An online auction business provides auction service to facilitate
exchanges among its users. Both the buyer and the seller must
register to the service and usually, all applicable fees are paid by
the seller. The normal system is as follows: Creating an account is
free for both the buyer and the seller. The seller posts an auction
(at this point, pays a listing fee). The buyer bids on the auction
(free). The auction ends and the seller pays an ending fee.
Depending on the online auction business, either only the seller or
both the buyer and seller may be required to provide valid credit card
numbers for identification and verification purposes. This system has
been widely accepted due to the fact that it is believed that people
will pay more willingly if they have gained money. From the buyer’s
point of view, he/she will want to spend as little as possible and
thus will be very conscious about any auction fees on top of what
he/she has to pay for the purchased item. The seller on the other
hand is liquidating an item and gaining cash and is believed to be
less conscious about spending money on auction fees.
Online auctions heavily depend on the number of users. If there are
not enough sellers, there will hardly be any items on auction,
repelling potential bidders, eventually ruining the business. The
popular auction site eBay recognized this and heavily advertised the
site in the first few years of operation, spending millions in
advertising expenses to obtain a large user base. A not as aggressive
auction site Yahoo! Auctions had a stronger standing in the auction
race but before long, the number of auctions on Yahoo! Auctions was
severely lessened and the branches such as Yahoo! Auctions Germany
were shut down due to lack of users. EBay on the other hand has been
expanding, spreading its reach to all sorts of online selling/payment
services and till today, continue to stand as one of the most
successful online business. The advantage of an online auction is
that once people start using it, it creates a community among people
and an interpersonal community is what brings visitors/customers back
repeatedly. Instead of same old boring content on normal sites, these
auction sites are full of fascinating items that one could spend hours
being lost amidst. The actual auction site does not carry any
inventory; they only charge several fees per auction which add up to
be a significant revenue when the volume of auctions come up to
millions per day. They key point in having a successful auction site
is first being aggressive in getting a massive number of users; offer
incentive to both buy and sell. Ebay has an affiliate program that
pays webmasters whenever they refer a new user; they also had a time
period when it was virtually free to sell items. An auction site is
difficult to get off the ground at first but once it is off, the
customers and visitors will return on a regular basis and spend
anywhere from minutes to hours per visit.
Unlike online auction businesses, where the purpose is to provide a
marketplace and earn commission, the purpose of the fidelity point
system is to provide an incentive to buy an existing, usually physical
product. Taking Coke as an example, whenever a customer purchase a
Coke drink, he/she gets Coke points that can be used online on Coke
auctions. This kind of auction doesn’t allow a balance between buyer
and seller since all the visitors are buyers. The limitation is that
there won’t be as many variety of products on auction and thus there’s
no incentive for people to come to the site unless they have Coke
points they need to spend. However, the whole point of the system is
for people to purchase the Coke drink, not to attract customers to the
site, and so the limitation becomes insignificant to the overall
purpose. The idea of the fidelity point system is a noble one but in
the past, it has proven to be somewhat unsuccessful. Most people tend
to throw out their bottles and cans once they’re finished with it; the
incentive was not significant enough for customers to go through the
effort of collecting points. There have been cases of successful
point system promotion; Pepsi’s Star Wars promotion is one of them.
Pepsi targets the massive number of Star Wars fan to purchase its
drinks and collect “points” or “character faces” to obtain a prize.
This is very similar to the “Monopoly” game system implemented by
McDonalds once a year. It is safe to conclude that a fidelity point
system needs a popular theme to be successful as well a large
compensation prize worthy enough for people to spend the effort of
collecting these points. These point systems provide a unique twist
to the every day purchase made by customers as well as an incentive
and while they may not boost the sale or attract millions of visitors
to the company’s website, they promote the presence of the product in
an “awareness” fashion.
Overall, online auction business and the fidelity point system are
both very different systems for very different purposes. Starting
either is a daunting task; online auction business will require heavy
early promotion in the beginning while the fidelity point system
requires an already established business with a well known product.
