Professors unlock key to Ebay sales
Michigan
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Professors unlock key to eBay sales
The next time you make an online purchase -- or online sale -- paying attention to the "plus shipping and handling" part of the transaction could save, cost or make you some extra bucks.
That's the upshot of a study by two professors who looked at how people react to the prices and shipping costs for items they put on the block at the eBay auction site. It turns out, according to their research, that people are a lot more likely to notice the basic cost of an item than to check the shipping charges.
The bottom line: Sellers can make more money if they charge a lower price for the item itself, but charge a bit more for the shipping fees, according to the study by UC Berkeley Haas School of Business professor John Morgan and Hong Kong University of Science and Technology assistant professor Tanjim Hossain.
"Setting a low opening bid and a high shipping and handling cost yield systematically higher revenue than doing the reverse," Morgan and Hossain wrote.
Why does this happen? Why don't people look at the entire price? The answers may lie in part in how people process financial costs involved in negotiations.
"My preferred explanation is people keep separate mental accounts for different aspects of a purchase," Morgan said. "People keep a kind of mental account for the purchase itself and put that in one silo, and they keep a separate mental account for the shipping charges and put that in another silo."
The professors conducted several auctions to compare what happened when the opening bid was low and shipping charges high to auctions when the bid was high and the shipping charges low.
In three out of four experiments, a lower opening bid and higher shipping charge generated more revenue than when opening bids were high and shipping charges were low.
For example, the professors auctioned 10 video games for the Xbox console. In one experiment -- where the opening bid was set at a relatively low level and the shipping charges at a relatively high level -- the average revenue for the auction was $41.06. That was 11 percent higher than the average revenue of $36.95 for instances with higher opening bids and lower shipping charges.
In one instance, of selling music CDs, low item prices and high shipping costs produced 34 percent more revenue.
But it doesn't always happen that way. In auctions of music CDs, which tend to cost quite a bit less than video games, it was difficult to get away with shipping charges that greatly exceeded the cost of the CD. When there was a real disparity, such as an opening bid of $2 and a shipping charge of $6, average revenues when the shipping charges were high fell 3 percent below the high-bid, low-shipping scenario.
"When we jacked up the shipping charges to $6, a lot of people perceived us as being crooks," Morgan said.
Morgan compares it to a $400 upgraded sound system that somebody might add to an automobile. People are more willing to pay that fee on top of the purchase of a $20,000 vehicle. But they would be more likely to balk if the $400 upgrade was in addition to an oil change.
"It's a pretty natural thing to just focus on the price," said Jennifer Brown, an economist and graduate student with UC Berkeley's Department of Agriculture and Resource Economics. Brown co-wrote a separate study that found that an auction of identical coins produced 60 percent more bidders on the eBay site than on the Yahoo! auctions site, and 30 percent higher revenue.
Matters have become more transparent on the eBay site. To help consumers, the company recently organized searches so shipping charges appear along with the item cost when the search results appear, said Catherine England, a spokeswoman for San Jose-based eBay Inc.
"We also have a policy against excessive shipping charges," England said. "But that's a gray area. If we get complaints about excessive shipping fees, we would pull that item from the site."
Ultimately, it's up to buyers to beware.
"The lesson for consumers is clear," Morgan said. "You want to pay attention to the overall prices, and not the individual components of the price."
The next time you make an online purchase -- or online sale -- paying attention to the "plus shipping and handling" part of the transaction could save, cost or make you some extra bucks.
That's the upshot of a study by two professors who looked at how people react to the prices and shipping costs for items they put on the block at the eBay auction site. It turns out, according to their research, that people are a lot more likely to notice the basic cost of an item than to check the shipping charges.
The bottom line: Sellers can make more money if they charge a lower price for the item itself, but charge a bit more for the shipping fees, according to the study by UC Berkeley Haas School of Business professor John Morgan and Hong Kong University of Science and Technology assistant professor Tanjim Hossain.
