Auctionography—March 20, 2007

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This Week´s Auctionography: Product Knowledge vs. Customer Savvy

By Steve Nye, eBay Certified Consultant

What makes a great salesman? A great knowledge of the product he´s selling, or an understanding of the customer and the sales process?

I used to work at an upscale jewelry store while attending college. I was a little worried when I first started because I knew nothing about jewelry. But the owner told me, "A great salesman knows how to make the sale with the customer, not with the product."

I later learned what he meant. Whenever I blabbed on and on about the four C´s of a diamond, I lost most people—and unfortunately, most sales. On the other hand, whenever I focused on what my customers wanted and were looking for, I saw an increase in my sales.

Making a sale depends on how well you meet the needs and wants of the customer, not on how much you know about the product. (Besides, we live in an era of the smartest consumers. Most people have really done their homework on the product before they attempt to make a purchase.)

This principle applies to the eBay marketplace as well. Sure, it´s good to sell something you know a lot about, but a little understanding of your customer—i.e. customer savvy—can be surprisingly profitable. In this Auctionography I´ll show you how to use Auction PI Research to learn about your customer´s buying patterns.

No Need to Wear Funny Looking Pants

I enjoy golfing, but I am nothing close to a golfer. When it comes to knowing good golf clubs and equipment, I am even more of a novice. But just because I don´t know a whole lot about golf, doesn´t mean I can´t sell golf equipment on eBay. If I know something about the customer´s wants, then I can forego the need to be a Tiger Woods clone.

But how do you know what golfers shopping on eBay are looking for? If I have a source for Ping golf clubs and Nike golf clubs, which ones will sell for a higher profit? How do I build my "customer savvy" for golf shoppers?

The answers to these questions are found using market research. I used Auction PI Research to research Ping golf clubs and Nike golf clubs. This is what I found.

From the data shown above, we see that Nike golf club sets sell for more than Ping golf club sets. To be exact, on average, you´ll get $25.52 more. Whether or not you know anything about golf, you now know you can expect to sell Nike clubs for more.

That was simple. With Auction PI Research, it took about two minutes to determine how much more we can make on a product than we can get it for. That´s the first hurdle. (See, I told you it´d be simple!)

But, we can´t stop there. Now let´s figure out how much money you´d get to keep in both cases. Let´s say your drop-shipper source for the clubs charges $25 for shipping and handling. Now let´s compare profit.

Without knowing anything about golf, we were able to use research to find out what the customers are after. In this case, just knowing your customers are willing to pay more for Nike golf clubs than for Ping increases your net profit from $37.36 to $62.88, a whopping 68% boost in profit!

Add a Dash of Business Intelligence

But wait! "What about the Listing Success Rate?" you ask. Well, that is a good question and should not be ignored. Let´s go back to our Nike vs. Ping example.

Wow! Ping golf clubs sell more than twice as often as Nike clubs. What does this mean for your profit? We already know what the customer is willing to pay more for (Nike), and now we know what they buy most often (Ping). But which one will bring me the greatest profit?

This is where we add in a dash of business intelligence. We still don´t need a huge background knowledge on golfing, but now we need a little eBay experience added into the mix—something you should have if you are selling on eBay, right?

Let me explain. Nike clubs sell about 33% of the time—on average, you´ll need to list your inventory of clubs three times to make a sale. Eventually, your clubs will sell, but you´ll have increased your expenses with the re-listing fees required to make that sale. However, we´re talking about a difference in profit of $25 between Ping and Nike. From our eBay experience, we know it won´t cost us anywhere near $25 to re-list our Nike clubs, so we really won´t be eating into our profit as much as we think.

However, if our profit differences between the two brands of clubs were closer (say a $5 difference) then we´d want to carefully calculate the re-listing fees for Nike. If these fees were more than $5 on average, then the Ping clubs would be more profitable in the long run.

All Downhill from Here

Now that you know which brand will bring you the most money, you can become even more customer savvy with your research results.

For example, "Which Auction Type do most shoppers prefer?"

For our Nike clubs, we can see that customers prefer a BIN auction. How do we know this? This type of auction increased both our success rate and our selling price (as you can see in the above image, with a BIN auction, our ASP increased from $287.88 to $366.33, and our LSR increased from 32.84% to 50%). In other words, more customers were making more purchases and paying more money for this type of listing.

The Bottom Line

Through this exercise, we´ve answered more questions through research than we would have if we´d known everything about golf clubs. The point—and this is the bottom line—is that knowing what your customer wants is more profitable to your sales than just knowing a lot about the product.

Now, I´m not saying that knowing your product doesn´t pay off. Surely you can create more compelling product descriptions and be able to answer customers´ questions more accurately. But that alone is not sufficient.

Now you´ve gained the confidence to venture into a product you may not know a lot about, and for that I wish you good luck!

Steve

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