etailology

When eBay started, it was a great place to find treasures amongst other people’s junk. Since then, it’s obviously become a major force in online retailing and marketing; for example, I recommend that every established online retailer also have an eBay store (just to access the “free” exposure!) and I often recommend eBay as a solid testbed for new niche etailers.

In fact, some of the activities we see on eBay today seem to violate the basic rules of micro-economics:

• customers pay more for goods on eBay than elsewhere
• they often fail to consider “total price” (including shipping)
• search and privacy costs are extraordinarily high for eBay, yet people buy anyway

In a nutshell, eBay is selling items at a price premium. How do they do it? Perhaps the lure of bargain-hunting is more about the hunt than the bargain?

TechCrunch references a new report here which covers some of the more interesting statistics on how to optimize sales on eBay. A quote from the report:

Apparently, some bidders grew so enthusiastic about winning the auction that they lost sight of the “buy it now” price, sometimes offering more than $185.

“We found that in 43 percent of the auctions the bidders ended up paying more than the ‘buy it now’ price,” Malmendier says.

“This is really huge. It’s far more than I could have expected.”

Confused, the team tried a larger sample – this time observing thousands of iPod auctions. In that case, 45 to 50 percent of eBay auctions exceeded the “buy it now” price, she says. Expanding the pool again, they found that the quirk affects expensive and cheap items, men’s cologne and women’s perfume, and books by liberal Sen. Barack Obama and by conservative commentator Bill O’Reilly. The Romans had a term for this auction-house “curse,” Malmendier says, “They called it calor licitantis – bidder’s heat.”

(Read the full report here from the Christian Science Monitor.)

My opinion? We spend far too much time on the nuts and bolts of pricing and promotion and far too little time on understanding the behavior of our user groups. In this case, it IS about the hunt.

A first step towards a more enlightened approach in this regard would be to create user personas for your etail establishment — and use them to guide design. Personas and user scenarios can be extremely instructive in identifying the behavioral characteristics of users and leveraging them to charge a premium for goods.

Imagine that: instead of discounting products to generate sales, you could have a more enthusiastic customer base and charge them more at the same time. Sound ridiculous? As we’ve seen, eBay is already doing just that.