Internet Auctions

Pan West e-Business Initiative

In the last few years, the Internet auction has exploded as a fast and easy way to get rid of unwanted goods. For small business owners, Internet auctions can be a cost-effective way to test market products in an online sales channel and to liquidate dated or overstocked merchandise.

In fact, the online auction business model has helped to change the way micro-enterprises do business -- for the first time, home-based sellers are able to quickly connect with a global market at a price they can afford.

eBay – the Internet auction market leader – currently has over 56 million active users, and thousands of budget-conscious home-based merchants around the world now make their living using eBay to sell their products.

• Internet Auctions Explained
  
• Advantages of the Internet Auction Model
  
• Who Should Use Internet Auctions?
  
• Getting Started
  
• More Resources

Internet Auctions Explained

Internet auctions are often called online marketplaces. They bring buyers and sellers together in one Internet setting for the purpose of trading goods and services.

Most auction sites do not actually sell any products or services that they own themselves. They simply act as ‘hosts’ or ‘facilitators’ as they provide the structure necessary to list, display, bid and pay for goods and services online. The auction site functions as a local farmer’s market would function, as a meeting place to buy and sell goods people have brought with them from elsewhere.

Buying and selling processes differ, depending on the model of the particular online marketplace and the type of goods or services being sold. For example, some auctions are by bid only, some allow the sellers to set fixed prices for their goods, and some offer a combination of both. Some sites ask the buyer to name their price and see if sellers will match it, and some even ask the buyer to request goods or services they wish to buy.

Buyers may find items or services on an auction site by browsing through different categories, by searching using keywords, or in some cases, by visiting an auction member’s affiliated store. Then, they either bid on an item or service, against other users seeking to purchase the same item or service, or they choose to pay a fixed price which the seller has set in advance.

The auction site makes a profit by charging fees to list a product or service, and/or by taking a commission for each completed sale.

The eBay Factor

If you’re reading this guide and considering using an online auction yourself, you’ve probably heard about eBay. The company is certainly a pioneer and leader in the online auction market. As one of the fastest growing companies in history, eBay’s market share is reportedly at about 85%. An article of clothing is sold on eBay every 3 seconds. A car is sold every 90 seconds and 30 000 pieces of jewelry are sold daily. eBay does 23 billion dollars in annual transactions, and an estimated 400 000 people make their living through eBay.

eBay considers itself a peer managed online ‘community’ that “encourages open and honest communication among all it’s members”. It is this community structure that drives eBay’s buying and selling processes.

Other Auction Sites

Although eBay dominates the market, there are other online auction sites fighting for their fair share: Amazon and Yahoo offer online auction sites, as do Bidville, Ubid and Liquidation.com. And there are variations on the theme, such as priceline.com’s ‘reverse auction’ and Nextag.com’s ‘comparison shopping’ site.

There are also auction-type models specific to different industries and those that offer services for sale such as Elance Online outsourcing.

Advantages of the Internet Auction Model

The online auction model has distinct advantages over other forms of Internet sales. Understanding the effects of the model can help you decide whether auctions are right for your business. If you decide they are, it can then help you position yourself more effectively against your competitors. Below, we’ve outlined some key advantages to the online auction.

• The online auction is ‘open’ to the world 24 hours a day. Bids can be placed by anyone with Internet access at any time during the day or night. This makes the auction format highly accessible to users in rural areas, for example, and incredibly convenient for buyers and sellers in different time zones to ‘meet’ and do business.
  
• Excitement is generated around the bidding process which encourages people to buy and sell. The online auction has been likened to gambling. For example, a bidder may get so caught up in the excitement of the process, that a ‘winning bid’ may not be a means to an end of obtaining a product, but may -- much like gambling -- also be an end in itself. And as ‘playing the game’ can be as exciting as obtaining the product one is bidding on, the online auction generates a loyal following of customers who thrive on the bidding excitement.
  
• The auction site provides a cost-effective way to market your product or service online. Because of the convenient, easy access, the potential to get a good deal, or to have your item bid up to a high price, the online auction  can readily attract large numbers of users making it a cost effective way to market your product and sell online. Because of the built-in high traffic volume, the online auction is probably the cheapest form of Internet marketing available.
  
• There is a sense of community that is created through informal exchanges and feedback. The auction is usually a more informal sales vehicle than traditional online sales. You’ll notice ‘personalized’ messages beside items for sale, and buyers and sellers leaving ‘feedback’ for each other to strengthen or erode reputations within the auction network. This tendency towards peer management and social interaction helps to build a community online which promotes a culture of ‘belonging’ by connecting otherwise disassociated users around the globe.
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Who Should Use Internet Auctions?

