Characteristics and internet marketing strategies of online auction sellers

24
Int. J. Internet Marketing and Advertising, Vol. 1, No. 1, 2004




Characteristics and internet marketing strategies of
online auction sellers
Richard C. Becherer* and Diane Halstead
The University of Tennessee at Chattanooga,
College of Business Administration, Dept. 6156,
Department of Marketing and Entrepreneurship, 615 McCallie Avenue,
Chattanooga, TN 37403-2598, USA
Fax: 423-425-4158
E-mail: richard-becherer@utc.edu
E-mail: Diane-Halstead@utc.edu
*Corresponding author
Abstract: Internet marketing is a field that is continuing to grow, and the
online auction concept may be defining a totally new and unique distribution
alternative. Very few studies have examined auction sellers and their internet
marketing strategies. This research examines the internet auction phenomenon
as it relates to the marketing mix of online auction sellers. The data in this
study indicate that, whilst there is great diversity among businesses that utilise
online auctions, distinct cost leadership and differentiation marketing strategies
are both evident. These two approaches are further distinguished in terms of the
internet usage strategies employed by each group.
Keywords: internet marketing; online auctions; e-commerce; eBay.
Reference to this paper should be made as follows: Becherer, R.C. and
Halstead, D. (2004) ‘Characteristics and internet marketing strategies of online
auction sellers’, Int. J. Internet Marketing and Advertising, Vol. 1, No. 1,
pp.24–37.
Biographical notes: Dr. Richard C. Becherer holds the Clarence E. Harris
Chair of Excellence in Business and Entrepreneurship at the University of
Tennessee at Chattanooga. He has had extensive experience both as an
academic and as an entrepreneur. He co-founded one of the first for-profit
Health Maintenance Organisations in the USA and has also been involved in
several other business start-ups. Dr. Becherer received his doctorate from the
University of Kentucky and primarily teaches entrepreneurship courses. In
1998, Dr. Becherer received the Edwin M. Appel Prize for his contribution to
entrepreneurship education. It is presented each year at the Price/Babson
College Fellows Program.
Dr. Diane Halstead holds the Mary Harris Distinguished Professor of
Entrepreneurship position at the University of Tennessee at Chattanooga. She
earned a PhD in Marketing from Michigan State University and a BBA and
MBA in Marketing from Western Michigan University. Dr. Halstead’s industry
experience includes serving as marketing director and account manager at two
different advertising agencies in Washington DC and Michigan. She has also
consulted for DuPont, American Red Cross, UNUMProvident Corporation,
Tennessee Valley Authority, Blue Cross/Blue Shield of Tennessee, ACE
Hardware, and others.




Copyright © 2004 Inderscience Enterprises Ltd.

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Characteristics and internet marketing strategies of online auction sellers 25





1 Introduction
Spurred by the economic growth offered by the internet and related technologies, many
companies are engaging in electronic commerce (e-commerce) activities and internet
marketing. E-commerce is defined as any economic transaction where a buyer and seller
come together through the internet or other technology and form and execute agreements
regarding the pricing and delivery of goods and services [1,2]. Whilst internet usage
at all levels continues to grow, online purchases by businesses and consumers are
booming [3].
One area of internet marketing that has exploded in sales and customer interest is
online auctions. According to new media research firm Jupiter Communications,
consumers will spend about $7 billion via online auctions in the next four years [4].
In 2003 alone, auction sales among retail sites are projected to generate sales of
$2.1 billion [4]. Even more ambitious growth is predicted by the Cambridge, Mass. firm,
Forrester Research, Inc. They expect consumers to spend $19 billion on online auctions
by 2003 [5]. Clearly, online auctions are here to stay, and research on this important new
business model is needed.
This research investigates the characteristics of online auction sellers and their
internet marketing strategies. Understanding the nature and extent of business strategies
used by successful online auction sellers should help existing e-commerce companies
evaluate their potential as third party auction users (e.g., eBay or Amazon). It may even
help guide their online auction sales efforts via their own websites. Furthermore,
companies considering this type of internet marketing will need to understand the various
uses and strategies of auction sales in order to develop the best online auction model for
their business.
This paper is organised as follows. Firstly, background on online auctions is
presented, including information on the varieties, benefits, and uses of online auctions.
Next, the marketing mix as it relates to online auctions is discussed. Several research
questions regarding the auctioneers’ strategies for selling on the internet are then
proposed. The study methodology, including discussion of sampling frame and measures,
is then provided, followed by the results. Finally, implications for both e-commerce firms
and future research on online auction sellers are discussed.
2 Online
auctions
2.1 Background
Internet auctions can be characterised in two ways: third-party auction sellers such as
eBay, Amazon.com and Yahoo! that auction goods for others (either individual sellers or
corporate chains), and direct auction sellers which create their own auctions online via
their company websites. A substantial number of retailers and catalogue firms are taking
advantage of the boom in these online auctions to unload merchandise and increase sales,
and growth in the online auction category is now well documented. Catalogue marketers
as diverse as The Sharper Image, Ross-Simons, Cameraworld.com, and CompUSA are
all successfully auctioning products online [6].

