Using eBay as part of a multi-channel advertising campaign (Charities and Product Launches)

Originally when we started bringing companies onto eBay, it was for the lure of fast cash and turns of distressed inventory. eBay lived up to the promise that you could move large amounts of distressed goods online in a short amount of time. Our mission was to do it in a way that least impacted a company's other lines of business.

This approach has changed quite a bit. Now we have a multi-faceted approach to servicing a brand name company with regards to eBay. We have started using our clients distressed inventories and strong brand name position to leverage in highly visible ways on eBay. Before we reduced visibility to reduce channel conflict.

We do this a couple ways. We have been conducting more charity auctions of both new and used goods. We are also doing product launches.

Imagine you are a gaming console manufacturer. Invariably you experience high levels of demand when you launch a new console. This results in above retail prices for a month or two till demand drops to normal levels. Typically arbitrageurs buy at retail and sell higher on eBay - pocketing the difference. By using eBay as an advertising and charity platform, you (the manufacturer) could release limited amounts of consoles out to the market and donate all or some of the proceeds to charity. You would help eliminate some of the inefficiencies caused by demand and a slow supply chain. You would also help out your favorite cause. More so, you would be able to include this action as apart of your multi-channel advertising towards your product launch. The resulting press would be entirely free and of a positive bias given your actions.

We have also done this with refurbished and obsolete product and it has proven very effective. Prices garnered are almost always higher when associated with a charity. The tight price elasticity on eBay is not experienced in this situation. There may also be lucrative write-offs for this product is the charity gets 100% of proceeds.

One auction that is currently running that has garnered an amazing amount of traffic and press, has been our auction of an XBox super bundle signed by Bill Gates. Microsoft used Channel Velocity to launch this charity auction in time with their launch of the highly anticipated Halo 3 game.

Channel Velocity in Marketing Channels 7th Edition

Recently Anne T. Coughlan, Erin Anderson, Louis W. Stern & Adel I. El-Ansary published the seventh edition of 'Marketing Channels' . This is the seminal channel management text used at Kellogg and many other schools seriously dedicated to marketing eduction. I remember working through the sixth edition when I took Channel Management from Anne in 2004. It is a phenomenal text for those truly interested in channel marketing.

What I never expected three years ago, was that our company Channel Velocity, would be used as an example of pioneering new channel management techniques that deal with reverse logistics issues. The new edition cites our efforts and unique business model in a new section dedicated to reverse logistics issues.

I'll be posting excerpts from the book once I get permission from Anne to do so.

Competitive Market Strategies

I love Marketing. Marketing is probably the most enjoyable subject matter to me. A deeper subset that intrigues me is competitive marketing strategy.

For instance, should you pioneer a new, uncertain market for the chance to gain a large share...only to lose much of it later? Or should you enter later, only to face a steeper uphill climb such as lower revenue per customer, higher expectations and likely a smaller marketshare.

Our company entered the online auction industry later than most, so this was the main question we faced. We were seeing incumbents that have been in place 3 years ahead of us and already going into follow on rounds of funding.

We chose a late entry strategy and built services and software that highly differentiated us from our competition. Recently, meetings with major corporations in our industry seeking auction services and software have proven much more fruitful than they used to. This is based largely upon offering highly differentiated product given our rapt attention to the needs of particular underserved customer segments.

Online auction services and software is a highly fragmented industry spanning several distinct customer segments. In my experience it is one the hardest industries I have seen to attack with a broad offering. Marketing strategies are extremely reliant upon the fabric of a given marketplace obviously. Existing competitive structures should be examined closely. Interestingly enough our industry is overshadowed by eBay. One of the tools to apply to the industry is Michael Porter's Five Forces Model. Once you apply this model to eBay it is quite clear that bargaining power is lost since there are nearly 200 Million registered users with little better option for buying or selling into online auctions. It was recognized early on that online auction providers faced a winner take all market and that has proven true in the case of eBay with 95%+ of online consumer auctions.

How does the structure of a marketplace affect 'value-added externalities' like auction service and software providers. When you have one major marketplace driving all the business, what do you suppose happens with competitive pressure and marketplace structure?

