EBay adjusts pricing to encourage low-cost sellers

SAN FRANCISCO (Reuters) - Online auction leader eBay Inc on Tuesday introduced price changes and tighter sales standards in a bid to retain quality sellers, improve customer service and revive flagging growth.

EBay CEO Meg Whitman and CEO-in-waiting John Donahoe in Sun Valley, Idaho, July 11, 2007. The online auction leader on Tuesday introduced price changes and tighter sales standards in a bid to retain quality sellers, improve customer service and revive flagging growth. REUTERS/Rick Wilking

In a speech to eBay’s top store operators and market makers in Washington D.C., CEO-in-waiting John Donahoe will set out a plan to reward the company’s best sellers with sales incentives and priority ranking in search results for auction items.

Key changes involve lowering fees for listing items within auctions or for independently operated stores run on eBay. It also involves raising some of the fees sellers pay once sales transactions are successfully completed. And eBay plans to raise minimum standards to discourage abusive sales practices.

“Sellers that describe items accurately, ship on time, and ship at a fair price will enjoy preferential pricing and discounts on eBay,” Donahoe said in prepared remarks. “We’re serious about making eBay easier and safer to shop.”

EBay is seeking to reverse slowing revenue growth in its marketplaces business, which is roughly half the level of three years ago. The company telegraphed that changes were in store last week when it reported its 2007 year-end results.

The moves initially take effect February 20 in the United States across both auction bidding and fixed price markets. In coming weeks, similar changes will be introduced in Germany and Britain, eBay’s No. 2 and No. 3 markets. Eventually, the pricing and other rules changes will take effect worldwide.

In the United States, eBay plans to reduce insertion fees -- the cost of listing new items -- by 25 percent on most auction items and by 50 percent on most store items.

The fee changes, which vary by country, are intended to encourage sellers to list more items and use more pictures to illustrate listings, moves designed to encourage shopping.

Final value fees, or the price sellers pay for successfully completing a sales transaction, go down as the value of items go up. The pricing changes lower the up-front risk if listed items don’t sell. “Put simply, we will make more of our money when sellers are successful,” Donahoe said in a statement.

Long-serving eBay Chief Executive Meg Whitman said last week she planned to step aside at the end of March and be replaced by Donahoe.

There were 532,000 stores operated with the eBay network in the fourth quarter. The company no longer discloses the overall number of sellers who participate in its auctions business. But it boasts 1.3 million people make some part of their living selling goods or services on eBay sites globally.

Along with fee changes, eBay is making its minimum standards more stringent for anyone who sells on the site, primarily to discourage behavior like charging excessive shipping fees or not describing listed items accurately. Sellers with high customer dissatisfaction ratings will be given lower priority in searches consumers perform on eBay.

Analysts said the changes were welcome but that eBay has a lot more to do to revive its growth in its auction business.

“While the moves are bold, I don’t think they are going to change the face of competition,” Scot Wingo, chief executive of ChannelAdvisor, a sales consulting group that advises online merchants who sell through eBay and other sites.

But Wingo said eBay was headed in the right direction by cutting fees that have pushed some merchants off of eBay, reversing a pattern of fee increases seen in recent years.

Lower fees could help woo back sellers of books, music and videos -- items that typically sell for under $25, he said.

“These guys have had a very tough time as (auction listing) prices and then store prices went up,” Wingo said. “That drove a lot of selection off the site,” he said, both to rival and to Web sites these merchants set up themselves.

Deutsche Bank analyst Jeetil Patel, one of two out of 27 analysts who recommend investors sell eBay shares, has argued eBay must drastically cut its sales commission structure in order to compete with Amazon, which will require “hitting the Reset button on (its) business model,” he wrote last week.

“We think the structural issues may take years to overcome, given the economy, competition and financial impact,” he said.

Editing by Derek Caney