eBay Inc. (EBAY) recently revised its incentive scale in an attempt to pacify ruffled sellers who are facing shrinking profit margins. The company also expects the new policies to encourage the best sellers to stick with eBay.
The company now promises a 20% discount to top-rated sellers on its Direct Seller Ratings (DSR) system. The rating system outlines four criteria based on which the vendor and the buying experience are evaluated by the buyer.
We believe the incentive revision will have limited impact on eBay’s performance. Management’s main problem seems to be the rating system itself. There is also a serious lack of communication between the company and its seller partners that could build a wall between buyers and sellers, rather than a bridge.
The fact that most sellers are unaware of any written policies that govern them is another major stumbling block. The rating system does not even consider all buyer feedback to be of equal value.
Another serious allegation against eBay is management’s habit of taking seemingly arbitrary decisions. For example, many vendor accounts have been suspended for no specified reason, thus increasing discontent.
Management also announced a reduction in payment options, specifying that sellers should not accept payment through checks and money orders. While this could increase the use of paypal, it shuts out buyers who do not want to go through the rigors of acquiring a paypal account.
We think management faces a number of issues. The first and most important is the perception of buyers and sellers regarding the company. eBay started out in 1995 as an auction house helping small sellers get the best price for their product. The customer base developed likewise, on the belief that products could be obtained at eBay for a reasonable price.
These dynamics have gradually changed with other classes of buyers visiting its website and the company adding larger suppliers and more popular brands. It is a pity that some continue to perceive it as “cheap”.
Management needs to get its act together if it wants to avoid alienating both buyers and sellers. In our opinion, marketing, supplier relationships, technology and website management are areas in need of particular attention.
Product definition is another important area, which the rating system does not clarify. While a good definition would attract the correct class of buyers, the failure to provide one would exacerbate buyer dissatisfaction. For a company that is supposed to bring buyers and sellers together, eBay certainly has a lot of work to do.
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