Thoughts on Auction Psychology

One of the most interesting aspects of my work at Channel Velocity is the observance of consumer buying behavior on eBay. Since the first days we started selling consumer products we would observe many counter intuitive concepts. Recently I did an interview with the E-Commerce Guide during which I explained how we have been able to maintain such a high volume of sales on eBay given the low amount of SKU's (stock keeping units) that we sell for many of our manufacturer clients. The article, titled eBay Tips: How to Sell in Volume, explained my ideas on what I refer to as the Waterfall Strategy.

Auction Economics
I believe that online auctions are based largely upon economic principles of supply and demand. That being said there are a few exceptions to the basic assumptions of supply and demand. Recently, some research was published from my graduate school regarding auction pricing. The authors of the article, Adam Galinsky & Keith Murnighan, espouse the concept that lower auction prices will result in higher ending prices. Since a lower price will entice more bidders, then more bidders will compete for the item as the auction seeks a market price. Their research is certainly supported from my experiences and our internal data. I have always been a proponent of low starting bids given the amount of traffic and higher prices it generates. This assumption holds true so long as supply remains constant. In many cases, if you were sell only one item then you would want to take this advice and start with a low start price. But, what if more products are introduced by a competitor or you have multiple units to sell.

Waterfall Strategy
Since I and some daring individuals started the company, we were warned by many that there was no practical way to sell high volumes of like items in an online auction marketplace. To an extent this was a valid assumption since there was only so much product you could sell until the price degraded below a certain limit or cost. Since our business plan was purely B2C, we had to figure out effective ways to move large volumes of products for our corporate customers.

Early on, I handled strategy for all of our auctions and it wasn't long before I was becoming overwhelmed by our clients supply of individual SKUs. We would encounter hundreds and thousands of one item and have to sell through these products in weeks or months. The goal, especially for consumer electronics, was to sell it as fast, yet for as high a price as possible. The bottom line was the highest net price for the client. These products, especially consumer electronics, are not aging like fine wine but more like wilting lettuce. Therefore, there is an urgency to sell quickly. This urgency is not well suited in an auction environment, since more supply decreases ending prices if demand remains constant.

Perfect Competition
So early on I started following the assumptions around low starting prices and had some early success. I was also careful not to let on to consumers how much product we had sitting in our warehouse. For instance, I did not list fixed price store listings on eBay with 50 of the same item. That would effectively broadcast that we were waist deep. This starts to touch on consumer psychology. EBay is extremely transparent on available supply both current and historic. You can run completed auction history and see with perfect clarity what everyone is doing.

This, brings me to my next point about perfect competition. Another popular subject of economics is competitive structures within marketplaces. EBay, by providing copious data, is supplying important competitive information. While not perfectly clear, the data does provide more visibility than any other online marketplace. This supply of data brings about a whole new level of consumer enlightenment. Interestingly, this is in line with the concept of perfect competition, a market dynamic where there are many competitors selling commodities and information is freely available to buyers making it nearly impossible for any seller to gain an advantage.

Basically this dynamic will bring about different competitive pressures. I see more emphasis being put on technology that supplies improved automation and market insight that is usuallly hard to distill. Other than that, price rules. The only other aspect to scaling and sustaining a business in a space like this is to gain a significant competitive advantage at the source. Securing a supply side advantage through preferential pricing, product exclusivity and/or controlling distribution.

Counter Intuitive Aspects of Auctions
So after lengthly pontificating about starting with low starting prices. There are exceptions to the rule.

Example 1 - Products that have infrequent sales. Take a car part that only a few people want occasionally and have a small window of time to buy it when they really need it. Listing this product at .99 cents starting is not going to result in the highest possible price. In fact, a reseller is more likely to buy it for lower price given no available buyers and hang on to it till they find a buyer.

Getting ready for the Big Move

We have finally negotiated the final lease for our new Chicago Office. We located in River North Chicago and the office is part of an old industrial manufacturing building. Many of the tenants are design firms and art galleries. The Channel Velocity offices have polished wood flooring and exposed brick walls which add a lot of charm. We're sad to say goodbye to Evanston and Northwestern but its all part of growing up. We'll be moving effective September 1st 2006.