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In the last few years, Internet auctions have become a very popular 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 environment
and to liquidate dated or overstocked merchandise.
In fact, the online auction business model has helped change the way micro-enterprises
do business. For the first time, home-based sellers are able to quickly connect
to a global market at a price they can afford.
eBay, the Internet auction market leader, currently has over 56 million active
users. Among these users are thousands of budget-conscious, home-based merchants
around the world who now make their living by selling products on eBay.
This Info-Guide is designed for beginners. It will explain how Internet auctions
work and will outline the distinct advantages small business owners can gain
from using online auctions to sell their products or services. It will address
key issues to consider before getting started, and will provide additional
online resources to help you learn more about selling through Internet auctions.
Internet Auctions Explained
How Do They Work?
Internet auctions are often called online marketplaces. They bring buyers
and sellers together on the Internet 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” and
provide the necessary structure for listing, displaying, bidding, and paying
for goods and services online. The auction site functions like a local farmer’s
market – it’s essentially a meeting place to buy and sell goods
that vendors have brought with them from elsewhere.
Buying and selling processes differ, depending on the model of the online
marketplace and the type of goods and services being sold. For example, some
auctions are by bid only, some allow sellers to set fixed prices for their
goods, and some offer a combination of both. Some sites ask buyers to name
their price and see if sellers will match it, and others ask buyers 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 against other
users seeking to purchase the same item, or they can choose to pay a fixed
price that 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 on 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 its 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 vying
for market share – such as Amazon and Yahoo auctions, Bidville, Ubid,
and Liquidation.com. There are also variations on the theme, such as Priceline.com’s “reverse
auction” and Nextag.com’s “comparison shopping” site.
Some auction-type models are industry specific, while others 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 pros and cons of Internet auctions can help you decide
whether they are right for your small business.
Below, we’ve outlined some key advantages to online auctions:
The online auction is “open” to the world 24 hours
a day. Bids can be placed by anyone with Internet access at any
time of 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.
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 also, much like gambling, be an end
in itself. And, as “playing the game” can be as exciting as
obtaining the product one is bidding on, online auctions generate a loyal
following of customers who thrive on the bidding excitement.
Auction sites provide a cost-effective way to market your product
or service online. Because of the convenience, accessibility,
and potential for getting a good deal, online auctions can readily attract
large numbers of users making them a cost-effective way to market your
product and sell online. Because of the built-in, high traffic volume,
online auctions are probably the cheapest form of Internet marketing available.
There is a sense of community 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
an online community that promotes a sense of “belonging” by
connecting otherwise disassociated users from around the globe.
Who Should Use Internet Auctions?
Online auctions can be a viable sales channel for small businesses who want
- Gain quick and easy access to new markets online
- Test-market a product or some aspect of their online business operations
or sales process
- Liquidate excess products
- Build a basic, cost-effective website
- Market your product or service online economically
Take a Tutorial
Since the buying and selling processes on auction sites can differ significantly,
it’s important to note that some of the best “how-to” information
can come from an auction site itself. Most sites offer comprehensive tutorials
that outline how to buy, sell, collect payment, calculate fees and, in the
case of product-based sales, provide tips for packing and shipping. For eBay,
it is common to find workshops and seminars on “How to sell on eBay” in
Before you begin selling, here are some key issues to consider:
Observe how others buy and sell
The first step in selling a product on an auction site is to buy something.
Why? Because buying allows you to observe how other sellers position and
sell their products. You’ll learn what kinds of taxes they charge,
how they pack and ship, and even whether they follow up with you after
the sale. Think of it as competitive intelligence.
By participating in your first online auction, you’ll also learn
how auctions work and how buyers buy online. 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 and understand
that most activity happens towards the end of an auction.
Determine what to sell
When you’re ready to sell, you’ll need to be aware of user
agreements – what you can and 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-no’s on eBay.
Then, you’ll need to find a niche. This is getting harder to do,
especially on eBay as more and more sellers have begun using the marketplace.
Yet, it can still be done through research, research and more research.
Watch for 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 leveraged successfully online?
Also think about what you are good at and what you enjoy. For example,
do you have a knack for finding vintage clothing at bargain prices? Consider
turning a hobby into an online business.
If you are already operating a business, could a site like eBay be a viable
new sales channel for a local market that has been saturated? Could it
be a channel to liquidate overstocked or out-of-date products?
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. This is often the case
in Internet auctions. For example, though eBay allows its 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 special regulations
related to international sales and, in particular, those for sales to the
US. This way, you can determine whether the foreign market will be viable
for you, or whether it will be simply too expensive or time consuming to
be worth your while.
Most sellers that are new to Internet sales don’t realize that when
they sell to US or overseas buyers, they are actually exporting. To learn
more about exporting, visit the Government of Canada’s export website,
and the Export Link (www.exportlink.ca)
in Alberta. These sites offer comprehensive information for small businesses
that want to sell outside Canada.
Positioning, fulfillment and logistics
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 the 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 with clear photos
of the top, sides and bottom of the item, will go a long way towards making
Also, be practical. Consider the logistics of shipping the products you
choose to put up for auction. Can you ship effectively at a reasonable
cost? If so, before pricing your items for sale, factor in sourcing, packaging,
storage, and shipping costs.
Feedback and the importance of good customer service
Positive 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, or “feedback,” on
seller performance. 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 previous buyers about a seller’s customer service skills.
Feedback is a form of peer management and site policing and allows the
community to vet undesirables and remain healthy. Thus, negative comments
are taken very seriously and will directly affect your sales.
Regardless of whether the auction site you choose uses a feedback model,
providing good customer service is a must. A strong service policy that
puts customers first will ensure your customers’ satisfaction and
lead to high ratings.
|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,
Now that you’ve learned how online auctions work and the advantages
they present for small businesses, you’ll want more resources to help
you get going. Below you’ll find some online resources that can help
you learn more about specific aspects of online auctions: