Where is the Incentive in eBay Powerseller Discounts?

Posted on July 27, 2008. Filed under: eBay | Tags: , , , , |

A typical eBay seller’s invoice includes:

* eBay store fee ($15.95, $49.95, or $299.95 a month)
* Insertion Fees for every item listed
* Optional upgrades (Featured, International Visibility, etc)
* Final Value Fee (FVF) when an item sellers
 

In an effort to “reward” Powersellers who provide outstanding customer service, eBay has three incentive levels.  These levels are based on Detail Seller Ratings (DSR) performance.

 

Powerseller Discounts

5% off FVF for 4.6 DSRs
15% off FVF for 4.8 DSRs
20% off FVF for 4.9 DSRs
 

Given that almost every seller’s lowest DSR rating is the Shipping & Handling rating, every seller focuses almost exclusively on that one DSR as that is the only DSR that truly determines the Powerseller discount level.

 

Let’s assume for a minute an average seller’s stats:

 

Units sold per month: 300 individual items

Total eBay invoice: $1,000  ($600 of which is FVF)
Powerseller discount awarded (5% of FVF): $30
 

Let’s assume this Powerseller was considering ways in which they could “earn” more of a discount on their invoice.  If this seller took immediate action to increase their DSRs from 4.6 to 4.8, then they could receive $60 more of a discount on their invoice.  A $60 discount spread out over 300 unit sales equals 20 cents per item.  So, the Powerseller has to ask the question “If I lower my shipping cost by 20 cents per item, do I think buyers will be sufficiently “more satisifed” to leave me higher DSRs on my shipping and handling cost?  And will that increase in satisfaction raise my DSR from 4.6 to 4.8″?  Assuming the Powerseller thinks this is a possibility and they immediately lower shipping costs by 20 cents per item, the BEST the Powerseller can hope for is to break even and the WORST is that the Powerseller decreases their profit by $60 a month.  So, where is the incentive? 

 

In order to be motivated by the Powerseller discount, the seller would have to decrease their shipping cost by less than 20 cents a unit.  A 10 cent decrease in shipping cost, however, is not going to be nearly enough to cause an increase in DSR from 4.6 to 4.8 so no business owner is going to offer a 10 cent decrease in shipping cost because the only effect would be a $30 decrease in the profit margin.

 

In my opinion, the Powerseller who is currently receiving the $30 discount for having 4.6 DSRs is not awarded that amount because they are motivated by the discount.  I believe the seller has actually done nothing to change their business model.  They are doing the very same things they did before the discount was offered, they are offering reasonable shipping cost. 

 

And, in fact, I make the statement that eBay’s “reward” system actually provides an incentive for Powersellers to provide LESS customer service.  If the Shipping & Handling DSR alone determines all the “rewards” such as discounts and placement in Best Match, then there is no incentive for Powersellers to focus on the other Detailed Seller Ratings.  For example, in our business, we always prioritize orders that are placed through our website and through Amazon because the rewards for shipping timely are greater for us on those venues.  We still ship eBay orders timely, just not necessarily the same day or the next day.  And that is because even if we ship eBay orders 2 or 3 days after we receive them, our DSR for Shipping Time will never fall below our DSR for Shipping & Handling.  We provide very good service to our eBay customers but we provide the BEST customer service to buyers who purchase from us elsewhere.

 

I think that eBay is making a huge mistake by placing ALL of the emphasis only on one measurement, the Shipping and Handling Cost.  Professional sellers are certainly not going to be motivated to lower Shipping & Handling Costs on eBay; we simply do not have any more margin to give away on our eBay sales and the discounts are not enough to offset any shipping discounts we could offer.  Now, if eBay averaged out all the DSRs then I could be motivated to provide better customer service to my eBay buyers.  After all, doesn’t it make more sense to focus on the buyer’s total level of satisfaction rather than how happy they are with the Shipping charge, especially when most of the cost of shipping is out of my control anyway?  It is only when eBay starts rewarding sellers based more on factors within the seller’s control that we will begin to see a true increase in the level of buyer satisfaction.

 

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5 Responses to “Where is the Incentive in eBay Powerseller Discounts?”

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I think that eBay is making a huge mistake by placing ALL of the emphasis only on one measurement, the Shipping and Handling Cost. Professional sellers are certainly not going to be motivated to lower Shipping & Handling Costs on eBay; we simply do not have any more margin to give away on our eBay sales and the discounts are not enough to offset any shipping discounts we could offer

Your comment assumes that the ebay understood the marketplace well enough to know how the DSRs would shake out beforehand. I doubt it. When every action they take works at cross-purposes to real improvements in customer service, I just assume they don’t know what they’re doing. They saw one evil they intended to stop: the $0.99 item with the $20 shipping, and they took a sledgehammer to it. Other unintended consequences followed, that’s all.

I don’t believe eBay had a clue. Just monkey see monkey do. They looked at Amazon’s feedback mechanism and ‘improved’ it according to their own non-experienced based theories.

Norrington said at the PeSA summit “I think it’s a great point of learning for us.” about the new feedback policy and that applies to the DSRs too.

The absolute insanity point is allowing a subjective opinion from one buyer to affect how another buyer can find what they are looking for in search which is exactly what is happening with Best Match.

It will be ‘interesting’ to see what happens when buyers can change their feedback, something that is not allowed on Amazon for good reason.

Take it one step further:

The absolute insanity point is allowing a subjective opinion from one buyer to affect a seller’s livelihood and reputation using a one sided feedback system and non-transparent DSR “opinions”.

I think I might have lost my incentive to sell on ebay. I almost got it back, until the 5 weeks of being trapped in a functionless Beta my Ebay.

Then the fees went up again. And I’m not a power seller. So no discounts for me!

So I went elsewhere, where the price of selling is also as high as ebay’s. I figured if I was going to have to pay that much, at least I can get some good customer service out of it, and I heard the sell through is the same for other sellers if not better over there.

So much for incentives!

couldn’t agree more. Screw the discounts, as long as the majority of my customers are happy with the shipping and comes back to purchase from me again, I rather make sure the shipping n handling had completely covered all my packaging expanses.

P.S, there are always idiots that won’t give you 5 star unless they got the item for free, and by free I didn’t mean free shipping. There are also those that expected (not asking) discount when purchasing 2 items. Would be just as retarded as them to even be considering their demands.


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