan of a particular store, why pay more money for what is essentially the same product? The differences between Bearakeets, Pengualas & Owlicorns are all in appearance. The hatching and nurturing processes are exactly the same. So the tip is to buy the generic version rather than store-exclusive versions of the toy if you want to get the best price.

3) Bid on auctions that have free shipping or low shipping charges.

Economic research shows that eBay shoppers behave irrationally and pay more in total when the auction’s shipping charge is high. In my analysis, too, this was the case.

Final Auction Prices for Different Shipping Charges by Utpal Dholakia
Source: Final Auction Prices for Different Shipping Charges by Utpal Dholakia

As the figure shows, there was an increase in price per Hatchimal with increasing shipping charge. If you won an auction with shipping charge less than $5, on average, you paid about $10 less than if you won an auction with a shipping charge of more than $15.

4) Bid on auctions listed by sellers with low (but not zero) reputation scores.

When a must-have toy (or any other product, for that matter) is in demand, many people tend to get on the bandwagon to make money. While my analysis showed that a vast majority (close to 92%) of sellers were amateurs, there were 274 sellers who sold more than 10 Hatchimal auctions. The seller's reputation score also matters where final auction prices are concerned. In one study conducted by economists Paul Resnick, Richard Zeckhauser, John Swanson and Kate Lockwood, sellers with high reputation scores earned 8.1% more on the same items than an equivalent seller with a new identity (and zero score). Other studies have shown similar results.

I used the seller’s reputation score and created ten approximately equally sized categories, where 1 = least amount of eBay selling experience, and 10 = most experience. The next graphic shows the average final price per Hatchimal for these ten seller groups.

Auction prices for different seller experience levels by Utpal Dholakia
Source: Auction prices for different seller experience levels by Utpal Dholakia

Here, too, results are consistent with the economic research. There is more or less a monotonic increase in price paid by shoppers as the eBay seller’s experience increases. When compared to buying from the least experienced sellers (those with a reputation score of less than 2), buying from the most experienced ones (with a reputation score of 832 or higher) results in a price premium of around 13.4%. So the smart thing would be to shop from sellers with low experience. If you take the chance of buying from someone who is brand new to eBay, you will likely get the best price (although this will also be risky because the seller has no track record).

5) Buy multiples in a single "lot" auction instead of bidding on several single-item auctions.

Many people may want to buy 2,3, 4, or even more Hatchimals to give as gifts. On eBay, while most auctions are for a single Hatchimal, there are a fair number of "lot" auctions in which the sellers sells multiple Hatchimals. This next graphic shows prices for these different types of auctions.

Auction prices by number of toys in the auction by Utpal Dholakia
Source: Auction prices by number of toys in the auction by Utpal Dholakia

Single Hatchimal auctions had the highest price of $144.15. Shoppers got around a 7% discount (per Hatchimal) if they purchased two Hatchimals, and this discount increased as they purchased more quantity. The tip for smart shopping is that if you want to buy multiple must-have toys, bid on lot auctions instead of single-toy auctions, and  you will get a discount by purchasing them all at once.

Here’s one final interesting result from the study. Of the 16,000+ sellers in my analysis, more than three quarters only sold one or two auctions successfully over the holiday season, suggesting that most sellers were enterprising individuals looking to make a few extra bucks. And contrary to media portrayals of people striking it rich from the Hatchimal craze, I estimated that on average, after covering their costs, each seller pocketed around $150.

While buying expensive, in-demand hot toys like the Hatchimals to give as holiday gifts is not necessarily the most frugal shopping decision, shoppers can still shop smart and save money (relatively speaking) by bidding judiciously on eBay.

About Me

I teach marketing and pricing to MBA students at Rice University. You can find more information about me on my website or follow me on LinkedIn, Facebook, or Twitter @ud.

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