Monday, May 3, 2010

Ever Wonder Why People Sell Nice Items at a Loss on eBay?

I get this question all the time, "How can people be selling XYZ product so cheap on eBay? Where are they buying it for such a low price? How are they making a profit?" Astute observation. Large sellers afford to sell their products at a loss. This done by design. They are not even on eBay to make money - they are there for something else.

eBay is one of the largest and busiest websites in the world. Millions of people are assembled, cash in hand, eager to buy. Large sellers and big corporations ("The Big Boys") must have a presence on eBay. The strategy goes something like this:

A big corporation opens a store on eBay and sells products cheaper than the competition just to get the sale. They don't care if they are losing money. After the money changes hands, the seller has the buyer's address and email address and has a business relationship with that customer. When the seller ships the order, they can include marketing material in their order in the hopes that the customer will visit their website and buy the product directly from them. Big companies are using eBay for cultivating new customers. The seller is taking a $10 loss on each sale, but they are gaining customers who they will build long term relationships with. These sellers are looking at the big picture rather than the individual sale.

This strategy works extremely well if the product is consumable such as skin care products, gourmet coffee, printing supplies, batteries, or cosmetics. Consumables get used up and have to be replenished on a regular basis. Companies find customers on eBay, establish contact through one sale on eBay, recruit the customer to visit their own website instead of eBay, and sell $20 or $30 worth of goods a month to that customer for many years. The long-term relationship and steady revenue stream far outweighs the initial loss on eBay.

The next time you are checking out your eBay competition and find a competitor whose prices are ridiculously low, examine the seller's their feedback page. Are they selling hundreds of items a month? If so, those sellers are on eBay for one reason, and it isn't to make money. It is to harvest customers. But don't let this scare you - there is still a place for the small seller on eBay. There are some things we can do better than the big guys.

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