Page 434 - Marketing Management

DEVELOPING PRICING STRATEGIES AND PROGRAMS | CHAPTER 14 411

Marketing Excellence registered and 90 million active users and receives 81 million
unique visitors a month. More than 1 million members make
their living from the site. Yet eBay itself doesn’t buy any in-
>>eBay ventory or own the products on its site. It earns its money by
collecting fees: an insertion fee for each listing plus a final-
value fee based on the auction or fixed price. For example, if
an item sells for $60.00, the seller pays 8.75 percent on the
first $25.00 ($2.19) plus 3.5 percent on the remaining $35.00
($1.23). Therefore, the final-value fee for the sale is $3.42.
This pricing structure was developed to attract high-volume
sellers and deter those who list only a few low-priced items.
With eBay’s expansion into a wide range of other cate-
gories—from boats and cars and travel and tickets to health
and beauty and home and garden—collectibles now make
up only a small percentage of eBay sales.
eBay’s business model is based on connecting individ-
uals who otherwise would not be connected. It was the first
example of online social networking, years before Twitter
In 1995, Pierre Omidayar, a French-Iranian immigrant, and Facebook existed, and consumer trust is a key element
wrote the code for an auction Web site where everyone of its success. While skeptics initially questioned whether
would have equal access to a single global marketplace. consumers would buy products from strangers, Omidayar
Omidayar couldn’t believe it when a collector bought the believed people are innately good, and eBay’s originators
first item, a broken laser pointer, for $14.83.* Soon the did two things well: they worked hard to make their Web
site grew into a broader auction site where consumers site a community, and they developed tools to help reinforce
could auction collectibles such as baseball cards and trust between strangers. The company tracks and pub-
Barbie dolls. The momentum continued when individuals lishes the reputations of both buyers and sellers on the ba-
and small businesses discovered that eBay was an effi- sis of feedback from each transaction. eBay extended its
cient way to reach new consumers and other businesses. feedback service in 2007 by adding four different seller cat-
Large companies began using eBay as a means of selling egories: items as described, communication, shipping time,
their bulk lots of unsold inventory. Today, people can buy and shipping and handling rate. The ratings are anonymous
and sell virtually any product or service, on the world’s but visible to other buyers. Sellers with the highest rankings
largest online marketplace. From appliances and comput- appear at the top of search results.
ers to cars and real estate, sellers can list anything as long eBay’s millions of passionate users also have a voice
as it is not illegal or violates eBay’s rules and policies. in all major decisions the company makes through its
eBay’s success truly created a pricing revolution by al- Voice of the Customer program. Every few months, eBay
lowing buyers to determine what they would pay for an brings in as many as a dozen sellers and buyers and asks
item; the result pleases both sides because customers gain them questions about how they work and what else eBay
control and receive the best possible price while sellers needs to do. At least twice a week the company holds
make good margins due to the site’s efficiency and wide hour-long teleconferences to poll users on almost every
reach. For years, buyers and sellers used eBay as an new feature or policy. The result is that users (eBay’s cus-
informal guide to market value. Even a company with a new- tomers) feel like owners, and they have taken the initiative
product design that wanted to know the going price for any- to expand the company into ever-new territory.
thing from a copier to a new DVD player checked on eBay. eBay continues to expand its capabilities to build its
eBay has evolved to also offer a fixed-price “buy it community and connect people around the world by
now” option to those who don’t want to wait for an auction adding services, partnerships, and investments. The
and are willing to pay the seller’s price. Sellers can also use company acquired PayPal, an online payment service, in
the fixed price format with a “best offer” option that allows 2002 after eBay members made it clear that PayPal was
the seller to counteroffer, reject, or accept an offer. the preferred method of payment. The acquisition low-
The impact of eBay’s global reach is significant. In 2009, ered currency and language barriers and allowed
over $60 billion worth of goods was sold on eBay—that’s merchants to easily sell products around the world.
almost $2,000 worth every second. The site has 405 million eBay also acquired Skype Internet voice and video

*Some falsely believe that eBay was created to help Omidayar’s girlfriend find and collect Pez candy dispensers. That story, however, was created
by an employee to help generate initial interest in the company.