QuestionsEvaluate eBay’s fee structure. Is it optimal or could itbe improved? Why? How? 530PART 5CREATING VALUEMarketing Excellenceinto a wide range of other categories-from boatscars, and travel to health and beauty and homeand garden-collectibles now make up only a smalpercentage of sales.eBay now offers more pricing options, including>> eBayIn 1995, Pierre Omidayar, a French-Iranian im-migrant, wrote the code for an auction Web site a fixed-price "buy it now" option to those who dontwhere everyone would have equal access to a sin-gle global marketplace. Omidayar couldn't believe seller's price. Sellers can also use the fixed-priceit when a collector bought the first item, a broken format with a "best offer" option that allows them tolaser pointer, for $14.83. Soon the site grew into counteroffer, reject, or accept an offer.a broader auction site where consumers could sellcollectibles ranging from baseball cards to Barbie connecting individuals who otherwise would not bedolls. The momentum continued when individuals in touch. It was the first example of online social net-and small businesses discovered that eBay was working, years before Twitter and Facebook existed,an efficient way to reach new customers and other and consumer trust is a key element of its success.businesses, and large companies began using it as While skeptics initially questioned whether consum-a means of selling their bulk lots of unsold inven-tory. The company grew from 250,000 auctions believed people are innately good, and eBay's origi-in 1996 to 2,000,000 auctions in 1997. In 1998, it nators did two things well: They built a strong onlinehired Meg Whitman as CEO, and she helped take community, and they developed tools to help rein-eBay public later that year.eBay's success created a pricing revolution be- and publishes the reputations of both buyers andcause it allowed buyers to decide what they would sellers on the basis of feedback from each trans-pay for an item. The result pleased both sides; cus- action. It now has four seller criteria: items as de-tomers gained control and received the best possible scribed, communication, shipping time, and shippingprice for the item, while sellers made good margins and handling rate. The ratings are anonymous butdue to the site's efficiency and wide reach.For years, buyers and sellers also used eBay as appear at the top of search results.an informal guide to market value. Even a companywith a new-product design that wanted to know the ities, services, and partnerships to continue build-going price for anything from a copier to a new DVD ing its community and connecting people aroundplayer checked on eBay. The online marketplace the world. For instance, the company acquiredwas fascinating to economists as well, who used it PayPal, an online payment service, in 2002 afterto analyze pricing theories and compare them with eBay members made it clear that PayPal was theactual buying and selling behaviors.eBay itself doesn't buy any inventory or own consumers a safe way to transfer money, loweredthe products on its site. It earns its revenue by currency and language barriers, and helped mer-collecting fees: an insertion fee for each listing chants sell their products around the world.plus a final-value fee based on the auction or fixedprice. For example, if an item sells for $60.00, the boom and has achieved tremendous success sinceseller pays 8.75 percent on the first $25.00 ($2.19) then, it has had its fair share of challenges. Theseplus 3.5 percent on the remaining $35.00 ($1.23). include a worldwide recession, increased competi-Therefore, the final-value fee for the sale is $3.42. tion from Google and Amazon.com, and difficultiesThis pricing structure was developed to attract expanding globally into markets such as China.high-volume sellers and deter those who list onlya few low-priced items. With eBay's expansion company for 10 years añd was replaced by Johnwant to wait for an auction and are willing to pay theThe company's business model is based oners would buy products from strangers, Omidayarforce trust between strangers. The company tracksare visible to buyers. Sellers with the highest rankingsOver the years, eBay has expanded its capabil-preferred method of payment. The acquisition gaveAlthough eBay was a darling in the dot-comMeg Whitman retired in 2008 after leading the"Some believe eBay was created to heip Omidayar's girlfriend collect Pez candy dispensers. However, that story was invented by anemployee to help generate initial interest in the company.shutts DEVELOPING PRICING STRATEGIES AND PROGRAMS CHAPTER 16531Donahoe. Under Donahoe, eBay has made 34 appliance every 26 seconds, and an LCD televisionacquisitions-primarily e-commerce and payments every six minutes. With its high volume, its acquisi-businesses such as Shopping.com, StubHub, and tions, and consumers' increased use of mobile de-Bill Me Later but also businesses offering back- vices, Donahoe hopes to double eBay's active-userend technologies. Donahoe is moving the com-pany toward a business model that can compete revenue from $14 billion to $23 billion.with Amazon.com, including expanding its onlinemarketplace to include many returnable goods Questionsat fixed prices. Only 30 percent of eBay's salesnow come from auctions. The company has alsobeen promoting eBay Now, which partners withbig retailers like Macy's, Target, Home Depot, andToys "R" Us to deliver orders in about an hour for aminimum charge.Today, people can buy and sell virtually anyproduct or service on the world's largest online mar-ketplace. From appliances and computers to carsand real estate, sellers can list anything as long asit is not illegal and does not violate eBay's rules andpolicies.The impact of eBay's global reach is significant. 26, 2006, pp. 1,71; Clive Thompson, "eBay Heads East, Fast Company, July-AugustIn 2014, the online marketplace had almost 150 mil-lion active users and more than 500 million itemslisted. A pair of shoes is sold there every two sec-onds, a man's necktie every 23 seconds, a major 2013; www.ebay.comcount to more than 200 million by 2015 and increaseEvaluate eBay's fee structure. Is it optimal, orcould it be improved? Why? How?Sources: Douglas MacMillan, "Can eBay Get Its Tech Sawy Back?," BusinessWeek, June22, 2009, pp. 48-49; Catherine Holahan, "eBay's New Tough Love CEO," BusinessWeek,February 4, 2008, pp. 58-59; Adam Lashinsky, "Building eBay 2.0," Fortune, October16, 2006, pp. 161-64; Matthew Creamer, "A Million Marketers," Advertising Age, June2006, pp. 87-89; Glen L. Urban, "The Emerging Era of Customer Advocacy," MIT SloanManagement Review (Winter 2004): 77-82; Greg Bensinger, "EBay's New Goal: DoubleIts Users," Wall Street Journal, March 29, 2013. p. B.5; Elizabeth Harris, "After CarriersFalter, Questions for Web Shopping," New York Times, December 27, 2013, p. B.1; JeffHimmelman, "eBay's Strategy for Taking on Amazon," New York Times, December 19,This study resourhared via CourseHe

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