48-Pricing in a Profitable Market
Over the last two years, eBay has raised its prices to improve its financial performance. Not that its financial performance has been bad. In fact, it has been good. But management believes it can be better with a price rise. The price increases eBay has provided the market have impaired eBay’s long-term future, even while improving its short-term profits.
When a leader raises prices in a marketplace, it has to consider whether it is setting a price umbrella over its competitors. This umbrella provides the competitors with enough margin to improve their products and offer tougher competition to the industry leader. Sometimes, these higher prices will also make customers mad. EBay seems to have both set an umbrella and made its customers mad.
The company is now losing market share to other competitors, especially Amazon. These other competitors have improved their offerings in the market place to make them, for some customer segments, more attractive than eBay’s product.
What alternative might eBay have had to a price increase in order to improve its margins? Perhaps the best alternative for eBay would have been to develop its economies of scale. Economies of scale don’t develop on their own. They have to be managed by the largest competitors in an industry. However, with an aggressive stance on economies of scale and with limits on price increases, eBay would put significant pressure on its competition. The competitors would not be able to compete as effectively because of the lower margins in the industry.
A 2022 website evaluated four online websites for sellers: eBay, Amazon, Bonanza and Etsy. The site ranked the four websites according to sellers’ ratings. Bonanza was rated the best overall. Amazon was rated 2nd and very good because of the size of its audience. Etsy ranked 3rd, with only a fair ranking, because of its higher fees and indifferent customer service. Fourth and last was eBay. Sellers ranked eBay as poor due to its erratic pricing and poor customer service.
Despite charging lower prices than Amazon today, eBay continues to lose users and market share. By the end of 2021, eBay’s market share among all online retailers was 4.7% compared to Amazon’s 38.7% and Walmart’s 5.3%. eBay’s future is bleak.
HOW CAN THESE BLOGS HELP ME?
If you face a competitive marketplace, read these blogs. We wrote them to help you make better decisions on segments, products, prices and costs based on the experience of companies in over 85 competitive industries. Much of the world suffered a severe recession from 2008 to 2011. During that time, we wrote more than 270 blogs using publicly available information and our Strategystreet system to project what would happen in various companies and industries who were living in those hostile environments. In 2022, we updated each of these blogs to describe what later took place. You can use these updated blogs to see how the Strategystreet system works and how it can lead you to better decisions.