A More Complete Explanation of the Lower Average Selling Price on eBay

Posted on July 17, 2008. Filed under: eBay | Tags: , , , , , , |

 

The average selling price on eBay has dropped.  That is not news to those of us who sell on eBay but it is the news that eBay publicly reported yesterday in their second quarter earnings broadcast.  eBay attempts to explain the reasons for the drop in average selling price (ASP) during that broadcast:

“Our average selling price declined by 6% compared to last year due to three reasons: first, specific promotions we ran in Germany brought a significant amount of low-priced inventory onto the site, reducing ASPs; second, we’ve enhanced safety and reduced fraud on our sites, and we’re doing a better job of removing bad, high ASP listings before they convert to GMV; and third, we believe the slowing economies, particularly in the U.S. and the U.K., have caused consumers to trade down to lower priced items. ”

Note that the full transcript can be read here:

http://seekingalpha.com/article/85345-ebay-q2-2008-earnings-call-transcript?&page=1

From an eBay seller’s perspective, I’ll give my analaysis of why I think the Average Selling Price on eBay has dropped.

1. The economy
Yep, I agree with eBay on this one.  The U.S. economy is in trouble and with people spending more money on gas and groceries, buyers settle for less expensive items in a satisficing effort to still enjoy the luxuries to which they have become accustomed.

2. Feedback & DSRs rewards / punishments which favor light-weight, lower ASP items
Sellers of large, heavy items simply cannot continue to exist on eBay.  Large, heavy items bring with them a high shipping cost.  It costs significantly more to ship a piece of furniture than a new Wii video game.  And so sellers of large, heavy items cannot withstand the downgrading of their DSRs that eBay customers are doling out.  Low DSRs translates into these type of sellers having their eBay accounts restricted or suspended.  And because heavy, large items are usually more expensive than smaller, lighter-weight items, it only makes sense that ASP would decrease as these larger, heavier items cease to be sold on eBay. 

In addition, even items that are lightweight but expensive (such as jewelry) are disappearing from the eBay site because of the seller improvement policies.  Jewelry sellers, for example, are low-volume high-price sellers which means that it usually takes only one dissatsified buyer to cause these type of sellers to receive sanctions.  eBay is restricting the number of low-sales volume but high-selling price items on their site because of their seller performance requirements which take into consideration DSRs, negative / neutral feedback and paypal disputes.  Without these higher value items, the overall ASP on eBay decreases.

3. Cash Flow Requirements of eBay sellers
eBay sellers are hurting financially.  They continue to be squeezed by eBay and Paypal and have to endure the hordes of eBay buyers who are extorting partial refunds or free items from sellers under the new and improved eBay Seller Requirements of Mandatory Improved Performance.  And because eBay sellers have bills to pay, they are discounting their product even further in an effort to survive.  Thus, lower average selling price.

4. Exiting eBay Sellers are Liquidating their Inventory
With the announcement of the new eBay policies in late January, some sellers stopped selling immediately and some sellers had small amounts of inventory which they sold on eBay and then did not go back and buy more inventory.  There are a great many sellers on eBay, however, who have large amounts of inventory.  And many of these sellers have made the decision to liquidate their inventory and cease selling on eBay.  These sellers are dumping their product on eBay with no plans to purchase inventories for the upcoming holiday season.  They have business plans which do not include selling their inventory on eBay full-time.  The mass dumping of product on eBay as these sellers make their exit from eBay brings down the ASP.

BOTTOM LINE:
eBay’s actions have directly caused existing sellers to lower their ASP in an effort to survive, have caused sellers who are exiting voluntarily to dump their current inventory at lower ASP prices, and is causing the involuntary exit of sellers who sell large, heavy expensive items and sellers who offer expensive items that sell infrequently, such as jewely sellers.  The “improvements” eBay is making to increase seller performance is having the unintended effect of lowering ASP in the short-term and the long-term picture will not only see lower ASP but decreased selection and variety on eBay.  The eBay site will be full of low-price, lightweight items as the sellers of those items are the only ones who even have a chance of surviving the site requirements for the new and improved eBay of the future.

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5 Responses to “A More Complete Explanation of the Lower Average Selling Price on eBay”

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I don’t disagree with any of the four points you’ve mentioned as being responsible for the drop in ASP.

However there is a significant positive you’ve left off, which I’m experiencing (leading me to believe the same is true for others). Reading your post again this does tie in some to point #2, though not exactly

I’ve brought over listings to eBay from other sites that I’ve closed down because 1) the lower up front fees and 2) better business in general for me on eBay have combined to make them viable eBay listings for me again.

I started this before all of the big changes and have continued during them and to a large degree because of them, and I’ve added approximately 1,600-1,800 items to my eBay store since last October or so. Previously I had kept my number of total listings (store + core) at about 700-800 items (at that time mostly in the $10-$20 range).

I started moving items over because of the Holidays, continued because I figured out a way to use Best Offer and Markdown Manager which worked well for me during the Holidays and then after, and then kept it up when the upfront fees were decreased and I was mulling closing another store.

The vast majority of these new items are priced just $5-$8.

Obviously my circumstances are unique to some degree, but at the same time I don’t think I would have continued full steam ahead if the listing fees had not been lowered, so I have to think that there are other sellers who decided to try out their lower priced goods on eBay again for the same reason. Honestly I just kind of stumbled in by accident, but the changes played to my favor.

Thanks for posting, great stuff!

The traffic has significantly decreased as well- at least for my store and those of the other sellers in my category that I know.

My average selling price has not dropped simply because there isn’t much variance from one product to the next in price – 13 to 18 range, and because i just don’t drop my prices. I price my products inconsideration of markdown manager always so a sale is my everyday standard.

The sold quantity has decreased dramatically- I had my worst month in June that I have had since what was essentially the first month I sold on eBay and only came above it by a few hundred dollars.

The further the decrease the harder it gets. I haven’t even hit a thousand yet this month- that is insane. At this rate it will be my absolute worst month on eBay – in other words at this rate I will be down 3/4 in gross sales since the January announcements. July and August were my best months last year other than December which passed them buy a few hundred dollars. This year is just crap

Honestly, I don’t know how they managed to cook it to look as though there was a profit increase. How the hell could there be? All I read and hear from other sellers who I know are complaints of how far their sales have dropped. I guess if you take into account those doing well such as the person who left the other comment- 5 to 7 dollar items if they are able to produce the volume.

Well, that certainly brings your point about what all will be left- I was hoping my 13-18 range would keep me in the game, but apparently it is the 1 and 7 range.

OH Boy

Additional to your observations, Stephanie Tilenius hinted at it in April, as have various other Ebay staff since, but John Donahoe spelled it out last week at the Q2 earnings call. The intention is to “really incent and reward those sellers to provide low prices to buyers and great service”.

Never mind that Ebay doesn’t actually own their trade stock, if they can increase their own profit margins while encouraging sellers to trim their, they are on easy street. The problem is that they are creating a business model that just isn’t sustainable for most of Ebay’s sellers.

Kind Regards, Kevin

Another possible reason is the perceived need by sellers to raise the newly featured one year percentage average by flooding their auctions with cheap sales. This way the percentage is loaded with lots of new sales. Since the yearly sales of most sellers is not high, this is a way to significantly raise the seller’s percentage rate.

I In addition, I feel that by offering the .99 free listing e-bay has destroyed the value of items such as postcards. Mindless sellers list items for .99 and for .99 and in most cases, after paypal fees and shipping supplies sellers end up with no profit or even a loss. E-bay has ,created a giant give-away


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