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R.C. Becherer and D. Halstead




2.2 Benefits of online auctions
For sellers, the benefits of auctions consist of access to an international customer base to
sell merchandise quickly, easily, at low cost and at sometimes premium prices. Even old,
damaged, returned, and refurbished merchandise can be unloaded. Furthermore, new
markets are established and a company’s customer base can be enlarged.
The widespread availability of outsourcing various online auction services has
probably contributed to this growth. Everything from software applications to fulfilment
services to setting up front- and back-end operations can be bought from companies like
AuctionWatch.com, Bidland.com and SellXS.com for a small fee or percentage of
sales [7,8]. Another company, Andale, will set up a seller’s auction listing, process credit
card payments, and assist with inventory and accounting as well [5]. Even vendors such
as Microsoft and IBM are adding auction modules to existing e-commerce software
programs [6]. Neither Amazon.com nor Yahoo! charges sellers for auction listings in
attempts to draw business away from eBay.
For buyers, online auctions represent 24-hour availability seven days a week, instant
gratification, and interactivity [9]. This interactivity sometimes allows customers more
control over price and product/service customisation. Increased learning about a product
category may also be a positive outcome [9,10]. Consumer search costs can be reduced
dramatically even while the number of available options increases, adding to both
convenience and savings [11]. Industrial buyers can save 6–15% or more by opening up
their purchasing processes to online auctions [12]. As a result of these benefits, the
number of online auction purchasers is expected to increase to 6.5 million in 2002
(from 1.2 million in 1998), with eBay alone accounting for more than two million online
bidders [6], and a combined year over year international growth of 148% [13]. In fact,
over 75,000 small businesses today make their living entirely through selling on
eBay [14].
2.3 Variations in online auction execution
Three different forms of online auctions have emerged. The more common form is the
English auction where competing bids increase within a specified time frame. In this
way, merchandise can be unloaded at the highest possible price point. When Dutch
auctions are used, the cataloguer sets the price high and then progressively lowers it until
someone bids. The Dutch auction is most useful for determining the prices buyers would
be willing to pay for various products. Of particular interest to business-to-business
marketers is the Reverse auction where a business solicits bids from suppliers at a
particular price level. Suppliers through the auction process may successively bid that
price even lower.
The timing of online auctions can vary as well. They may last as long as two or three
weeks in order to give bidders time to study the merchandise and make bids. Some
companies choose limited-time auctions in order to efficiently unload small quantities of
merchandise (e.g., the computer marketer CompUSA) [6]. Other companies offer ‘flash
auctions’ that stay open only an hour or two. These auctions can create excitement for the
bidders and tend to mimic the more traditional, live auctions more so than extended
online auctions.

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Characteristics and internet marketing strategies of online auction sellers 27





