EcommerceBytes-NewsFlash, Number 489 - February 21, 2003 1 of 1
eBay's Increased Reserve Price Fees Has Sellers Voicing Reservations
By Ina Steiner
Some eBay sellers are re-thinking their strategy on high-ticket items after eBay announced that it will be changing the fee schedule on Reserve Price auctions. The Reserve Price feature puts a hidden minimum price on an auction. If the auction never meets the Reserve price, the seller is not obligated to sell the item to the high bidder. Many eBay sellers use Reserves to ensure that their item does not sell for a price lower than they wish.
The most dramatic increase in the fee structure will affect listings with Reserves over $99.99. Sellers with Reserves over that threshold will pay a fee which is 1% of the Reserve price, with a cap of $100, instead of the previous $2 maximum fee. The change goes into effect beginning March 4, 2003.
David Steiner, AuctionBytes co-founder, has followed eBay's pricing strategy since 1999. "This can add up to a hefty fee increase that will substantially affect sellers of high-ticket items."
Steiner said if a seller wants to ensure a minimum selling-price of $1,000, they could start the bidding at $499 with a $1,000 reserve price. Under the current system, the Reserve price fee is capped at $2. Under the new pricing, which goes into effect in March, that seller would pay $10 - a 400% increase.
Why not just start the bidding price at $1000, then? Buyer behavior, or the psychology of auctions, say some sellers. Buyers are attracted to listings with a lower price. Once they have bid on an auction, sellers believe they are then "vested" in that auction and will follow it throughout the duration.
One PowerSeller, who wished to remain anonymous, explained that he uses Reserves because, "these days, the bids on eBay aren't going high enough." But, he said, each type of item has its own dynamic. "The strategy for selling Electronics is not the same as for selling dolls, for example. Even within the same category, there are differences."
Steiner said that the new fee increase could cause sellers to start listing their auctions with a higher starting price to avoid paying the Reserve Price fee. "For example, the seller may opt to start the auction off at $1,000 with no Reserve." explained Steiner. "In my opinion, this defeats the online auction format. It seems to me that eBay favors a fixed-price format for high ticket items, and this is one move toward that."
eBay spokesperson, Kevin Pursglove disagrees.
"We think that it will help bidding in the long-run." Pursglove explained. "There were several issues that guided our decision. First, we had not restructured Reserve fees for several years. Secondly, it's our desire to have a fee structure that has a multitude of tiers. And finally, we heard from many bidders who had grown increasingly frustrated by what they perceived to be intentionally high reserves which discouraged bidding."
Pursglove also pointed to the practice of some sellers who put Reserve prices on their auctions and, when the Reserve is not met, contact bidders to complete the transaction outside of eBay.
Although they're not happy with the changes, some sellers will continue to experiment with Reserves. "If I have the profit margin to absorb the extra fee, I will use the Reserve price option on items with limited demand." explained the anonymous Powerseller. "eBay has already taken enough fees out of low-end auctions and can't take any more without driving sellers out of business. Now they're coming after high-end items."
About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to firstname.lastname@example.org.
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