One is a business model that earns money through commissions while the
other is an incentive promotion to increase the amount of revenue that
is already being earned. To take the “best from both sides” would be
to start an online auction business and promote it using a fidelity
point/affiliate program for the early promotion that it needs.
I hope this gives you an idea on how to go about writing your report.
If you need any further information, please let me know.
Thank you,
Tox-ga |
Request for Answer Clarification by
pootz-ga
on
10 Nov 2002 10:09 PST
Thank you for that quick answer!
I only have a few quick clarifications to ask you:
The first part on the auction system is good. Especially when you say:
The advantage of an online auction is
that once people start using it, it creates a community among people
and an interpersonal community is what brings visitors/customers back
repeatedly.
I would be looking for a few more advantages like that, if possible,
from a manager’s point of view for running an auction site.
The second part on the fidelity point system is perfect; however
please give some links or information as to where you found the
information regarding the successful case of Pepsi Star Wars and
McDonalds Monopoly. I must be able to prove this information…
As for your last sentence:
To take the “best from both sides” would be
to start an online auction business and promote it using a fidelity
point/affiliate program for the early promotion that it needs.
Could you please clarify this example, or any other example/idea you
may have using the beer market, as we are trying to find a way to
influence customers to buy a certain brand of beer using an auction /
fidelity point system.
Thanks!
|
Clarification of Answer by
tox-ga
on
10 Nov 2002 10:58 PST
For an auction site, the advantages are that
1. there are no inventory costs. You do not handle these transactions,
and do not own, warehouse, ship or otherwise manage any inventory or
goods. This undoubtedly saves significant amount of expense for the
business.
2. you can offer diverse amount of products which is the key to
attracting new users. More user means more auctions, which equals to
more auction fees that you will earn.
3. In essence, all you have to do is keep a group of technicians and
customer service reps to run the business. You're merely offering a
marketplace for the customers which doesn't require any special skills
on your part. Thus your operating expense will be much lower than
other typical businesses.
4. Online auction businesses are based on the amount of traffic you
get; a successful one will have a vast amount of visitors that spend
quite a bit of time each visit. Thus once you have a successful
auction business, you can utilize that traffic for other use,
including: Providing advertisement space to other businesses for
revenue and promoting new services/products that you're launching.
5. Once a community is built, the visitors will be very loyal to the
site. It is extremely difficult to leave a community when you've
gotten personal with other users and the business; arising competitors
will have an difficult time persuading the visitors to use their
services instead of yours. Here I must stress again the importance of
building a strong customer/user base in the starting year of
operation.
As for links to prove the success of the campaigns,
http://www.suntory.com/news/1999-08.html August 30, No. 7490
www.pepsico.com/earn/earnings_release_20002.shtml
(I quote "Concentrate shipments resumed their growth in the second
quarter, increasing nearly 1%, despite a difficult year-over-year
comparison driven by last year's Star Wars promotion. " A difficult
year-over-year comparison indicates that the Star Wars promotion has
unusually boosted the shipment volume.)
www.sitepronews.com/archives/2001/may/22.html
This article uses McDonald's Monopoly game as an example of successful
frequency marketing
www.cabletvadbureau.com/Case%20Studies/ 2000/McDonalds.htm
This article indicates that the Monopoly game is the most successful
promotion done by McDonald's.
There are several ways to promote a brand of beer with each system.
First, if you set up a online auction business such as eBay that is a
branch of the beer company, you can use the massive amount of traffic
to promote the brand or email all the users with special deals on that
brand (users are highly responsive to emails sent by auction
businesses that they signed up for).
If you're trying to do a hybrid between the two systems, you could
offer this: Use a popular game, such as monopoly or bingo, as the
theme for a fidelity point promotion system. Whatever the game is,
the user will have to collect "points" to win a prize. You could have
an auction on the business website where people can sell/buy/trade
these points. Allow the customers to collaborate in trying to win
prizes and form a tight community on your website. This will make
people "care" more about the points they collect with each purchase,
rather than throwing the bottle caps out with the skepticism that
they'll never get the right one.
I hope this has helped,
Tox-ga
|
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