Thursday, February 10, 2011

The Customer Is Often Stupid

While covering eBay analyst day today, eBay blogger Richard Brewer-Hay (@ebayinkblog) posted these comments on Twitter.

1. Many shoppers prefer free shipping. This is becoming a base-level expectation for ecommerce #ebayinc

2. One third of eBay Q4 sold items had free shipping up nicely over the last two years. #ebayinc

If I interpreted correctly, he was repeating sentiments expressed by Christopher Payne, "head of North America eBay marketplaces."

Well, who wouldn't prefer anything that's free? The problem with this thinking is that shipping is never "free." No matter how it's described to you on a web site, you're paying for it. Whether it's a brick and mortar store, Amazon, or a seller on eBay, every cost of doing business is always passed along to the customer. Always. The "free" shipping option on Amazon is no exception. It just means their profit margins are high enough that whatever economy shipping method they use is built into the price, as long as you spend at least $25 on your order.

And that's true of any Buy It Now item on eBay with "free" shipping, too. The seller has already factored his/her cost to ship and built it into the price. Most sellers who offer free shipping on auctions have built it into their opening bids. Find some who didn't, and you could get very lucky. Those sellers don't tend to last long, though, unless they're selling "hot" widgets that will almost always command good bids and listing them with proper titles, descriptions, and photos. You're far less likely to get a great deal in those cases, though.

How does encouraging sellers to offer "free" shipping benefit eBay? First, they want to compete with the Amazon model. There's nothing wrong with that, but until eBay gives indepedent sellers the boot and manages all the inventory and sales themselves, that's never going to happen. All those shipping supplies Amazon uses? They pay a lot less for that stuff than you or I will pay, and they get the discounted prices for the same reason they get discounts on books and movies. They buy in volume, the kind of volume most eBay sellers will never dream of doing. Second, eBay doesn't collect fees on added shipping charges. If the cost to ship is built into the price, that's better for eBay's bottom line.

What does that mean for shoppers? Remember the part about all costs of business being passed to customers? eBay fees are no exception. Sellers are prohibited from adding a surcharge for eBay fees, but the shipping, handling, and eBay fees are built into the price. A "free" shipping offer means additional eBay fees are in the price of your item. If Seller A has Wanted Item for a $24.99 Buy It Now price with "free" shipping, but Seller B has Wanted Item for $19.99 and $2.99 shipping, are there really buyers who will prefer the listing with "free" shipping? Don't doubt it for a second.

There are two kinds of shoppers who prefer "free" shipping: those without any understanding of how business works and those who suck at math. The rest of us just want the best deal, and we couldn't care less how it's calculated.