Home eCommerce Blog Online Auctions vs. Price Fixing: Which Model is Best for Your Business?

Online Auctions vs. Price Fixing: Which Model is Best for Your Business?

While it's certainly good practice for the average online seller to be mindful of the day-to-day changes in policy and sales volume across their different channels of distribution, it's occasionally very helpful to pay attention to the macro trends as well. And if you're commonly putting your inventory up on online auction sites such as eBay, like many of you are, there are certain movements in market behavior that you must take note of.

In this scenario, it's important to take the long view. Because even though these movements are steady, they are also relatively glacial in comparison to the fast-moving memes and short attention spans that drive many of the present day ecommerce analyses. In other words, sometimes it can be useful to take a look at the forest rather than the individual trees.

This is particularly true in the case of eBay, which has shown an interesting and not wholly predictable trend since its inception way back in 1999. Specifically, there's been a downward trend in the prevalence of online auctions, as opposed to price fixing, or eBay's "Buy it Now" option. This can be attributed to a number of factors. Time spent and the convenience of instant purchasing versus the novelty of online bidding is an easy choice for the ultra busy. However, that doesn't mean there is no place for online auctions in today's market, only that the issue merits careful consideration when deciding on the type and volume of products listed using each method. 

To make an informed decision, you need thorough research, which is why we've compiled historical data from eBay's backlogs, showing the alternating rise in price fixing and dip in online auction listings. Using this data, we've extrapolated some best practices for you to maximize your profits in each category. So let's dive right in and see where the market's been, where it's likely to go and how you can benefit from staying ahead of the curve. 

A Brief History of eBay

To add a bit of context to the current market situation, recall that eBay enjoyed a rapid rise in market share from 1999 until its apex in 2001, when it was ranked 3rd in terms of most time spent on a website, and its transactional volume was valued at USD $9.3 billion. During this period, there was no "Buy it now" option.

Of course, the advent of proxy bidding, a process that allowed for automated online bidding up to a price cap set by the individual user, played a large part in the prevalence of online auctions. When you don't have to be present for the auction, it certainly increases the convenience of the medium.

That USD $9.3 billion eBay was valued at has multiplied to an approximate USD $67 billion, as of 2012. However, the vast majority of that comes from fixed pricing rather than auction sales.

The only area in which auction listings hold the advantage over fixed price items is in percentage sold. An average of 49 percent of auction listings end up selling, compared with 42 percent of fixed price listings. The auctioned items, however, sell for much less money. Therefore, the 42 percent of total sales on fixed price items ends up accounting for a much larger piece of the overall pie.

Auction share on ebay

Additionally, general interest in online auctions has decreased, as shown by Google search volume. The big turnaround seems to have taken place between 2008 and 2009:

Online auction search volume

Why are Buyers Purchasing Instead of Bidding?

The simple answer to this question is that the marketplace itself is undergoing an evolution. A greater number businesses are listing their products on eBay, in addition to consumers selling their own personal effects to one another for sale. It makes more sense for a business to list their products at a set price, so they can predict profits and project sales figures. Individual sellers typically have more flexibility because they are listing products as hobbyists, or for a secondary income.

In 2005, business sellers accounted for just 16 percent of listings; by 2009 they accounted for 27 percent.

But price fixing isn't the preferred platform only for big companies such as Toys 'R' Us or Buy.com (both noted eBay sellers); even individual (non-business) sellers have shown a tendency to move toward fixed pricing over time.

Both individual and business sellers use auctions as well as posted prices. Even if sellers favor one sale format, they usually continue to use both over time, without converging to just one. This interesting phenomenon is probably the result of experimentation with both formats, to see which they can make more money with.

onlineauction listings

The answer to their collective experimentation is that auction listings are more likely to sell than their fixed-price counterparts, but they result in lower prices on average. Even though hosting auctions is a safer bet as far as returning some of your investment, most buyers prefer price fixing, as it results in a higher ROI.

What Does this Mean for You?

In general, you'll see higher rates of return on price fixing, but there is certainly still room for experimentation. Online auctions still have novelty appeal, just like live auctions (though not quite so much, in my opinion: in online auctions there aren't any fast talking auctioneers to amuse and amaze). 

Just as the brick-and-mortar market is overwhelmingly retail, so too will the ecommerce market eventually follow suit, despite the apparent staying power of auctions. At least, that's the reasonable conclusion to draw from the slow but steady descent of auction sales combined with the ascent of fixed price listings. 

Until eBay eliminates the option for good, you can still make money listing your wares in online auctions. However, there are some products that perform better than others. 

Product Categories That Sell Well in Online Auctions

Unique (or non-duplicate) products usually fare better in online auctions than commonplace ones. The less common an item, the better it will perform. Here is a short list of items that sell well in online auctions:

  • Collectibles: comic books, baseball cards, and the like.
  • Toys: a specialized category of collectibles; keep plaything rarities in the box and you might just be sitting on a goldmine in the future.
  • Jewelry: a certain aesthetic and a specialty market can help a certain piece transcend the value of any precious stones it might contain.
  • Clothing: some people just can't put a price on style. 

Although the downward trend in online auctions does indeed indicate a shifting of preferences among users, it's nothing that you need to worry about in general. Online auctions aren't going anywhere in any immediate sense, but their heyday is long gone. 

Keeping this in mind, it makes sense to offer a fixed price option in addition to your online bidding battles. In other words, you might consider doing both in varying volumes. Sell through eBay as well as through your own online store, and see what works best. Remember that traditional price fixing results in higher profits and only slightly lower numbers in total sales. So it's smart to put more eggs in that basket. 

Feel free to experiment with your listing strategies, but keep the statistics in mind.

What’s your opinion? Do you prefer auction purchases or fixed-price offers? Do you think the online and brick-and-mortar markets will eventually become mirror images? Let us know your thoughts on the matter in the comments section. 

The data in this article was collected from the Stanford University case study: Sales Mechanisms in Online Markets: What Happened to Online Auctions?

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