How to build Sales Momentum on eBay?

 

“It’s the price, stupid.”

Years ago when I began selling on eBay, I was a snob. From a corporate background where we didn’t get out of bed for anything under 50% margin, when my competitors discounted I would flatly refuse to price match.

Why should I? If you want to deal with me you’re going to have to pay more because my listings have better photos, I am a PowerSeller, I have 100,000+ feedbacks and I am a nice guy to deal with, and so on.

This pride and stubbornness saw my sales momentum decline and forced me to change my pricing approach.

I experimented with being the 3^rd cheapest, the 2^nd cheapest, the average of the lowest 5 active prices, the average of sales made in the last 7 days – you name it, I tried it all.

But no matter what I did, my sales kept sliding. My competitors kept growing. Every sale I lost was a win for them. I could almost imagine them high-fiving each other every time they stole a sale from me! I was motivating them, feeding their egos, giving them cash flow (oxygen!) and profits.

Then one day when I was shopping on eBay myself, I realized that after deciding the brand and model of the product I was looking for I subconsciously clicked “Sort : Price + Postage: lowest first”.

That was the moment of revelation!

If that’s how I shop on eBay – why wouldn’t all my customers be doing exactly the same thing?

So I changed my pricing to match prices exactly, dollar for dollar, against my competitors.

My sales doubled overnight.

Yes, I was making less margin overall, but I was not complaining. Online retailing is the new world order. I preferred having the turnover. I needed the scale to build volume for the business so that I could be more efficient and achieve a lower overall per-transaction cost and better freight rates from carriers.

eBay wants buyers to shop branded merchandise – at the lowest price.

It has also been eBay’s strategy in the last couple of years to position itself as the marketplace for “Big Brands. Big Savings”.

Amazon’s higher fees make it less competitive for a seller offering branded goods.

With eBay’s Item Specifics, catalogue and the recently released “Group Similar Listings”, here’s what it looks like when searching for Beethoven’s 5^th symphony:

eBay is now grouping identical products for customers so that they can easily pick the one with the lowest price. In addition, their one-sided, ultra-protective ‘Trust and Safety’ policies favouring buyers who action returns and refunds, is removing the risk when choosing between a good or bad seller. If the product is the same and the choice of seller is practically risk-free, there is no compelling reason for a buyer to pay any more than the lowest price.

2. Dynamic Repricing

Be proactive and maintain your sales momentum. Revise your prices competitively.

Have you ever plotted your competitors’ prices on a graph to see how they change over time? If you superimpose their sales onto this price graph, it provides an excellent view of price sensitivity in the market.

It is even more fascinating if you plot how your competitors’ pricing reacts every time you change your prices.

Every seller reprices from time to time. The question is:

How do you ensure competitive repricing?

There are many reasons to reprice; changes in supplier costs, discount levels, spot deals, freight rates, expenses, eBay and PayPal fees and even your target profit level.

Access to lower costs from your suppliers or carriers allows you to be more competitive, giving you “room to move”. So if the price of an item has moved lower, but after price matching you’re still within the target profit level, it would be sensible for you to consider a price revision and take the gap.

Are you making money?

The next question when repricing is: What should be the optimal price point?

The answer depends on your objectives, which we will discuss later, but first and foremost you must remain profitable. It sounds obvious, but you will be amazed by how so many sellers, large or small, forget to realise this. They either don’t know, or don’t want to know, whether or not they are losing money at their chosen price levels.

If an item costs you $60 and you sell it for $100, are you making a handsome profit of $40? Don’t forget the 3 most important cost components of a sale: Cost of Goods, Freight and Staff:

Cost of Goods must include the true landed cost, handling fees, warehousing costs, opportunity cost of money tied up, write-offs, provision for obsolescence, and GST/VAT/Sales Tax, amongst other things.

Freight is relatively straight forward when your products are small and light enough to utilize the flat-rate delivery services. Most sellers estimate non-flat-rate freight costs conservatively.

Staff costs are commonly underestimated. In my eBay business, I expand the definition of “Staff” into “Logistics”. The simplest method of estimating Logistics is to add up all your staff employment costs, rent, outgoings, repair & maintenance costs, materials, insurance, accounting & legal costs, etc. and divide the total by the number of transactions you expect to do over the period. If you, or your family members, work in the business, you should also take those salaries into account.

 

Upward vs downward pressure on price

Now that you know your costs and have set your floor prices, you are ready to address the issue of optimal price point.

This depends on whether you
a) are selling branded products, and/or
b) want to apply price pressure in an upwards or downwards manner.

1. a) Selling a branded product that is easily searchable and identifiable via codes such as the UPC (Universal Product Code) or EAN (International Article Number) means your choices are limited. If your price is out, your chances of success will be slim, whereas if you are selling a unique or exclusive product you can afford to charge whatever price you think the market is willing to accept and pay.b) Regarding price pressure, if you must price match, there is a chance for you to send a signal to your competitors. An exact price match is a neutral signal – you are forcing the buyers to choose the better person to deal with. If you have higher quality photos, a more professional layout and other intangibles, that may be all you need.Undercutting, irrespective of the magnitude, is aggressive and will invite a combative response, even though it is a proven formula to win short-term sales before your competitors react. If you undercut, the pressure on price is downward.

   My favourite tactic is to price match with a $0.50 premium. Although the $0.50 is negligible to most buyers, it does a good job of maintaining upward pressure on price. When competitors see you win business at a price that is not lower, there is usually no knee-jerk reaction of dropping the price, since you are making the statement “I don’t have to be cheaper than you, but I still beat you.”

There is an upside, just don’t reprice only when it’s too late

Just when you think it’s all about lowering the prices, Dynamic Repricing also works to lift the prices. This came as a pleasant surprise to me when I began but, when you think about it, it actually makes perfect sense. If your competition is out of stock or absent, shouldn’t your prices go up to where they were?

Dynamic Repricing is a tedious task, requiring dedicated staff for an average eBay store with a few thousand SKUs. The actual reprice is the easy part, involving a few clicks and keying in a number. It is the systematic gathering, cross referencing and analysing of data that is the real task, allowing you or your eCommerce platform to make the reprice decisions. A Price Monitoring process is an essential component of Dynamic Repricing.

Since it takes a lot of time and resources to do Price Monitoring properly, most sellers only do it sporadically and randomly, perhaps only even when they suddenly realize the product is not selling any more, by which time it’s too late and they have lost sales momentum.

 

3. Price Monitoring

How to systematically gather, cross reference, and analyse data. Quality data gives you options.

Price Monitoring is a mundane task, but a necessary evil.

Any seller can do it using an Excel file or, if more tech savvy, a database.

Making the right decisions about your pricing requires quality competitor data.  Since the objective is to win sales for your products, you need to examine each one individually and know exactly how it is selling or not selling.

Collect as much information as you can about your competitors, looking beyond price at quantities and locations, for example:

Where are your competitors based and where are they shipping the products from?
– An overseas purchase is always deemed to be more risky than a local purchase.
– Delivery lead time makes a difference.
– GST/VAT/Sales Tax thresholds for goods coming into the country become significant for high-value items.

The more detail you collect, the more options you have to reprice. For example, you may choose to have a country-based price differential as a premium over your overseas competitors’ prices which allows for a higher profit because you have the stock in the country for immediate delivery.