Pricing Products on the Web – It’s About Convenience for Many

Fascinating story on BusinessWeek.com about the evolution in eBay’s business.  It seems that 2008 has a real chance at being the first year in which fixed-price sales exceed auction-based sales.  In the first quarter, auction-based business grew at only 6% while fixed-price business grew by 22%.  While the auction-based business is still 58% of revenues, if these trends continue economists and promoters of “dynamic pricing” will have to recheck their assumptions about markets and why customers buy.

Our research shows that in all markets, there are four main buying behaviors: price, value, relationship and convenience.  Price buyers are focused on just that – getting the lowest possible price.  They will work tirelessly to get the best deal whether through auctions or using price comparison sites.  Value buyers focus on getting the best overall value and will pay more if they are convinced that they are getting greater total value.  Relationship buyers value the knowledge and expertise that a knowledgable supplier brings to a relationship.  Think about the tools that Amazon.com has deployed almost from the beginning to mimick the relationship that many hard-core biblophiles used to have with their local book store.  Finally, convenience buyers often know what they want and will go the most readily accessible and reputable source to get it.  Consider this quote from one of eBay’s customers.  “If I really want something, I’m not going to goof around [with auctions] for a small savings.”   These are the words of a convenience buyer.  To further complicate things, the same customer will exhibit different buying behaviors depending upon the item and purchasing context such as level or urgency (high versus low) and type of item (common versus uncommon).

Since eBay has always been known as an “auction” business does this mean that their business model is in danger?  Just the opposite.  One of the great features of their platform is that it allows sellers and buyers to choose a pricing model that works best for their objectives and buying behaviors.  If you view eBay as a service business, this is exactly what they should be working towards as it will grow their business by providing versions of the service that meet the needs of a greater variety of buyers and sellers.