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Friend or foe?

I was in Sainsbury’s recently pondering whether to buy a Madagascar DVD instead of chocolate for my kids. Easter wouldn’t be Easter unless they get more than their body weight in chocolate, would it? Anyway, the DVD’s were displayed near the entrance as they were on special offer. As I stood there, a security guard nearby leant over, smiled and in a hushed voice suggested; “It’ll be cheaper on eBay you know”.
eBay has become a phenomenon. I cannot image that, five years ago the same thing would have been said about a car boot sale or classified ad. This is because eBay is so much more than a flea market. eBay accounts for 10% of all the time UK users spend on the Internet (Nielsen/Netratings) and its popularity is increasing. The sites audience figures grew another 43% last year to 11.5 million in January 2006 (Nielsen/Netratings). And it’s not just young people using it; the audience is predominantly middle-aged.

Age profile of eBay users

The Beddy Bear pictured is from eBay, listed at a ‘Buy it now’ price of £9.99 with postage of £4.99. This will have cost 35 pence to list and will cost an additional 52 pence if it sells. Sellers will often include the eBay charges in the postage price. Prices for these Beddy Bears on eBay range from £11 to £22.70 yet they are available direct from the manufacturer’s website for £13.90! It’s not all about being the cheapest. The scale of eBay is astonishing, a teddy bear sells every two minutes on the UK site.
One of the reasons eBay generates so much excitement is that it is as close to a perfect market as you can probably get. Millions of buyers can meet millions of sellers, and as it costs only a few pence to list an item there are extremely low barriers to entry. With 3 million items for sale across 13,000 categories on the UK site at any one time, the choice is vast. The value of an item is set by what buyers are willing to pay for it. And one of the great innovations is the Feedback Forum where buyers and sellers rate each other after a transaction. Vast though it is, this has made eBay into a virtual small town where people are known by their reputations. So, what does this mean for independent gift retailers? Is eBay a friend or foe?

Reasons eBay may be considered a foe
It brings an alternative place for consumers to buy - another reason not to shop on the high street perhaps. “Retailers have been slow to pick up on eBay because it gained a reputation as being just second-hand goods or collectables," says Forrester Research Senior Analyst, Rebecca Jennings. Those who regard eBay as simply a second-hand specialist are mistaken. "The Christmas advertising last year showed it is increasingly getting into new goods. Retailers need to appreciate that eBay isn't just second-hand tat any more," says Jennings.
eBay it is a strong competitor. It has massive consumer appeal and is still growing rapidly. As a brand it is second to none on the Internet, according to calculations by research company Envisional. "The Internet is fast approaching television in terms of influence on consumer behaviour,” said Ben Coppin, Chief of Envisional. eBay scored the highest in terms of how positively it is perceived on the net. Microsoft was the most prominent company name in the index, but it was the sixth most negatively perceived.
The site could also put pressure on prices as it is widely used by customers to research price points. "A lot of people are doing price checks on eBay and retailers should be checking their prices against eBay too," says Heather Hopkins, Director of Research for Hitwise UK, the Internet research company.
eBay can be a friend
Unlike most other competitors, you can sell through eBay using it as a channel to market. And the great thing about eBay is it levels the playing field. Potential buyers view products on a like for like basis, whether you are Harrods, London or Harold in Western-Super-Mare. This gives independents, which do not have great brand recognition, a real leg-up. The Feedback Forum allows independents to create excellent reputations, just as any retailer would aim to do for their shop. Again, this evens the playing field.
Now, this is a world where high street brand names are not the be all and end all. High street retailers rely on their brand to attract web customers. Now savvy retailers are getting better at responding to consumers searching for particular products. “Woolworths is an example of a high street brand that was remarkably successful at getting visits on product searches for Christmas gifts last year being one of the top recipients of searches for ‘portable dvd players’ and ‘Playstation games’” said Hopkins. This reflects the importance of appealing on a product level, good news for the independent.
Even though eBay is largely a price led market, other factors do come into the purchasing mix. Time and convenience can be an important differentiator. The ‘Buy it now’ section appeals to buyers who just don’t want to wait or risk not winning an item. A more recent development is the ‘Get it fast’ brand, which allows sellers to advertise guaranteed fast delivery. Retailers are in a good position to offer both of these services.
Another positive for retailers is that eCommerce activity generally fits well with a typical retail business, and can increase productivity. This is because eCommerce transactions are not quite as time dependent as those in-store. Instead of seconds, you have hours to serve the customer. This can be fitted in to your quiet times. And if you don’t have any quiet times then how much of a priority is expanding to the Internet?
If you are considering using eBay then the costs can be both affordable and manageable. eBay business charges are roughly 2-4% of the item’s sale price to place the auction. Then an additional 3-5% if/when it sells.
Finally there is the potential to drive traffic to your own website from a live auction. There are some strict rules about doing this so care is needed, but you can add links directing people to a product page on your main website as long as you are providing extra information. You can also link to your ‘About Us’ page as long as you are not selling items directly off that page.

Summary
So, whilst eBay is certainly a threat to online stores and the high street, it also provides a new channel to reach consumers. If you are holding stock that you want to shift then why not give it a try? It’s hard to think of a better way to do it. If it’s stock that is out of fashion or just a mispurchase, then selling it cheaply on eBay means you do not have to sell it on the shop floor and there is no risk of cannibalising more profitable ranges. As you clearly have stock available, then the ‘Buy it now’ and ‘Get it fast’ approaches can be used to differentiate. You are also an established business, which will appeal to those customers less willing to trust pure online sellers.
“The auction model enables retailers to shift product in an exciting way, because customers feel that they have picked up a bargain and the retailer is potentially able to sell at a higher price than by shifting the product through stores.” says IMRG Chief Executive, James Roper.
eBay is not going to go away. You can ignore it or use it. If you are going to use it then an eBay account and PayPal account is required, oh, plus a little time.
For those looking to do a little more then stock management will become a consideration as you are entering a multi-channel environment. It can be highly beneficial to have some form of central stock control to make the process of creating auctions less time consuming and to deliver more reliable service for your customers.
And by the way, if you have any young relatives I would heartily recommend Madagascar, as I am writing this article, my three and four year olds are engrossed in it!
Further Information
David Mackley MBA BSc is part of the Giftware Connect team, offering fresh perspectives on running your business with the help of simple technology. He can be contacted on 01635 262718. Giftware Connect: Beyond EPoS.
www.giftwareconnect.com

September/October 2010
issue 61
available now