Thursday, January 31, 2008

Take On More Responsibility, Get a Better Deal

It’s one of the most familiar rules of economics. If you take more responsibility, you can get yourself a better deal.

And I’m not just talking about buying furniture at Ikea, although that works well enough as an example. Cart the box from the warehouse to the checkout to your car, then spend two hours putting it together when you get it home, and you save about half the price of a new sofa, and you end up with a noticeably nicer sofa, at that. By taking charge of the delivery and the assembly, just two of the many details of getting a sofa, you get a better deal.

If you want to buy a design, lumber, hardware, and fabric, then cut the lumber and sew the cushions yourself, you can do even better. You take charge of more of the process, and you get a better deal. Part of it is that you’re doing more work, but it’s not really about that. If you’re working from a well-written design, building a new sofa doesn’t necessarily take much more time or effort than you would spend rearranging your other furniture around a fully assembled new sofa that isn’t exactly the right size for your room. The reward you get isn’t payment for your efforts — it’s the better deal you get by taking charge of more of what goes on in your life.

If you want to think about this idea in supply-and-demand terms, it’s about the advantage you get from being unique — from being yourself. If you decide you’re going to fit into someone else’s plan, and that’s what you’re doing when you decide to solve a problem in your life by being a customer of a business, then you have to compete with all the other people who have come to that same decision. The business can charge a premium price precisely because there are so many customers. When they think about raising their prices, they are thinking of keeping some customers and losing others. This is what you run into when you make yourself part of the crowd. Make your own plan, and you are essentially only competing with yourself. No one else has exactly the same problem or the same approach as you, so no one is competing directly against you.

As I see it, there are three ideas that keep people from looking for a better deal.

First, as consumers, we are so used to having businesses tell us how to solve problems that we forget sometimes that we can solve our own problems. It’s easier to decide which parts of Victoria’s Secret’s fashion guide you agree with than to actually decide what you want to look like.

Second, many people think looking for a better deal means shopping around. The problem with this is the assumption that your range of action is limited to choosing among competing businesses’ plans for you. Much of the time, what you really need is to make your own plan. Shopping around sometimes is like switching between the channels on your television when what you really need is to turn off the television and stand up.

Finally, there is the idea of “no free lunch.” This cliché of economics seems to imply that you can’t get something better unless you are prepared to pay more in one way or another. This thought discourages people from trying to imagine a better deal for themselves. Yet sometimes it is possible to find an entirely better deal. It’s better all around: it costs less, takes less time and effort, produces a better result, looks better, is more impressive to your friends, and leaves you feeling better. And sometimes, the only thing that keeps people from finding that better deal is the belief that it doesn’t exist.

Despite what your elementary school teacher might have told you about daydreamers, taking responsibility starts with using your imagination. You have to think about what’s possible before you can notice what could be better. It’s a bit scary to realize how much we lean on advertising as a substitute for imagination. Businesses will give you only the merest hint of what’s actually possible. To get at the rest, to get that better deal, you have trust your own ideas and be prepared to follow one or two of your own dreams.

Thursday, January 24, 2008

EBay Completes Transition to Retail Integrator

When people think of eBay, they think of online auctions. But the company has been quietly abandoning the auction business and trying to turn itself into a retail integrator like Now it appears ready to complete that transition with the ouster of longtime CEO Meg Whitman, and her replacement with eBay Marketplaces head John Donahoe.

It’s a sign of how quietly eBay wants to make this move that most press reports about the CEO change don’t mention Donahoe’s title. They don’t want the headlines to be hinting that “Marketplaces” is taking over what used to be an auction company.

Yet this change has been a long time coming. The mere fact that there is no auctions division in eBay shows how little concern they have for what used to be their core business. Two years ago, they launched eBay Express, a trial version of the new eBay in which auctions and most eBay sellers were excluded. Starting around the same time, eBay quietly dumped most of its active auction sellers, apparently more than 100,000 of them (merely “tens of thousands” in the company’s public statements) leaving would-be bidders with nothing to bid on. New, secret rules virtually prohibit small-scale sellers. These “micro-merchants” used to be the heart of eBay, but the new eBay seems to hope to reassure buyers that each of its sellers is an ongoing business at least on the scale of a regular retail shop. Yet with fewer items for sale, the number of buyers on eBay has declined for the first time in its history.

At the same time that discouraged bidders were leaving the site in droves, eBay raised its auction fees and the U.S. postal service drastically raised postage rates for small packages, making it much harder for casual sellers to make any money on auctions. A visit to the eBay site last summer showed that most auction listings failed to get any bids at all, with less than 10 percent attracting the two or more bidders necessary to turn the listing into an auction.

