Transcript Pricing and Place - University of Washington

Pricing and Place
© 2001 Ann Schlosser, University of Washington Business School
Onsale
Customer franchise
WOM
Auction
AtCost
Sell ads
Volume up,
costs down
Prices up
$$$
Onsale Auction Model vs. Traditional Retail
Onsale
• Set quantity
• Price varies
• High demand could
backfire
• Limited selection
• Buying (“Winning”)
is fun
Traditional Retail
• Set price
• Quantity (demand) varies
• High demand is desirable
• Wide selection
• Buying is a chore
(transaction cost)
Onsale AtCost Model vs. Traditional Retail
Onsale
• Buyer partner
• Divulges price
information
(“unbundling” = value
proposition)
• Move information
through channel
• Sell products to move
ads
Traditional Retail
• Supplier partner
• Hides price to extract
higher margins
• Moves products through
channel
• Ads used to move
products
Is Onsale performing well?
Benchmarks for performance
Q1
Q2
Q3
Net revenues
$40.2m
$50.8m
$58.1m
NA
Up 14-26%
Net income
($3.4m)
($4.0m)
($3.0m)
NA
--
139k/day
Up 17-22%
97k/day 114k/day
Q4 (est) Growth/qtr
Daily visitors
NA
Reg. Customers
NA
667k
822k
1m
Up 22-23%
Orders placed
NA
331k
350k
355k
Up 1-6%
Onsale’s Average Customer
Stickiness
• Spends 42 minutes at the site per visit
• Places 20 bids per year
• Spends $800 per year
Acquisition Costs
For first-time customer
• $1.2million/6.75 million (per quarter) = 18 cents/visitor
For new registered customer
• $1.2million/178,000 (per quarter) = $6.74/visitor
Efficiencies due to:
– Experiential marketing
– Viral marketing (10% of traffic are traceable to referral site)
– Email marketing (targeted emails have 30% response rate)
Efficiency of Onsale Relative to Other
Public E-Tailers
Sales/employee/qtr Sales/registered user/qtr
Onsale
$304k
$60
Amazon
$153k
$34
eBay
$161k
$11
*Dell
$271k
NA
Yahoo!
$134k
$2
*Dell includes non-Internet sales
Problems With Onsale’s Auction Model
• If bids get too high, potentially lose positive WOM
– Need to facilitate feeling of “winning”
• As community gets larger, likelihood of a registered
user having the winning bid falls
– Need critical mass but an upper bound given limited supply
• Constrained by supply
– Supply is unpredictable and counter-cyclical
Converting Traffic into Orders
First time daily visitors =
6.75 million/qtr
2.6% conversion rate
(66% arrive
with specific
purchase item
in mind)
New registered customers (1m – 822k) = 178k/qtr
2.8% conversion rate
Additional orders (355k-350k) = 5,000/qtr
(a 1.4%
increase in
total orders)
Onsale’s Share of Wallet
• Average buyer spends $800/year
– 10% spend an average of $4,400/year (similar to 80/20 rule)
– 90% spend $400/year
• Who are the top 10%? Likely small business buyers
– 19% buy from Onsale for business use/resale
– Spend $3k-6k on IT-related purchases (=$36k-$72k/year)
• If assume top 10% are small business buyers who
could purchase most/all of IT-related products from
Onsale, then share of wallet is 6-12%
The AtCost Model
• Revenues come from:
– Fixed commissions ($5-10)
– Advertising
• Risks
–
–
–
–
Jeopardize supplier relationships
Increased competition (e.g., Dell, CDW and loss leaders)
Brand confusion
Increase marketing expenditures to create awareness
Onsale Update
• Dec. 31, 1998: 971,000 registered bidders (up 18% from Q3)
and 139,000 new visitors a day (up 22% from Q3).
• Jan. 1999: Unveils AtCost model and stock drops 10%
• July 1999 – announce that egghead.com and Onsale will
merge
– Use egghead.com domain
• 2001 auctions at egghead:
– Express auctions
– Free freight auctions
– Mega-auctions
Boston.com
• Should Boston.com “upsell” classified ads?
• What should Boston.com’s marketing strategy be? Should
they invest aggressively in customer acquisition and brand
building? Why or why not?
• Is Boston.com being run as a hawk or a dove? Do you
agree with the decisions made by Globe management
regarding organizational reporting relationships and the
coordination of activities between the Globe and
Boston.com?
Onsale and Macromedia