2.4 Online auctions and the marketing mix
Auction sites are increasing in both popularity and diversity of offering. Detractors say
that auctions account for a very small proportion of retail sales, and that they are hardly a
threat to existing brick and mortar businesses. Clearly, the expected growth in this area
will impact on the marketing strategies of both small and large businesses.
2.4.1 Product strategy
The typical online auction today offers a battery of goods and services, not just
collectibles [5]. In the past year alone, the bulk of merchandise available on eBay, for
example, “has shifted sharply from collectibles and bric-a-brac toward practical items
such as power drills and socks” [13]. In a single year, the composition of goods traded on
eBay shifted from 39% ‘practicals’ and 59% ‘collectibles’ to 58% ‘practicals’ and
29% ‘collectibles’ [13].
In the case of eBay, much of the change in merchandising strategy comes about as a
result of changes in eBay’s seller composition. An increasing number of large retailers,
manufacturers, and liquidators are using eBay to unload returned and refurbished
merchandise. The corporate merchants in industries such as sporting goods, consumer
electronics, computers, and even automobiles, have been drawn to eBay because of the
explosive growth in online auctions and the low cost of internet selling.
The low cost, potential sales volume, and subsequent economies of scale associated
with online auctions suggest that a cost leadership strategy may be appropriate for some
online sellers (e.g. [15]). Cost leadership is a strategy whereby a firm’s strategic focus is
on creating and sustaining a relative cost advantage. By keeping costs lower than their
competitors (either through technology advantages or scale economies), cost leaders can
minimise market prices and increase market share across broad customer segments [15].
Other auction sites, however, have used more targeted approaches in order to survive.
For example, the Boyds & Bears Auction Board (http://www.bearauction.com) sells more
whimsical gifts, whilst Phoebus Auction in Virginia specialises in upscale classic
collectibles and antiques [16]. These online sellers appear to be differentiating themselves
from larger volume sellers by offering unique product lines. This allows them to seek
higher penetration in specific market segments by tailoring what they do to the wants and
needs of their customers, a classic differentiation strategy according to Porter [15]. In this
approach, internet sellers view auctions as an opportunity to provide unique services,
customised products, and/or real-time supply chain information. This strategy focuses
primarily on customer desires and often creates a high degree of customer loyalty and
repeat business.
Clearly both the depth and breadth of product lines available via online auctions seem
to be increasing. In the aggregate, internet auctions continue to expand both the variety
and quality of products available to customers online [5]. Among individual auction
sellers, however, varying strategies seem to be used.
2.4.2 Pricing strategy
The result of expanded product offerings has, according to some, driven auction prices
and profits down. This would be expected when market information is easily accessible
and competition increases. The story from eBay, however, is that their “average selling

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prices on the site actually increased”, although they acknowledge that the prices of some
product categories may have fallen [13]. And several research studies have shown that
the convenience, time saving, and product customisation offered by online companies can
actually increase the price a customer is willing to pay [17]. This pricing model suggests
more of a differentiation approach rather than a low cost/price approach in that successful
differentiation strategies can often command price premiums from buyers [15].
At the same time, the websites of some traditional retailers (e.g. Circuit City) have
guaranteed customers the lowest prices on products if discrepancies exist between what is
offered online versus what is available in the store [18]. Price competition and heavy
discounting among the business-to-business auction sites is particularly fierce [12]. Thus,
sellers appear to be using the internet for different purposes – one that is cost/price driven
and one where sellers are attempting to find ways to differentiate themselves from their
competitors.
2.4.3 Promotion strategy
Use of the internet as a tool for communicating directly to customers is increasing [19,3].
Furthermore, internet users value the medium as a tool for learning about a company’s
products and services [20], as well as for buying. Websites can provide nearly all the
functions of traditional marketing communications except perhaps personal selling. Like
advertising, they are informative and persuasive. Like direct mail and infomercials, they
ask for and process the order. And like public relations, they can help influence a
company or brand image. The real-time information on pricing and delivery options can
be especially important to customers making buying decisions.
As compared to traditional company websites, however, an online auction site offers
additional sales promotional opportunities. Regardless of the target of the offer, however,
most sales promotion takes the form of a special or reduced price for a specific good,
which is always a possibility with an online auction. The sales promotion potential of
online auctions can greatly enhance a firm’s overall promotional offering in that the
excitement of the bidding process, the special offers and/or price deals provided during
the bidding process can serve as an acceleration tool in the purchase process. Comparable
to a contest, game, or sweepstakes offer in traditional sales promotion programs, online
auctions involve the customer actively in the brand and can create high levels of attention
and excitement.
2.4.4 Distribution strategy
In terms of distribution, online auctions must be evaluated from two perspectives:
1 customer acceptance of the internet as a viable distribution channel
2 seller attitudes toward and usage of the internet as a distribution tool.
Consumers perceive any form of non-store buying as riskier than retail store
buying [21–24]. Reducing risk for internet and other non-store buyers therefore requires
offering one or more ‘risk-reduction strategies’ such as a money-back guarantee,
well-known brands, and/or price reductions [21,10]. When these strategies are used
(particularly the first and second options), consumer acceptance of the internet as a
distribution channel increases dramatically [10]. Although the aforementioned research
did not specifically address online auctions, the use of feedback systems such as the one