"Setting a low opening bid and a high shipping and handling cost yield systematically higher revenue than doing the reverse," Morgan and Hossain wrote.
Why does this happen? Why don't people look at the entire price? The answers may lie in part in how people process financial costs involved in negotiations.
"My preferred explanation is people keep separate mental accounts for different aspects of a purchase," Morgan said. "People keep a kind of mental account for the purchase itself and put that in one silo, and they keep a separate mental account for the shipping charges and put that in another silo."
The professors conducted several auctions to compare what happened when the opening bid was low and shipping charges high to auctions when the bid was high and the shipping charges low.
In three out of four experiments, a lower opening bid and higher shipping charge generated more revenue than when opening bids were high and shipping charges were low.
For example, the professors auctioned 10 video games for the Xbox console. In one experiment -- where the opening bid was set at a relatively low level and the shipping charges at a relatively high level -- the average revenue for the auction was $41.06. That was 11 percent higher than the average revenue of $36.95 for instances with higher opening bids and lower shipping charges.
In one instance, of selling music CDs, low item prices and high shipping costs produced 34 percent more revenue.
But it doesn't always happen that way. In auctions of music CDs, which tend to cost quite a bit less than video games, it was difficult to get away with shipping charges that greatly exceeded the cost of the CD. When there was a real disparity, such as an opening bid of $2 and a shipping charge of $6, average revenues when the shipping charges were high fell 3 percent below the high-bid, low-shipping scenario.
"When we jacked up the shipping charges to $6, a lot of people perceived us as being crooks," Morgan said.
Morgan compares it to a $400 upgraded sound system that somebody might add to an automobile. People are more willing to pay that fee on top of the purchase of a $20,000 vehicle. But they would be more likely to balk if the $400 upgrade was in addition to an oil change.
"It's a pretty natural thing to just focus on the price," said Jennifer Brown, an economist and graduate student with UC Berkeley's Department of Agriculture and Resource Economics. Brown co-wrote a separate study that found that an auction of identical coins produced 60 percent more bidders on the eBay site than on the Yahoo! auctions site, and 30 percent higher revenue.
Matters have become more transparent on the eBay site. To help consumers, the company recently organized searches so shipping charges appear along with the item cost when the search results appear, said Catherine England, a spokeswoman for San Jose-based eBay Inc.
"We also have a policy against excessive shipping charges," England said. "But that's a gray area. If we get complaints about excessive shipping fees, we would pull that item from the site."
Ultimately, it's up to buyers to beware.
"The lesson for consumers is clear," Morgan said. "You want to pay attention to the overall prices, and not the individual components of the price."
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Comments
<< <i>Duh! You don't need a PhD to figure that out! >>
That was old news since eBay started
<< <i>cool, it looks like the door is finally open to get a phd in ebay. >>
It is sometimes amazing what people will receive grants for.
<< <i>Duh! You don't need a PhD to figure that out! >>
No, but you do need one to write the grant so you can get gummint money to figure it out.
Keeper of the VAM Catalog • Professional Coin Imaging • Prime Number Set • World Coins in Early America • British Trade Dollars • Variety Attribution
Well,time is money, and all of the misc,fees I charge in my shipping are HANDLING FEES, so just think of every item you sell you are getting min/wage, thats fair in america, isn't it? Thanks for reading, EBAY 101.
Their results could have been created from this effect alone and not have anything to do with adjusting the shipping charges.
Joe,
<< <i>The one flaw in their experiment is something that is well known to readers of this board, namely that a low opening by itself will usually result in a higher ending bid than if you opened the auction with a high dollar amount.
Their results could have been created from this effect alone and not have anything to do with adjusting the shipping charges >>
Exactly, and you will note that there is no information about the profit level of a low start AND low shipping. That might result in even more profit if bidders are avoiding the low start high ship auctions because of the shipping fees.
