eBay Needs to Find a New Set of Tools to Motivate Sellers in 2009

1. Prohibiting check / money order as an option (coming October 2008)

Predicted Result: eBay sales will decrease.  Off-site sales will increase.  Net effect for sellers is only a slight decrease in sales but net effect for eBay is noticably decreased sales, especially in the collectibles category.

Details: Because buyers will no longer know which sellers are willing to accept check and money order, a buyer will have to contact each seller to inquire as to the seller’s payment policies.  This will have the effect, first of all, of creating more work for the already over-worked eBay seller.  And, if a seller is now going to take their valuable time to communicate with a potential buyer about payment methods it is a great opportunity for the seller to mention that eBay’s new policies prohibit payment by check or money order but that the seller has a great website (or other venue) where the same or similar product can be ordered and where checks and money orders are accepted.  Sellers will have to take more time to communicate but will be rewarded with an order outside of eBay which means no eBay or Paypal fees, in essence the “no selling fee” compensates the seller for the time they take to communicate with the buyer.

2. Increase in Selling Fees for Successful Sellers (twice in 2008) 

Result: Successful sellers continue to move to alternate channels.

Details: Twice in 2008, eBay has “revised” fees and claimed that these revised fees have lowered the selling fees for most of their sellers.  However, the total selling fees for SUCCESSFUL eBay sellers (ie those sellers who have a good sell-through rate) have been raised both times.  

Successful eBay sellers are the people who have the skills necessary to be successful elsewhere and they are finding it more difficult to remain successful on eBay.  These sellers are moving their inventory where they are making more margin for significantly less effort.

For example, if we have an item with a Manufacturer’s Suggested Retail Price (MSRP) of $100, then we have on average a gross margin on our own website of $34, on Amazon the gross margin is $25, and on eBay the gross margin in $12.  The Gross Margin is the Selling Price less the product costs (costs we pay to the manufacturer to obtain the product) and less the selling fees (including payment processing fees) we pay to Amazon or to eBay / Paypal.  So to put it in a little different format:

MSRP $100 item
Gross margin – website $34
Gross margin – Amazon $25
Gross margin – eBay $12

The reason that eBay gross margin is so much lower is actually the function of two things – higher selling fees paid to eBay and lower average selling price.  For an average item, the eBay buyer will not pay as much as the buyer who purchases from Amazon or directly through our website.  In addition, we have to pay eBay an insertion fee per item as well as a final value fee per item which always comes out to a higher percentage than Amazon.

So, in essence, we have to sell twice as much volume on eBay to make the same money as Amazon or three times as much volume on eBay to make the same money as our website.  That, in and of itself, is a problem.  However, the even bigger problem is that the amount of effort to make one sale on eBay is about 9 times more than the effort through the alternate channels.  Communicating with eBay buyers is so labor intensive because they require so much more hand-holding and eBay actually encourages unnecessary communication and punishes sellers who do not do so (for example, in the recent Town Hall meeting, Stephanie suggested that sellers should email every buyer personally who pays with an echeck to explain the echeck process and let the buyer know that their item will be shipped when the echeck clears).

If we adjust the gross margins based on the EFFORT we put forth to actually generate a sale and to follow through on that sale (including begging the buyer to finally pay for the item they purchased) and the after-care of the sale, our table would look like this:

MSRP $100 item (adjusted for order generation and processing time)
Gross margin – website $34
Gross margin – Amazon $25
Gross margin – eBay $1.33

Now, it doesn’t take a rocket scientist to realize that we should be continuing our efforts to move off eBay.  We do see eBay still playing a role, however, in our 2009 online selling strategy.

eBay is still good for two things for us – (1) cashflow and (2) selling rare items.

Whenever we have items that are not moving as quickly as we had hoped, we can turn to eBay to liquidate that product which helps to improve our cash flow.  Additionally, we sometimes have rare items that we put up for auction and eBay is the place where we can get the highest value for those items.  For example, we recently had some items we purchased for $78 that were very hard to get (and we only got because we purchased large amounts of “standard” product).  We put one of the items up for auction on eBay and it sold for more than $300.  For the average every-day sales, though, eBay is definitely NOT the venue we plan to focus on in 2009 because our margins are higher elsewhere and our efforts are considerably less elsewhere.  