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Characteristics and internet marketing strategies of online auction sellers 29





used on eBay, and the availability of many well-known brands, suggest substantial risk
reduction for online auction customers. Furthermore, the growth rate in online auction
sales clearly indicates that consumer acceptance is rising.
Oliver [25] also points to the importance of sellers’ attitudes towards alternative
distribution channels in their use of infomediaries such as eBay. Established relationships
with retailers often hold back firms from going online, as well as the fear of losing
control. For example, both Pioneer and Maytag, in efforts to maintain their positive
relationships with distributors, chose not to sell via online auctions. Some argue that
auctions raise more channel conflict concerns, and that brand strength may be diminished
if brands are available at full price at one store but at reduced prices online [4]. In the
business-to-business sector of online auctions, the price competition is so severe that
industrial goods suppliers are often cutting prices by 20% or more on individual items,
and by 6–15% on large orders [12]. Widespread concerns about price competition and
brand discounts suggest that sellers may view internet auctions as primarily a cost or
price-oriented selling tool rather than as a possible customised distribution strategy
differentiating them from competitors.
2.5 Types of online auction sellers
Internet sellers who do engage in online auctions, either directly or via third party auction
houses, are very diverse, and large variations in company type, product assortment,
objectives, and strategies seem to exist. For example, online auction sellers consist of
both ‘microbusinesses’ and corporate sellers. Microbusinesses refer to a relatively new
class of ‘tiny enterprises’ or entrepreneurs who have successfully manoeuvered the online
marketplace [5]. Sometimes a single individual operating out of a home – with no
inventory, overhead, or business acumen – can set up online selling opportunities simply
by using third party auctions or setting up their own auctions using available services.
Even small businesses with online sales capabilities could be threatened by the low
cost and rapid response of microbusinesses if they do not adequately differentiate
themselves [5].
The corporate sellers have been drawn to eBay because of the explosive growth in the
online marketplace [13]. Although eBay charges its corporate sellers (e.g., Disney, IBM,
Xerox) the same listing fees as other sellers, some promotional perks are provided to
them. For example, Sun, Xerox, and IBM are all given top billing in eBay’s computer
area, and Disney has a special area on the eBay site to merchandise Disney products [13].
The reasons that both microbusinesses and corporate sellers have cited for using
online auctions are listed below. Some of these reasons seem to indicate objectives
related to cost/price issues, whilst others appear to be more differentiation-oriented. Some
could be related to either strategy.
1 to unload discontinued, returned, damaged, or overstocked goods [4,7]
2 to test prices in order to see what the market will bear [4]
3 to keep customer acquisition costs low [8]
4 to sell quality, designer goods at a discount, appealing to the ‘price-only’
shoppers [8]

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5 to generate excitement about an online site and to involve customers in an interactive
sense [6]
6 to connect with buyers in real time [7]
7 to acquire new customers [11]
8 to enhance the value of a store – to use auctions as a complement to traditional brick
and mortar business [18]
9 to give seasonal products a broader year-round appeal [26].
Based on a combination of the existing research and various online auction seller
characteristics, the following exploratory research questions are proposed:
R1 Does wide diversity exist in the business profiles of sellers who use internet
auctions as a distribution channel?
R2 Do attitudes among online auction sellers about the internet as a
distribution channel reflect their underlying marketing strategy orientations
towards either a cost leadership or a differentiation strategy?
R3 Do internet marketing practices among online auction sellers vary
depending upon their strategic marketing orientation (cost leadership or
differentiation)?
3 Data collection and methodology
Questionnaires were e-mailed to 375 eBay auction sellers. Sellers were chosen across all
21 major categories listed in the ‘browse’ for buyers section of the eBay website. The
selection of the number of sellers in each category was proportional to the number of
items for sale in each category. Since the research focused on ‘experienced’ eBay sellers,
sellers were selected only if they:
1 had at least 200 feedback comments
2 accepted credit cards for payment
3 had some special graphic or standard marketing copy for their eBay listing.
These three criteria were chosen in order to differentiate one-time or ‘occasional’ sellers
from frequent and experienced sellers. A total of 75 responses were received from this
convenience sample, for a response rate of 20%.
Each of the auction sellers was e-mailed a questionnaire (prior to the change in
eBay’s policy regarding the accessibility of vendors). A brief message indicated that data
would remain confidential. Respondents were also offered a summary of the study
results.
In order to ‘profile’ the typical internet auction seller, several questions focusing on
the respondents’ business characteristics were asked. Respondents provided information
on:

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Characteristics and internet marketing strategies of online auction sellers 31





