Leveraging eBay's Marketplace to Grow Your E-Business
Web Commerce Today, Issue 53, December 15, 2001
Lots of merchants have learned how to sell products online in the last few years, but many haven't considered extending sales through another channel -- eBay. (I am focusing on eBay since it is by far the largest of the consumer auctions).
This article isn't designed as a primer on eBay. (For that, see my review of Make Your Net Auction Sell! by Sydney Johnston in this issue (www.wilsonweb.com/reviews/mynas.htm). Rather, I want to help existing online merchants explore ways that eBay can help them increase sales and broaden their customer base.
A Huge and Active Marketplace
Most website owners struggle to drive enough traffic to their site, since sales are usually directly proportional to traffic. But eBay's marketplace operates differently from standalone websites. In July 2001, eBay reported a community of 34 million registered members, many of whom regularly search on eBay for products they're interested in buying. Because of this active community of buyers, customer acquisition costs are quite low.
eBay is like a huge electronic flea market with thousands of willing buyers milling around exhibiting tastes for the exotic. eBay adds a structure to facilitate bidding and buying, ground rules to keep the process fair, and published feedback of praise and complaints both about sellers and buyers providing lots of motivation for honest dealing.
eBay is also an international marketplace, with eBay auctions now working in Argentina, Australia, Austria, Brazil, Canada, France, Germany, Ireland, Italy, Japan, Korea, Mexico, the Netherlands, New Zealand, Singapore, Switzerland, and the United Kingdom.
eBay has offered various kinds of auctions since 1996. These are mainly 3, 5, 7, and 10-day auctions, but they also include Dutch auctions (where all the items go for the same price) and reserve auctions (where the seller's hidden minimum price must be met for a bidder to buy the item). There are strategies, advantages, and disadvantages for each of these approaches, and power sellers know all the angles.
Some buyers become impatient waiting to see if they'll win an auction. They want to buy now and move on. So eBay instituted a "buy it now" 
fixed price as well as eBay Store (www.ebaystores.com). This is a home base where eBay merchants can display all their goods in categories -- both fixed price and auction items. eBay is now moving into the kind of e-commerce space that Yahoo! Stores, Miva, and ShopSite have occupied for years. In July 2000, eBay acquired Half.com that allows sellers to list books, music, DVDs, VCRs, computers, software, electronics, sporting goods, trading cards, and "everything else." At Half.com, the sales transaction is handled entirely by the company; sellers only ship the items and receive payment monthly. Fixed-cost items at eBay and Half.com currently account for 16% of sales.
Why eBay Is So Important to Merchants
eBay provides an excellent marketplace for businesses selling collectibles, one-of-a-kind items, used items that retain their value, and end-of-life, overstocked or liquidated items. One of the difficulties that both online and offline retailers have is recovering the costs of returned, unsold, or refurbished merchandise. Rather than the small return they get by selling to third parties that buy surplus goods for resale, some companies are finding they can sell the products themselves on sites such as eBay and retain profits. Savvy merchants also realize that eBay enables them to determine the market price for new products they are introducing.
There seems to be three main kinds of sellers at eBay: (1) people emptying their garages and making a little money, (2) others who are seeking to run a small business entirely on eBay selling various odds and ends, and (3) existing businesses that are selling either part of their line or surplus items on eBay.
Some Example Multi-Channel Sellers
I'm particularly interested in how existing online and brick-and-mortar businesses are using eBay. Some of these have an eBay presence only, but mostly I have highlighted below those with brick-and-mortar businesses and standalone website sales channels, too. Such multi-channel sellers stand out, since by far the majority of eBay sellers sell only on eBay and are not trying for multi-channel sales (unless the occasional garage sale or collectible trade show). I encourage you to browse these stores and examine the ways that they are extending their sales into new channels.
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MovieGoods. "The web's largest selection of movie posters, lobby cards, stills, and more. We have over 700,000 movie art items from every era - from the 1950's to today's latest Hollywood releases. This is THE place to shop for movie memorabilia." eBay username: "auctions@moviegoods.com". This is a recent start-up designed from the beginning to sell both on eBay and in a webstore. eBay Store (www.ebaystores.com/store=20024242). Standalone site (www.moviegoods.com). - Vinnie's Reconditioned IBM Typewriters. "We sell reconditioned IBM Selectric III's & II's typewriters." eBay store only (www.ebaystores.com/id=21817945). Typewriter prices in the $200 to $300 range. Apparently a typewriter repairman who buys old machines, reconditions them, and sells primarily online.
- www.pcexchange.net "The refurbishing and liquidation center for Merrimak Capital Company LLC, one of the country's leading leasing agents for computer equipment." eBay username: merrimakeast. eBay storename: www.pcexchange.net. eBay Store (www.ebaystores.com/id=13129382). Standalone Store (www.pcexchange.net).