I also liked this one:
<< <i>Brown co-wrote a separate study that found that an auction of identical coins produced 60 percent more bidders on the eBay site than on the Yahoo! auctions site, and 30 percent higher revenue. >>
You think that might have had something to do with the fact that there are more coins up for auction and therefore more potential bidders on eBay? "Studys show that you will have more sales if you sell things where people are."
All I can say is thank God for higher education and govenment grant money.
Check out my current listings: https://ebay.com/sch/khunt/m.html?_ipg=200&_sop=12&_rdc=1
Yep, I believe all the HONG KONG sellers heed his advise.
Take the Legacy Set for example.
Lets say one seller charged $15 for shipping and the other charged $5. Usually the item will sell for about $10 less for the person charging $15 shipping. They may sneak a couple through from people who didn't pay attention, but that's what I've usually seen.
By charging a higher shipping, you can save on fees because the final value fee will be less.
<< <i>Hong Kong University of Science and Technology assistant professor Tanjim Hossain
Yep, I believe all the HONG KONG sellers heed his advise. >>
Funny, the one thing I did buy from Hong Kong (laptop battery) actually had a lower shipping charge than many U.S. sellers.
Keeper of the VAM Catalog • Professional Coin Imaging • Prime Number Set • World Coins in Early America • British Trade Dollars • Variety Attribution
Also keep in mind that the average coin shopper is a lot more detail oriented than most video game shoppers.
Seriously, the price you get for merchandise depends on a whole lot more than just the buy price vs. shipping price. The sheer number of variables NOT taken into consideration by this so-called "study" is amazing. Also, the sample size is so small that I would be loathe to ever draw conclusions from it.
Some other factors that will affect the prices your auctions will bring (many of them more important than the ratio of item price to shipping charges):
1. Feedback rating of seller
2. Payment methods accepted by seller
3. Number and quality of photographs in auction
4. Clarity of auction wording
5. Return policy
6. Day of week and time of day auction ends
7. Auction + BIN vs. Auction + Reserve vs. straight auction
8. Use of optional features (bold, gallery, etc.)
This study is garbage.
1/2 Cents
U.S. Revenue Stamps
<< <i>In three out of four experiments, a lower opening bid and higher shipping charge generated more revenue than when opening bids were high and shipping charges were low. >>
They ran only four auctions and they have the stones to call this a "study"?
Russ, NCNE
<< <i>
<< <i>In three out of four experiments, a lower opening bid and higher shipping charge generated more revenue than when opening bids were high and shipping charges were low. >>
They ran only four auctions and they have the stones to call this a "study"?
Russ, NCNE >>
ROFL.... I was thinking the same thing.... So if I poll 4 people is my poll accurate?
<< <i>They ran only four auctions and they have the stones to call this a "study"? >>
I want a refund.
Keeper of the VAM Catalog • Professional Coin Imaging • Prime Number Set • World Coins in Early America • British Trade Dollars • Variety Attribution
I got zapped by high shipping on one of those auctions with the USPS link on it. Seller said "First Class Mail" so I figured shipping would be cheap. Wrong. He must have put 10 lbs for weight in the shipping calculator.
Pretty slick slickiness, I must say! Priority would have been cheaper.
<< <i>Just ordered my diploma for my ebaynomics degree. 32.99 plus 350.00 shipping and handling. what a deal! >>
If I only had a dollar for every VAM I have...err...nevermind...I do!!
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<< <i><< In three out of four experiments, a lower opening bid and higher shipping charge generated more revenue than when opening bids were high and shipping charges were low. >>
They ran only four auctions and they have the stones to call this a "study"? >>
You are making an assumption that may not be valid (but probably is). They say three out of four EXPERIMENTS not three out of four auctions. An experiment may be only a single auction, but it could just as well be a run of 50 to 100 auctions, or any number of auctions. there is not enough information in the press release for us to say how many auctions they ran. All you can say with certainty is that they ran at least four.