Monday, April 28, 2008

How to Grow eBay's GMV! Free Shipping.

eBay has hit on a fantastic little idea here to spike GMV growth and increase FVF's -- Free Shipping.

When sellers offer Free Shipping they get advantaged in search using Best Match, but is the S&H really "Free"? Most sellers will just add the S&H to purchase price of the item so the total price will be the same as before.

Example: Let's take a media seller who moves to "Free Shipping".

Right now they sell an item for $9.99 plus $5.95 for S&H when they offer "Free Shipping" the price of the item will be $15.94 and eBay will make an additional $0.50 plus the GMV counted for that item will grow almost 60%.
The customer pays exactly the same amount as before, the seller ends up having to pay an additional 50 cents to eBay. Add the additional postage charge coming mid-month for USPS and the seller just got hosed.

If Free Shipping takes off on the site as a way to increase sales velocity, this will put eBay's GMV numbers for the 2nd quarter in question. They could do the same number of sales as the month previous but increase their take rate, ASP and GMV. I hope investors won't be fooled by this.

Update: Here is a way to do a promotional S&H offer on eBay but I'm not sure it will show as Free Shipping in search. Thanks Cliff for the info.

Just my 12%


Cliff said...

Absolutely agree with you here. Free shipping helps only eBay's bottom line by making them more money. The only responses a seller has to free shipping is to offer it without adjusting prices --seller loses money, eBay's take remains the same-- or to raise prices and offer it --seller breaks even, eBay makes more.

Free Shipping incentives are a fee increase.

Anonymous said...

No free shipping.

No exposure.

Free shipping.


No profit.

Either way the house wins, you lose.

Welcome to ebay!

permacrisis said...

Your only hope in this scenario is give away a bona-fide money losing item solely for the exposure, then entice people in those listings to view your other items (just assuming those get no exposure via Best Match).

When I listed Business & Industrial, I usually made certain to list items of like kind in the same week. I always asked B&I buyers where they'd found my stuff. About half browsed then bought using "View Seller's Other Items".

That strategy is kind of category dependent. B&I was great because buyers usually had company check in hand, and needed the stuff for work. I refrained from listing any kind of dolls or old bottles etc those weeks- anything that would turn those guys off. Just strictly the industrial stuff.

Nowadays I won't do it, when Best Match came along I left. But those who are still there, you could try it... the Supermarkets certainly do it all the time.

I do miss Yahoo.

Cliff said...

Proving my original point: I took a category composed mostly of staler stock that's been sitting and changed my $2.50 First Class fee to Free Shipping in order to get the neat little badges (and of course a little of that Best Match juice!).

I raised my prices, though not by $2.50, since it's older stock I only went up $0.49-$1.50.

What happens now (assuming some of this stuff sells):

1. eBay gets a little more on each sale
2. On single item purchases buyers get a little break, I make a little less.
3. On multiple item purchases (depending on quantity), buyers potentially spend more on "shipping" (assuming they take at least two items I raised $1.50/each as opposed to the old $2.50 rate) and I potentially make a little more on "shipping."

Point 1 is the very irritating bottom line on this.

Points 2 and 3 are absolutely backwards from the way I've typically run things. Buyers are supposed to get a break on quantity, not pay a premium!

(Just to be safe I've left Best Offer on for all of these, but I'm going to be pretty strict about my cut-off now).

Cliff said...

...And more accurately, proving Randy's original point!

Randy Smythe said...

Cliff, make sure to come back and update us on how well the items sold.

The key to all of this is increased exposure should increase sales.

We can only hope.