• If you are seeking quick and easy access to new markets online
  
• If you want to test market a product or some aspect of your online business operations or sales processes
  
• If you have excess product to liquidate
  
• If you have no budget to build a website of your own
  
• If you have a limited budget to market your product or service online, you should consider using the online action model.
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Getting Started

Since the buying and selling processes on auction sites differ, its important to note that some of the best ‘how-to’ information can come from an auction site itself. Most sites offer comprehensive tutorials which outline how to buy, sell and collect payment, explain fee structures and, in the case of product based sales, provide tips for packing and shipping. In addition, in the case of popular eBay, workshops and seminars on the topic of ‘how to sell on eBay’ are commonly available in major cities.

Key Issues

1. Observe how others buy and sell
   The first step in selling a product on an auction site is buying. Why? Because, buying allows you to observe how other sellers position and sell their products. You’ll learn what kinds of taxes they are charging, how they pack and ship and even how they follow-up, post-sale. Think of it like competitive intelligence.
   
   By buying, you’ll also learn how an auction works and how buyers buy. For example, did you know most bidder activity on eBay happens in the last few hours and even minutes of an auction? As a seller, you’ll need to be patient, understanding that most activity happens towards the end of an auction.
   
   
2. Determine what to sell
   When you’re ready to sell, you’ll need to be aware of user agreements: what you can’t sell, the rules around listing and selling items, age restrictions and so on. For example, drugs, firearms, stolen goods, and some adult material are no nos on eBay.
   
   Then, you’ll need to find a niche. This is getting harder to do, especially on eBay as more and more sellers begin using the marketplace. Yet, it can still be done through research, research and more research. Watch completed items listings and hot items. Can you source a similar product at a low price point? Look for trends you see in your own community. Can a local trend be globalized successfully online?
   
   Also think about what you are good at and what you enjoy. For example, do you have a knack for finding vintage clothes at bargain prices? Consider turning a hobby into an online business.
   
   If you are already operating a business, consider if a site like eBay could be a new sales channel for a local market that has been saturated? Can it be a channel to liquidate overstocked or out of date product?
   
   
3. Selling to the US or overseas
   As a Canadian selling products online, at some point you will have the opportunity to sell to buyers outside the country. Internet auction sales are no different. For example, though eBay allows it’s users to choose which regional sites they’d like to list their products on, and where they are willing to ship to, Canadians that choose to sell only to other Canadians risk losing out on a majority market based in the US. Further, many other auction sites you’ll find will be US based, also with a majority US market.
   
   For this reason, you’ll want to be aware of the special regulations surrounding selling overseas, and in particular, into the US. This way, you can determine whether a market will be viable for you, or whether it will simply be to cost or time consuming to be worth your while.
   
   Most sellers new to the online channel don’t realize that when they are selling to buyers in the US or overseas, they are actually exporting. To learn more about exporting visit the Government of Canada’s export website: Exportsource (www.exportsource.ca). This site offers comprehensive information for Canadians selling outside the country, including a guide to exporting to the US and a 1-800 number you can call with any questions you may have.
   
   
4. Positioning, fulfillment and logistics
   We can’t overstress the importance of comprehensive product or service descriptions, good photos and strategic category placements. The online channel is akin to mail-order catalogue sales – as a salesperson, you can’t rely on sensory persuasion (other than sight) to get that sale, nor can you rely on the desire for instant gratification that often comes with in-person shopping. Therefore, you need to provide your potential customers with as much information as possible. A thoroughly explained, well-placed product, offering clear photos of the top, sides and bottom of the item will go a long way towards making a sale.
   
   Also, be practical. Consider the logistics of shipping the products you choose to sell. Can you ship effectively at a reasonable cost? If so, before pricing your items for sale, factor in sourcing, packaging, storage and shipping costs.
   
   
5. Feedback and the importance of good customer service
   Feedback is probably the number one factor in developing a successful business on auction sites like eBay and ensuring repeat customers. On many online auction sites, customers leave comments based on seller performance – this is called Feedback. Every member on the site will have a feedback profile. This profile is publicly available so that other site users can view comments left by a buyer about a seller’s customer service skills. Feedback is a form of peer management and site policing which allows the community to vet undesirables and remain healthy. Thus, negative comments are taken very seriously and will directly affect your sales.
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Bad feedback can cost you money

Many eBay buyers will only purchase items from sellers who have a positive feedback rating of 98+%. The lower your rating, the less active bidding you should expect on your item. Further, a strong seller rating may have a 5% or more increase on price.

Regardless of whether the auction site you choose uses a feedback model, giving good customer service is a must. A strong service policy which puts the customer first, will ensure your customers are satisfied with their shopping experience, and your ratings will always be high.

Tips for good customer service

• Respond to customer enquiries promptly (within 24 hours) and use auto-responders to keep in touch until you can respond personally.
  
• Remember the golden rule: the customer is always right – even when they are wrong
  
• Keep in mind that negative feedback can negatively affect your sales, so avoid it at all costs. If you need to mediate using a third party – do so.
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More Resources

Now that you’ve learned how online auctions work and the advantages they carry for small businesses considering selling online, you’ll want more resources to help you get going. Below, you’ll find some online resources which can help you learn more about specific aspects of online auctions.