eBay's New Simplified Pricing Is Not So Simple
When eBay (NASDAQ:EBAY) announced on Tuesday (March 19) "simplified pricing" that was actually far more complex pricing, it made its war with Amazon (NASDAQ:AMZN) over third-party sellers even more direct. It marked the first time that eBay has ever publicly compared its pricing with Amazon. The enhanced eBay assault comes at a time when Amazon is feeling a lot of heat on its Marketplace third-party seller program—and as other retailers are preparing to create such marketplaces of their own.
eBay marks the second direct assault on Amazon Marketplace in as many weeks. The first came from Germany, where government officials are challenging Amazon's ability to force marketplace merchants to always give Amazon their lowest prices. And a federal class-action lawsuit in the U.S. is saying that Amazon delays its payments to other merchants deliberately and for too long.
None of these moves can slow Amazon's marketplace efforts much, but they don't have to. To the extent that it makes Amazon's third-party merchants itchy to look elsewhere—perhaps into the waiting arms of eBay or Walmart.com (NYSE:WMT)—then Amazon has reason to worry, because the advantages it gets from these merchants extend well beyond the revenue commissions.
Say what you will about eBay, but it has a lot of experience working with smaller merchants. eBay's task is not necessarily to make those merchants feel welcome. It's merely to make them feel more welcome than they do at slow-paying price-locking Amazon.
As for that simplified pricing that eBay is touting, the pricing that will make it more of an effective alternative to Amazon, it doesn't fully deliver. It might, however, deliver enough for the right sellers.
There is little demand for simplified pricing. What merchants want is lower pricing, and eBay's changes deliver. But only for some.
eBay said it will be "rolling out several seller release updates over the coming months." (Of all the various marketing ways to avoid specifying a timeframe, this is now my new favorite: "coming months.")
It did offer a slightly more specific timeframe—"this Spring"—for one element of the changes, namely "simplified fees" that eBay says will "virtually eliminate upfront costs for all sellers."
Other elements are "enhanced seller protections and more specific picture requirements."
"As you can tell this is pretty complicated. What you have to do is first find your category, then take the price that your item sold for, say $85. You pay $3.50 for the first $50 (7 percent) and then 5 percent of the next $35. In the World of eBay, we call these price break tiers 'tranches' and they cause both new and 10-yr experienced sellers to scratch their heads and pull out their calculators to try and figure out what the fees are going to be for their items," Wingo wrote. "In addition to being complex, these fees make eBay more expensive percentage-wise for low ASP items and then the effective take rate declines as a percent as the ASP increases. This also creates an 'optical' challenge for eBay because it makes eBay seem more expensive than it actually is."
Wingo told Internet Retailer that eBay's comparisons with Amazon are apples and oranges. "Amazon's 6 percent includes payment processing, he says. eBay charges 3 percent for PayPal, so that even the sellers who get the eBay discount pay 6.2 percent compared to Amazon's 6 percent," the story said. "Taking into account the new fee structure, eBay merchants whose average items sells for less than $100 and sell 12,000 items a month or less will likely save a bit, while sellers above those thresholds will pay slightly more."
eBay also promised changes designed to appeal to smaller merchants, such as removing negative feedback when a negative claim is disproven.