- TAGEX Restaurant Supply. "Furniture, fixtures and equipment for the restaurant and retail industries. TAGEX is a division of The Advantage Group (TAG). TAG provides Supply Chain Management, Facility Management and Asset Disposition Services to companies in the Restaurant and Retail Industries." eBay store only (www.ebaystores.com/tagexrestaurantsupply).
- JEMS ONLINE2. "#1 seller of Digital cameras and collectibles on eBay for the past 2 years." eBay store only (www.ebaystores.com/jemsonline2)
- www.nationalprojector.com. "The discount projector superstore." Does not have an eBay store, but maintains a number of eBay auctions. eBay username: "www.nationalprojector.com". Standalone site (www.nationalprojector.com)
- Symmic. "We are distributors offering wholesale pricing on Computer Accessories, Heavy Duty Power Tools / Equipment, and Ladies Lingerie." But doesn't offer any telephone numbers. Looks like main business is on eBay. eBay Power Seller, with 27,648 positive feedbacks. eBay Store (www.ebaystores.com/symmic). Standalone site (www.symmic.com)
- Sci-Tech Surplus. "We buy and sell technical, scientific surplus and salvage equipment, component and supply." Located in Quebec, Canada. eBay Store (www.ebaystores.com/store=20220890). Standalone Site (www.parizeau.ca)
- Hard Drive Outlet. "Offers a wide variety of computer related components, full systems and laptops at the lowest possible prices." eBay Store (www.ebaystores.com/store=6292478). Standalone site (http://www.HardDriveOutlet.com)
- The Econo Zone. "The biggest and best Photo Bargains around." "The Econo Zone is an on line catalog of EconoCommerce, which has been a wholesale converter and distributor for over 22 years, and in cyberspace since 1996." Located in White Plains, NY. eBay Store (http://www.ebaystores.com/econobay). Standalone site (www.theeconozone.com)
- Jim Laabs Music (www.jimlaabs.com. eBay username: jimlaabs) sells all kinds of musical instruments, from pianos to brass, guitars to woodwinds. They are a brick-and-mortar music store located in Stevens Point, Wisconsin. The website shows photos of various instruments and an 800 number, but doesn't provide an e-commerce function to make purchases online. Most eBay listings seem to be for new, not used items. They have no eBay Store.
As I consider what these sites have in common, I see bargain prices for new items or market prices for hard-to-find used items. Most items sell for $50 to $100 or more and allow enough mark-up to produce a good profit.
eBay shoppers can either search for a product by name, or browse by category. Unfortunately, eBay search does not match on partial words. For example, "guitars" will not find "guitar," and vice versa. Here are the top-level categories, each with several levels of subcategories: Antiques, Art, Baby, Books, Business (Office & Industrial), Cameras & Photo, Cars, Trucks, Parts, Clothing & Accessories, Coins, Collectibles, Computers, Peripherals, Consumer Electronics, Dolls & Bears, DVDs & Movies, Hobbies & Crafts, Home & Garden, Jewelry, Gems, Watches, Motorcycles, Music, Musical Instruments, Networking & I.T., PDAs, Pottery & Glass, Real Estate, Timeshares, Sporting Goods, Sports Memorabilia, Stamps, Tickets, Tools, Toys, Travel, TV, Video Games, Everything Else.
eBay vs. Webstore Sales
Some of the sellers I looked at have had successful businesses on eBay for several years. They've tailored their products to fit the eBay shoppers and are prospering. So why would they need a standalone web store such as Yahoo! Stores or Miva Merchant? Money. eBay charges both a listing fee and a transaction fee. Many e-commerce sites, on the other hand, only charge a flat fee. Here is eBay's basic price structure:
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eBay Auction Prices |
|
|
Insertion Fee (per auction) |
30¢ and $3.30, depending on the opening bid |
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Final Value Fee |
1.25% to 5% of the final sale price |
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eBay Store Prices |
|
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Insertion Fee (monthly) |
5¢ per item (regardless of quantity) |
|
Final Value Fee |
Same as auction prices |
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Monthly eBay Store fee |
$9.95/month |
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Half.com |
|
|
Insertion Fee |
None |
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Sales Commission |
15% on items under $50 |
If you have a lot of items for sale on eBay, the insertion fees can eat up your profit -- especially with lower price items that don't sell rapidly. And eBay gets a small piece of your final sales price, too. That's the cost of selling with the advantages of a superior marketplace.
The best of both worlds would be to gather the eager buyers that congregate on eBay, but make the actual sale on a standalone website where the final transaction costs you much less.
Rules against Webstore Promotion to eBay Shoppers
In order to retain their own income, eBay has instituted several rules to hinder merchants from inducing eBay shoppers to make the final transaction off the eBay site. eBay's Linking Policy (http://pages.ebay.com/help/community/png-links.html) regarding linking to non-eBay sites is complex and explicit -- and, as I understand, sporadically enforced. My reading of eBay's policies allow a link to a non-eBay website from an eBay "About Me" page. Prohibited links include "Links to web pages that offer to trade, sell or purchase goods or services outside of eBay. This applies whether it is a static URL or an active link." Note that this definition of a link prohibits a URL, not a domain name.