3.  Glitches in listing and site functionalities along with Poor Communication and Forced Participation in Beta Tests

Result: Sellers list less because it takes too long and because they have no confidence in the eBay system (ie Best Match).  Additionally, sellers forced into beta tests refuse to provide quality feedback about the eBay system and thus the system continues to function poorly.

Details: eBay has miscommunicated, either intentionally or unintentionally, so many times this year and the miscommunications have resulted in a lack of credibility.  The glitches on eBay and Paypal are so numerous that it borders on ridiculous.  In addition, eBay either can’t or won’t explain the Best Match system and sellers have little confidence that the system is working as intended.

4. Marketplace Research Removed September 2008 (eBay still charges the same for mid-level store but provides fewer services now)

Result: Lower average selling prices on eBay since more sellers will use auction format.  Sellers move more toward alternate channels since the first place for research will now be other than eBay.  Decreased buyer satisfaction when sellers cancel mid-level store subscription and cease using automation services.

Details: Until this month, eBay’s Marketplace Research was a service included in a mid-level store.  There were really only two good reasons to pay $35 more a month (difference in price between basic and mid-level store) and those two reasons were Marketplace Research and automation services (leaving feedback automatically, emailing buyers automatically when item was won, paid for, and then when shipped).  Without Marketplace Research, the price of the mid-level store is no longer cost-effective for many sellers.

Marketplace Research allowed sellers to view all sales that occurred in the last 60 days, for example.  Basic search on eBay only allows sellers to see items that have sold in the last 2 weeks on auction or when a fixed price item ends (either because of time or because all the quantity has been purchased).  eBay store inventory sales does not appear in the completed items search on eBay.

Without Marketplace Research, sellers may downgrade their store subscription thereby ending the ability to use automated tools as well.  The result is that buyers are not kept as informed about their order as they were before and thus are not quite as satisfied as before.  

Without Marketplace Research, many sellers will not have a good idea of the true current market value of their product.  Therefore, they will be more likely to sell the item on auction, rather than fixed price, if they are going to list it on eBay.  And, typically, items on auction end at a lower amount than on fixed price unless the item is very rare.  Auctions, which are given preference in the Best Match because of time ending soonest and also incur less total selling expenses than selling on fixed price, have become somewhat attractive again.  But auction listings will still end at lower amounts than the items on fixed price thus bringing down the overall average selling prices on eBay which is not good for any seller.  Further erosion of the margins on eBay will cause more sellers to fail.

And multi-channel sellers who list on Amazon will be more likely to make Amazon their first stop for research since eBay Marketplace Research is no longer available.  As an Amazon featured merchant seller, I am more likely to list an item on Amazon if I see that the listed price for the seller who owns the Buy Box is in the ballpark of what I would offer the item for and if there are only a handful of sellers who have the item in stock.   My item will never make its way to eBay if I am happy with my chances on Amazon.

5. eBay’s Main Mission of Forcing Free or Significantly Reduced Shipping

Result: Decreased buyer satisfaction when sellers block buyers.  Lower international sales as sellers restrict items to domestic shipping only.  Decreased variety on eBay as sellers move their product to higher margin sites.

Details: There is no question that eBay is using its incredible might to force sellers to offer free or significantly reduced shipping.   The number of carrots and sticks which directly relate to shipping cost is almost laughable.  

Sellers are reacting but not all sellers are reacting in the way eBay would like.  Many sellers are blocking potential buyers who question the shipping cost in advance of bidding as well as blocking buyers who leave feedback and whom sellers suspect might be leaving low DSRs.  Sellers view buyers with great suspicion because of the extreme importance of the shipping DSR.  The shipping DSR determines eligibility to sell on eBay as well as Powerseller discounts.  Sellers are turning away sales from buyers whom they think might lower their DSR scores and that certainly can’t be helping buyer satisfaction.