1 product categories they normally sell on internet auctions (e.g., jewellery, books,
etc.)
2 other distribution channels used to sell products (e.g., retail, catalogue, etc.)
3 type of merchandise they sell via internet auctions (e.g., normal stock, discontinued
items, etc.)
4 internet auction sales volume percentage
5 total annual sales revenue.
To investigate respondents’ attitudes regarding internet auctions as a distribution channel,
sellers were asked to indicate their level of agreement or disagreement with ten attitude
statements. A five-point scale was used. Examples of these statements include, “Payment
is not a problem with internet auction sales”, and “internet auctions are best for clearance
items”.
4 Results
Frequency distributions for each internet auction business profile variable are presented
in Table 1. The first research question is supported, as there is a wide diversity in internet
auction sellers relative to all five variables investigated. The responses represented sellers
of a cross-section of 13 different product categories (see Table 1-A). They also had
businesses that were diverse in terms of size, the type of merchandise sold, and the other
outlets used to sell products, with little concentration of sellers appearing in any one
category.
As indicated in Table 1-B, the internet auction sellers in this study were most likely to
use other internet site sales as their main alternative distribution method, followed by
retail stores. Twenty-seven percent of the respondents sell their products via eBay
auctions only.
Table 1-C presents the type of merchandise normally sold on the respondent internet
auctions. More than half of all respondents (55%) sell ‘normal’ stock on their internet
auctions, followed by limited edition items (37%), high demand items (32%), and then
overstock items (28%). Clearly the majority of items sold by internet auction sellers in
this study are not items a seller is just attempting to dump on the market. These internet
auction sellers market first line merchandise, not items that they might otherwise have
difficulty selling.
Tables 1-D and 1-E present information regarding the online sellers’ internet auction
sales volume and sales revenue in total. Table 1-D shows that the majority of the internet
auction sellers in the study do most of their total volume on internet auctions. In fact,
71% of sellers do over 50% of their sales volume with internet auction sales. Whilst the
majority of respondents have total annual sales revenue under $100,000 (see Table 1-E),
8% of the respondent sellers had sales of over $1 million per year. Thus, the size of
internet auction firms is very diverse, and they depend on internet auctions for a
substantial portion of their sales volume.

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R.C. Becherer and D. Halstead




Table 1
Characteristics of internet auction sellers
Table 1-A Products normally sold on internet auctions
Product Frequency
Percent
Antiques 16
21.3%
Collectibles 10
13.3%
Computers 8
10.7%
Photography and Electronics
6
8.0%
Sports 6
8.0%
Jewellery 5
6.7%
Toys 5
6.7%
Clothing 5
6.7%
Books 4
5.3%
Movies 3
4.0%
Pottery 1
1.3%
Everything Else
6
8.0%
Total 75
100.0%
Table1-B
Other means of selling products
Method Frequency
Percent
Internet Non-Auction Sales
33
44%
eBay Only
20
27%
Retail Store
18
24%
Wholesale 13
17%
Catalogue 2
3%
Table 1-C Type of merchandise sold via internet auctions
Type Frequency
Percent
Normal Stock
41
55%
Limited Edition Items
28
37%
Overstock 21
28%
Discontinued 19
26%
Clearance 17
23%
Special Sale Items
16
21%
High Demand Item
24
32%

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Characteristics and internet marketing strategies of online auction sellers 33





Table 1-D Percent of sales volume from internet auctions
Percent of Sales Volume
Frequency
Percent
1-25% 6
8%
26-50% 16
21%
51-75% 15
20%
76-100% 38
51%
Table 1-E Annual sales revenue
Sales Revenue
Frequency
Percent
Under $25,000
27
36%
$25,000-$99,000 13
17%
$100,000-$249,000 14 19%
$250,000-$1,000,000 7 9%
Over $1,000,000
6
8%
No response
8
11%
To test the second research question, an exploratory factor analysis was conducted on the
ten attitude statements. The results are presented in Table 2. A varimax rotation was
utilised to generate the factor matrix. The data reflect two factors with eigenvalues
greater than one. The factor structure is very clear, with six items loading quite well on
Factor One and four items loading on Factor Two.
Table 2
Factor analysis of internet auction sellers’ attitudes
Item
Factor One
Factor Two
Find New Customers
.663 .388
Higher Profit Margins
.638 .165
Internet Auction Customers Easy to Satisfy
.717 -.028
Reputation and Feedback Rating Critical
.726 .258
Payment Not a Problem
.777 .102
Small Business Can Compete with Large
.800 .281
Internet Auctions Best for Clearance
.225
.837
Discount Prices at Internet Auctions
.114
.841
Hard to Satisfy Both Fixed Price and Internet Auction
Customers .129
.536
Sell on Internet Auction with No Inventory
.114
.549
Eigenvalue 4.109
1.447
Percent of Variance Explained
41.09
14.74

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