Last month, eBay (EBAY, Financial) introduced a new strategy for its seller promotion campaigns, which saw the company move from the free listing offers to what it now calls Final Value Fees. The new promo strategy involves capping commission fees at different invitation levels based on monthly sales.
For instance, some sellers receive an invitation for fees capped at $20 while others saw theirs capped at $50. These caps meant that for a Final Value Fees of $50, the seller would pay no more than $50 for the entire month. The fees were introduced in May and implemented in June.
That sounds like a good deal right? Well, not to everyone. Technically, in order to begin enjoying the full benefits of the new promo strategy, a seller would have to sell goods worth upward of $500. If not, then the previous promo strategy which offered up to 10% discount on listing fee would be a better option. This aspect has riled some sellers who view the new promo strategy as being selective in favor of high-volume sellers.
For instance, according to an article by ecommerce bytes, some sellers complained of the new strategy claiming that it also requires some sellers to buy a store. One seller was quoted saying that "eBay has changed their business model beginning in May 2016 and now are emphasizing that sellers who need more than the 50 free listings should buy a store."
EBay acts as an online listing marketplace for individuals and small businesses. This means that the company relies heavily on the performances of its members in terms of sales generated. The new promo strategy whose future is yet to be confirmed based on the recent seller outcry could affect eBay’s top line either positively or negatively depending on how sellers embrace it. Currently, it appears that despite the few critics, sellers are ready to roll with the new strategy.
The company’s online platform has been attracting a flurry of buyers and has shown no signs of slowing according to Andrea Boffo, the sales and marketing manager of Plusvouchercode.co.uk, an online platform that lists eBay, Amazon (AMZN, Financial) and Sports Direct coupons codes. McCormack said that during June “there was a lot of traffic tied to eBay promo codes.”
“Our sales do not seem to be affected by the new strategy. In fact, we witnessed a significant sequential growth in sales in that category,” added Boffo.
Now, if this new strategy is not discontinued, it could boost eBay’s sales significantly. Since the Final Value Fees strategy becomes economically valuable for sellers after reaching a certain sales figure, it means that they would do more to boost their monthly sales in order to enjoy the massive benefit tied to selling commissions.
EBay’s revenue and net income have been volatile over the last two years; given the fact that PayPal (PYPL, Financial) has already parted with the parent, it might be the right time to try out new strategies that could boost top line and subsequently result in improved bottom line.
As illustrated in the chart above, eBay’s revenue and net income have been volatile since the company jointly with PayPal announced the spinoff in 2014. This indicates that some of the sellers on the company’s ecommerce platform were unsure of what could follow next given the fact that eBay relied on PayPal’s online payments structure to facilitate customer transactions.
However, nearly a year later after the split was completed, things appear to be getting back to normal, and eBay feels that now may be the right time to move on to the next level, which is implementing strategies that could help it grow to new heights.
While speaking to Fortune magazine with regard to the spinoff two years ago, eBay's then-CEO John Donahoe explained that “the synergies that have boosted PayPal’s growth had started to decline,” and the best way forward for the two companies would be to part ways and operate as independent entities.
That comment came only a few months after he had emphasized the importance of both companies continuing as one. Nonetheless, following the eventual spinoff last year and the current changes that are taking place within eBay’s business model, it is clear that the separation has allowed both companies the freedom to try out new strategies that could unlock growth.
Conclusion
In summary, eBay top and bottom lines have been unpredictable in the last few quarters. The company is evaluating ways that it can use to generate sustainable income for the long term, and it recently introduced a new promo strategy for its sellers that can help it achieve that goal.
However, this new strategy has been met with mixed emotions with some sellers not embracing the change. The bottom line though is that if fully implemented, the new strategy could help to boost eBay’s top line. The new strategy encourages sellers to sell more every month, which is a good thing for eBay.
It also makes the company’s sales more predictable due to the capped commission packages, which sellers must strive to meet in order to enjoy the benefits.
Disclosure: No position in any stock mentioned.
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