Sellers who offer their items to international customers are finding their DSR scores are lower because the cost to ship internationally is significantly higher and there are many problems inherent with shipping outside the U.S., all of which lower a seller’s DSR scores.  The result is that many eBay sellers no longer offer items for sale internationally.  Personally, we sell in many categories on eBay and we are now only offering international delivery for three different categories and by the end of the year we expect to offer international shipping in only one category on eBay.  We simply cannot afford the lower DSR ratings.  It is a tough trade-off.  We accept international sales and jeopardize our eligibility to sell on eBay at all or cease international sales to continue to sell to U.S. destinations on eBay.

Above all, the bottom line is that there is simply no margin for our eBay sales to offer free shipping and the more eBay pressures us to do so, the more we are going to move off-site and/or the more we are going to promote our own ecommerce website where we can offer special “free shipping” promotions when it makes economic sense and at the times of our choosing.

6. Feedback System Lacks Transparency and Simply Does Not Work

Results: Lack of transparency results in good sellers being punished without knowing why.  Lack of transparency also causes some sellers to erroneously block “good” buyers and more sellers restrict buyers through the Buyer Requirements.  Buyers work around the blocks, though, creating very angry and frustrated sellers.

Details: Because the Detailed Seller Ratings are anonymous, sellers cannot attribute the scores to any one buyer and thus sellers sometimes block a group of buyers so as not to have a bad buyer return and leave low DSR scores again.  There are some sellers who are so frightened they are behaving quite irrationally because eBay has set up a current system where it is almost impossible for sellers, especially small sellers, to succeed.

The lack of transparency also means that sellers do not know when buyers are upset and, thus, sellers face sanctions or suspensions without even knowing they are in danger.  eBay does not inform sellers when an “unhappy buyer” leaves a “1” or “2” rating so a seller would not be aware that they are failing to make the buyer satisfied.  The first time a seller would know a real problem exists is when eBay suspends them for having a buyer dissatisfaction rate greater than 5%.  A seller knows when an unhappy buyer leaves a negative or files a paypal dispute but a seller is never informed that an unhappy buyer has left a poor DSR rating until it is too late.

In an effort to protect themselves from bidders who do not pay or who engage in feedback extortion, for example, sellers can use buyer requirements to block bidders who have too many policy violations but that system does not work.  Buyers who are blocked just email sellers asking for exception to the requirements, going to great lengths to explain their transgressions or to explain how they were not at fault.  And when that doesn’t work, the buyer just purchases the item with an alternate I.D. or asks a friend or neighbor to purchase and they the original customer makes the paypal payment.  The frustrated buyer, who is not happy at having to “go around the system” to make the purchase, often leaves unfavorable DSR ratings for the seller.

7. Overwhelming Number of Policy Changes, Many of Which Require Listing Revisions

Result: Sellers are leaving, either in whole or in part, because it requires too much effort to stay.

Details: Because so many policy changes require listing revisions, the time investment for eBay sellers is significant.  For example, there is no bulk editing tool for sellers to use to create or revise their return policy.  eBay had promised a bulk editing tool but has not provided one and, at this time, has no plans to provide any way for sellers to comply with the policy other than to revise every listing one by one.

Many sellers I know are simply throwing up their hands.  Their thinking is that if they have to invest time and energy into manually revising their eBay listings again and again and again, then it is in their best interest to go somewhere else.  They feel that their investment of time is better spent building their business elsewhere rather than recreating their business ten times on eBay in a year.  Most sellers I know are not completely abandoning eBay but rather they are preparing their other venues for the holiday season and will spend whatever time is remaining, if any, to prepare their eBay store for this holiday season.  

CONCLUSION:

I know what eBay is trying to achieve and I can appreciate the vision they have for their site.  But eBay cannot achieve their objectives by coercing sellers.  In the past, eBay has used fear, threats, and intimidation to control their sellers but the days when eBay could force their will on sellers is now past.  There are simply too many alternatives and the benefits of selling on eBay just aren’t what they used to be.   Five years ago, eBay could say to a seller “It is my way or the highway” and a seller would conform.  Today, though, that same directive is not nearly as powerful because sellers are finding the highway is full of hustling and bustling and there are some very attractive new destinations both near and far.  More and more sellers are taking eBay up on their offer to “Hit the Road” if they don’t like the changes.  eBay really needs to reach deep into their tool bag to find a new set of tricks that will motivate sellers in 2009 because the Big Bully routine is old and ineffective now.

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