EBay at that point had already turned into a fixed-price listing site. They have since cemented that transition with a web site redesign. Visit eBay today, and there is nothing on the home page to tell you it used to be an auction site. “Shop your Favorite Categories,” it purrs, almost as if it were the online version of JCPenney. “Don’t just shop. Win!” exudes today’s featured promo item. Below that, a smaller promo offers “Free shipping on Valentine’s Day gifts.” You have to scroll all the way to the bottom of the page to even find the word “auction” — “Live Auctions” can be found in the middle of the corporate links, between “Jobs” and “Announcements.”

EBay’s search result pages still have tabs that let you choose between “Auctions” and “Buy It Now,” but that too is set to change when the eBay search interface is replaced with the eBay Express search interface in the coming weeks.

You might wonder why a company like eBay would undertake such a complete transformation while publicly denying that anything is changing — and why the press would obediently go along with the story. It’s really no mystery. EBay must believe it can make a bigger profit by competing head-on with the likes of in the retail integration category. The famous eBay brand would be an advantage in going up against the more established companies it would be competing against. Yet obviously it wants to keep the old business going as long as it can and take as much of the customer base along as it can to give it the best chance of success in its new enterprise. And the press wants eBay to succeed. If you work for the press, your salary comes from advertisers, and there are few advertisers bigger than eBay, so you tend to want them to succeed.

If you are a customer, though, your interests are somewhat at odds with eBay’s. EBay hopes you won’t notice that most of the sellers and most of the bargains are gone and that much of what you find on today’s eBay is listed at or close to full retail price. They don’t want you to think of them as a retail integration web site because then you may compare them to a dozen other sites that are more established and may give you a better chance of finding the bargains you are looking for. The longer they can keep you from noticing these things, the more money they can squeeze out of you during this critical transition period for them.

The sad thing about all this is that the world has lost one of its iconic marketplaces. One might have hoped that eBay could find a way to keep its old auction business going. As recently as two years ago, eBay stood for something in terms of buying and selling. It was the “worldwide garage sale,” as one songwriter put it, putting one person’s junk in the hands of someone else who could make use of it. Although Craigslist has picked up a little of the slack, many of these surplus personal and household items will simply be thrown away now.

But the fact that this kind of activity has been taken over by nonprofits and charities suggests that maybe there never really was any profit in it for eBay to begin with. EBay always hinted that it made most of its money from a few thousand dedicated eBay sellers, and if they’ve decided to rebuild their business around those sellers, it might have been the right move in a business sense. And while eBay may never become a match for large-scale retail integrators like, at least it will still exist in some form, still pursuing its goal of bringing buyers and sellers together.

Tuesday, January 15, 2008

A Note of Caution in December Retail Statistics

December retail sales were 0.4 percent lower than November, according to the U.S. Commerce Department. The numbers caught some economists off guard — they go against the maxim that December is the busiest month of the year in retail, although I doubt anyone who works directly with retail was surprised. As I reported in November, shoppers were doing Christmas shopping earlier than ever in 2007 and Black Friday would be the midpoint, not the nominal starting point, of the holiday shopping season.

Those who don’t realize that consumers intentionally did their holiday shopping more than a week earlier this year may overreact to the December retail reports. When you look at the history of U.S. retail, a decline from November to December certainly looks like a decline in consumer sentiment. There is certainly a note of caution in recent consumer spending statistics. Two of the most telling indicators are the high sales of gift certificates and slow spending on them, a sign that gift givers and recipients wanted to be especially sure that their money was not spent frivolously. With other indicators already pointing downward for more than a year, a slowdown in economic activity is a safe prediction. But it’s important not to overreact to a December retail report that mainly reflects Christmas shopping that was a little earlier in the season than it used to be.

Wednesday, January 2, 2008

Looking for Something Practical

Everyone in U.S. retail was expecting a lackluster December 2007, even after unusually high sales totals in November. At the end of the season, the report of high gift certificate sales led some to hope that the week after Christmas would salvage the shopping season. But the scene I saw at shopping centers yesterday told a different story. Parking lots were nearly empty, with no more shoppers than you would find on an ordinary weekday. Shoppers are holding on to the gift cards they got, waiting until there is something in particular they need to buy.

If there is a saving grace in the retail reports for December, it can be found in the signs of shoppers looking for something practical. Computers did pretty well; cars and large-screen televisions disappointed; style-oriented boutiques and upscale department stores fared the worst. People were giving gifts that solved problems or that let the recipient do something of value.

One friend told me that people have so much stuff already that he has resolved to give only consumable items, such as food, as gifts. I tried this myself at Christmas. Giving a box of tea might not have the same drama a giving a coffee cup, but in a way, that is a good thing. The primary purpose of gifts, after all, is to help people feel included so that you can have a pleasant social occasion. Drama is not necessarily the first thing you are looking for when you get together with your family . . . is it?

Perhaps people are turning toward practicality because they see signs of turbulence in the world. You can prepare for difficult times — even when you do not know the nature of the difficulties — by making sure the basics of life are taken care of. In a booming economy, you can start the day looking for new opportunities. When the economy falters, you need to make sure you pay the bills and take out the trash.