I don't want to encourage sellers to commit fraud against eBay. They are entitled to their share of fees from sales initiated or completed on the eBay site. But they are not, in my opinion, entitled to prevent sellers from letting shoppers learn about their non-eBay channel sales. I observed two ways that sellers are informing shoppers of their non-eBay web presence.
a. Using an E-Mail Address or URL as the eBay Username
Several companies are using a URL or an e-mail address as their eBay username or store ID name. For example, www.pcexchange.net is the eBay username of PC Exchange. Arguably, this could be construed as a URL (though technically it would need an additional http:// or ftp:// to constitute a complete URL or Uniform Resource Locator). This may be skating close to the line. MovieGoods, on the other hand, uses an e-mail address as its eBay username: auctions@moviegoods.com. It isn't a URL, but a reasonably intelligent shopper could deduce that more information and products just might be located at http://www.moviegoods.com. But since then eBay has tightened up and no longer allows either e-mail addresses or URLs for new usernames (http://pages.ebay.com/help/basics/f-faq-userid.html#3).
b. Standard graphics which include an e-mail address
Webstore Promotion to eBay Customers
Though eBay clearly prohibits promoting non-eBay websites to shoppers, they don't own the customers after the sale. Once a purchase is made, the seller is e-mailed the buyer's contact information. In a savvy merchant, this should cause sirens to sound and lights to flash.
a. E-Mail Response to Successful Bids
You can answer e-mails to winning bidders with information about your website. You might let these new customers know about other products and specials, and extend an offer that if they order additional products from your online store within the next 24 hours, you won't charge any additional shipping. (Incidentally, eBay prohibits collecting e-mail addresses of runner-up bidders for later e-mailing.)
b. Using Loss Leaders on eBay to Get Customer Names
If I had the kind of product that lent itself to eBay sales, I'd be offering low cost products on eBay that would target the same people who might be interested in more expensive products for sale on my website. Just as supermarkets that offer items on sale at or below cost to get you into the store, you can sell products at or below cost on eBay with the purpose of making your profits on "backend" sales to this customer in the future. Just be careful to test this approach thoroughly before rolling it out full scale.
Leveraging Your Customer E-Mail List
Once you've made a sale to a buyer, you have developed a "relationship" with him or her. Blasting lots of e-mails to these new customers will destroy the relationship, and eBay requires the customer's permission (http://pages.ebay.com/help/community/png-priv.html#5). But you'll want to e-mail these customers regularly (monthly, for example) to let them know about new products, industry information, specials and sales, etc. You can become their trusted friend who'll keep them abreast of the field and offer tips and secrets to help them use their products better and be a wiser shopper in the future. The real gold in e-commerce is NOT the first sale, but the second, third, and fourth sales -- and many of those sales can be conducted without the costs of eBay transactions.
Inventory Juggling and Other Problems
Selling at eBay AND in your online store can create some problems, chief of which is keeping inventory information up-to-date in both locations. If you sell all 15 of your available widgets at eBay, how will you show shoppers at your online store that you no longer have them available for sale? How do you update inventory in the online store and visa versa. While lots of tools are available to help keep track of sales (1) at eBay and other auction sites and (2) in your online store, the tools that will help you coordinate both are extremely limited. Plan on some manual work. (See "eBay and Auction Resources and Tools" www.wilsonweb.com/wct5/ebay_resources.htm).
Another multi-channel problem is giving proper credit to affiliates when the final sale might be made on the standalone website, the eBay site, or over an 800-number. You might think it's just more money in your pocket if affiliates don't have to be paid, but that's very short-sighted. Affiliates are motivated to promote your site only when they are rewarded.
Testing the eBay Marketplace
Should your business sell products on eBay? Internet performance consultant Mark Welch says, "Almost any online store can benefit from a presence on eBay because eBay gives you access to a huge multi-million pool of buyers." While collectibles, rare one-of-a-kind items, and liquidations are a natural for eBay, many eBay habituates will check the price of a new item on eBay before they look elsewhere, to see if they can get a better price on eBay, so don't neglect to test sales of new items.
The best way to find out how effective eBay is for your business is to give it a try. Start-up costs are very low -- but start carefully. "MovieGoods.com spent three months selling movie posters under another name," Mark Welch told me, "to make sure we wouldn't make mistakes that generated complaints that would burn our name with the feedback rating." Conduct tests to see if there is a market out there for you. Try different types of products, different wordings, etc., to see what sells and what doesn't.
If you've had trouble promoting a single-product website, such as to sell a "how to do it" e-book, consider listing it on eBay with key search words in the listing title. It could become a major sales channel with low promotion costs.
As you are learning to make money with e-commerce on the Internet, don't neglect the possibility of auctions as an important sales channel for some or all your products.
