Maybe you’ve heard the story about the One Red Paperclip.
“A young entrepreneur’s novel plan to get his own home has finally paid off – thanks to a red paperclip. Kyle MacDonald exchanged the practically worthless item online then kept trading for better things until he reached his ultimate goal – his own house.”
Over ten years ago, Kyle MacDonald posted a picture of a red paperclip on his blog and in the barter section of Craigslist. He asked if anyone wanted to make a trade for something “bigger and better.” And so it began. After a series of 14 trades, Kyle had turned his red paperclip into a two-story house.
Of course, Kyle’s results are unusual for someone aggressively bartering with practically worthless objects. Mr. MacDonald certainly benefited from some social media momentum and outlandishly favorable upgrades. Although it would be unrealistic for any of us to expect to achieve an outcome similar to Kyle’s, there is still a lesson to be learned from his story.
What Can We Learn?
These days, people tend to seek out transactions that will provide instant gratification. Clever marketing that targets consumers’ desire for instant gratification can be a powerful tactic that companies employ everyday.
In today’s mass consumption society, companies work to open up your wallet by disguising the actual price you will pay for their goods and services.
“3 easy payments of $29.99” interacts with the pain centers in our brains much differently than simply stating a price of “$90.” Why do you think the used car salesman insists on focusing on your monthly payment of $239 rather than the $14,000 principal amount he wants you to agree to? Even grocery stores conceal a product’s price per ounce in tiny print compared to their “math equation sale” of 5 units for $9.49.
The common denominator in these examples is that the consumer must take at least one additional step before fully understanding what they will pay for a product.
Why do companies and salespeople do this? Because it works. Most consumers aren’t interested in taking that additional step. That extra work is in conflict with the instant gratification mentality.
For most consumers, it’s a simple question: “Do I want this enough to pay X?”
By not taking the extra step, the consumer often makes purchasing decisions without considering all of the information available to them and ignores whether they are actually getting a good deal or making a wise financial decision.
What does all this have to do with bartering?
We can apply the same basic principle to our bartering transactions. There aren’t fixed dollar values or prices with bartering. Bartering transactions are the ultimate example of “Do I want this enough to pay X?” Except instead of X being a dollar value, X is another object.
So, the question is more like “What do I want more?”
This question removes rationale value analysis from the equation and invites irrational short-term logic. Moreover, the more dissimilar the two items are, the better chance there is for one buyer to massively upgrade.
Take the red paperclip story, for example. In one of Mr. MacDonald’s trades, he exchanged an afternoon with Alice Cooper for a KISS motorized snow globe. There’s no way the snow globe owner could borrow from his knowledge of his own object to help him evaluate what an afternoon with Alice Cooper may be worth.
To figure out what it might be worth, he would have to do some outside research. This additional step Is rarely explored in lieu of “I want that more than this.”
How I’ve Used This Approach Myself
I’ve seen firsthand how the average consumer fails to consider the disparity in value between two separate objects.
Most of my bartering exchanges have taken place on Offer Up. Here’s what I’ll do:
Before finalizing my post, I write a detailed list of any items I would consider trading my object for. Even before I write my list, I carefully discern the values of the items I deem acceptable, making sure that all the items are significantly more valuable than what I am selling. That is the step few barterers ever take the time to complete.
By providing a list of common items that people often own, I’m encouraging prospective barterers to simply ask themselves whether they want my item more than one of theirs. This removes dollar amounts from the equation.
It’s important that your list of acceptable items is diverse and unrelated to the item you are offering for sale. I’ve found that this greatly increases your chances of securing a significant upgrade in value.
Bartering Tips in Action
A while back, I picked up an old Smith Corona Typewriter from Goodwill for $6. I listed the typewriter on Offer Up for $250 dollars or trade. (It is worth noting that my asking price is excessively high. I do this to deter cash transactions, which also allows prospective buyers to feel like by bartering with me they can get the typewriter at a hefty discount.)
Here’s the list of items I would consider in exchange for my typewriter:
- Galaxy S5
- A set of golf clubs
- Stainless steel knife set
- Mini fridge
- X-Box 360
- PlayStation 3
By bartering for any of these items, I’d not only receive an item that is more valuable than an out-of-service typewriter, but I’d also acquire an asset that has significantly more liquidity.
Here’s another important point. In my experience, people are far more willing to trade for a novelty item than to pay for it.
Picture a husband telling his wife, “Hey honey. I just spent $250 on a decorative typewriter.” Now compare that to, “Hey honey. Check out this typewriter I got for my old golf clubs I haven’t used in years.” I think we would all prefer to part with something we don’t want or need any more rather than forking over actual cash. That’s why bartering can work so well.
In my situation, I ended up trading my typewriter for a Titleist golf bag that I valued at more than $130. I would have accepted $50 cash for the typewriter, which would still have yielded an excellent profit of $44 profit after accounting for the initial $6 purchase price at Goodwill. But by bartering, I was able to dramatically increase my return. And on top of that, I’m an avid golfer so I had a real use for the golf bag. The exchange was more than a mere swap of items for the sake of getting something slightly more valuable. It also had functionality for me.
The difference between evaluating small transactions in a cash mindset versus a barter system may seem minor, but over a long period of time it can have a significant impact on your financial standing. By recognizing that product-for-product trades can offer you a significant opportunity to increase your position you will continuously raise your efficiency as a consumer. I’m always looking for ways to improve my life. Bartering is just one of any infinite number of ways to do just that.
I don’t expect anyone out there to go from a paper clip to a house, but maybe you’ll take this information to trade that table wasting space in your garage for a flat screen TV you can use in your man cave. Have you had any success with bartering in the past? Or are you planning to test out these strategies? Let us know in the comments! We’d love to hear from you.