( 
)eBay is known the world over to be the marketplace for deals. In other words, consumers know they can get more for your money on eBay. But, doing business on eBay is filled with risk, too.
From a buyer’s perspective, the risks are:
But what about the third piece? Unless you do business locally (and only 1.3% of eBayers do), the risk of shipping and handling costs and delays can never be overcome.
In this case, the shipping and handling risks should be labeled a switching cost - the costs burden to the customer as a result of switching from one seller to another. So, as a seller, the only real question you need to ask is: can I sell my product at a low enough price to overcome these switching costs?
The obvious answer is YES, as seen in the millions of customers who buy on eBay. But, the analysis shouldn’t stop there. Pricing your products correctly will maximize your profit and still provide value to the customer. The general rule of thumb is:
Research shows that offering anything less than a 15% discount will have marginal affect on consumers. Most will not switch because they are comfortable in their habits. To break their purchasing routine, they must feel the pain of missing out on a 15% savings.
MCI found this out when they engaged in a price war with AT&T. In fact, MCI eventually settled on a campaign that offered 20% discounts for switching (and bringing 10 other customers with them). AT&T was rendered powerless not because they couldn’t match MCI’s price, but because they couldn’t beat it by at least 15% (which we established as the virtual minimum point to get customers to switch back). AT&T decided instead to compete on service.
So, to summarize:
Good Luck and Happy Selling!
Adam Meranda
CEO/Owner
Meranda Sign Supplies
From a buyer’s perspective, the risks are:
- Inability to review the product in person. They cannot pick the product up and analyze its features.
- Lack of relationship with the seller. The buyer cannot tell if the seller is committed to customer service or fast shipping.
- Shipping and Handling costs and delay. If the buyer goes to the store, they walk out with product in hand. If they buy on eBay, the waiting begins.
But what about the third piece? Unless you do business locally (and only 1.3% of eBayers do), the risk of shipping and handling costs and delays can never be overcome.
In this case, the shipping and handling risks should be labeled a switching cost - the costs burden to the customer as a result of switching from one seller to another. So, as a seller, the only real question you need to ask is: can I sell my product at a low enough price to overcome these switching costs?
The obvious answer is YES, as seen in the millions of customers who buy on eBay. But, the analysis shouldn’t stop there. Pricing your products correctly will maximize your profit and still provide value to the customer. The general rule of thumb is:
PRICE ON EBAY = 0.85 X (PRICE IN RETAIL STORE – EBAY SHIPPING COST)
Research shows that offering anything less than a 15% discount will have marginal affect on consumers. Most will not switch because they are comfortable in their habits. To break their purchasing routine, they must feel the pain of missing out on a 15% savings.
MCI found this out when they engaged in a price war with AT&T. In fact, MCI eventually settled on a campaign that offered 20% discounts for switching (and bringing 10 other customers with them). AT&T was rendered powerless not because they couldn’t match MCI’s price, but because they couldn’t beat it by at least 15% (which we established as the virtual minimum point to get customers to switch back). AT&T decided instead to compete on service.
So, to summarize:
- Customer groups will purchase on eBay only if they see a 15% savings over retail prices.
- Getting customers to switch back to the retail chain would require retailers to impose an additional 15% cut (27% off original retail prices).
Good Luck and Happy Selling!
Adam Meranda
CEO/Owner
Meranda Sign Supplies
Guide created: 03/09/09
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