eBay Bucks. Great Benefit? Or Good Marketing?

eBay has recently announced that they are beta'ing a buyer loyalty program [Article Link]. This not a new thing to e-commerce as almost every retail site out there has some sort of affiliate/loyalty program in which you can receive cash back and sites such as FatWallet [Fat Wallet Link] make it extremely easy for you to take advantage of these deals. Many say this might be too little, too late for eBay, but I think it is a win-win proposition for them. What many do not realize is that, yes you can get 2% back on your purchases, but that incentive just become an eBay gift certificate that will have to be spent within 30 days on their site.

So let’s dissect this from eBay’s finance department’s point of view. Let’s pick a highly sold item, say an Apple iPod 4GB Silver 3rd Gen [Wigix Link]. Let’s take this eBay auction for example: eBay Link. The seller has already paid $0.35 [I won’t count the subtitle and just assume that was free] to list this item and when the item sells, eBay will collect another $5.20 or so. So eBay has made roughly $5.50 on this transaction. eBay is now going to give 2% of the final sell price back to the buyer, which is roughly $1.50. Like all gift certificates, I am assuming eBay calculated a 50% breakage, so they only paid out $0.75 on this transaction. Now, let’s say the buyer purchases 2 items this month on eBay and accumulates $3 eBay Bucks, what can one possibly buy online nowadays that won’t cost more than $3 to ship [ok, yes, if you have Amazon Prime]. At the end, eBay is really not giving up much, if anything at all, and gaining a ton of good press.

I wanted to compare this pricing model to one of a new emerging marketplace, Wigix. Wigix’s fee structure [and most new online marketplaces out there] is more competitive than eBay’s entire fee structure even with this additional 2% cash back. Wigix has no listing fee and charges nothing for all sales under $25, then a very simple structure for all items above $25. If that same iPod Nano was sold on Wigix, the seller would have only had to incur a fee of $1.50, a 75% savings compared to what they would have paid if it sold on eBay. Even if we factor in the buyer’s cash back promotion eBay is running, Wigix is still only charging 60% less compared to eBay. This pricing structure is extremely competitive and a great start for the promising company.