On the back of better than expected results reported in their 2022 Q2 results, eBay say that their strategy of focus categories – going through the entire site and optimising each category for particular types of buyers – is paying dividends with higher customer satisfaction.
eBay Focus Categories
One of the most important pillars of our long-term plan is our focus category strategy. Investments in trust, product experience and marketing are increasing customer satisfaction, leading to faster volume growth. Last quarter, excluding trading cards, focus category GMV grew 9 points faster than the rest of the platform. Trading cards are lower than last year’s stimulus fuelled results, but volume remains robust at more than double prepandemic levels.
We are seeing significant outperformance in focus categories globally. Although the US is higher than international. The primary reasons for the difference are the timing of launches and category mix by market.
The markets where it’s implemented these changes, customer satisfaction remains at or near best-in-class levels. The vast majority of our enthusiast buyers shop in focus categories and their spending levels remain above $3,000 per year. We continue to see cross-category shopping activity consistent with data we shared during Investor Day in March.– Jamie Iannone, CEO, eBay
This is significant as it’s the first real idea eBay have had for years – under previous management, eBay were fixated on category attributes and product catalogues which largely didn’t work, including an attempt to roll multiple listings into a single landing page amalgamating offers from different sellers. The focus categories strategy recognises two things – firstly that buyers in different categories have very different needs that need to be met and secondly that if you can attract high spending buyers in a single category that they will go on to overflow spend in other categories on the marketplace.
Jamie went on to explain the behaviour they see from buyers in focus categories is a multiplier effect – a typical Watch buyer that comes to eBay and spends $8,000 in watches goes on to spend an additional $9,000 in other categories and a buyer that buys $500 of motor parts will then buy $700 outside of Parts & Accessories category.
While focus categories is good news for sellers, there is some not quite as palatable news to share and that’s the growth in eBay’s promoted listings revenue.
Promoted Listings drove first-party ad revenue to $232 million, up 6%. This was 20 points faster than GMV growth. Our largest product, Standard Promoted Listings, grew in the quarter due to conversion optimisation and pricing changes. Our 3 newer advertising products that we launched last year grew almost 30% versus Q1. The largest contributor was Promoted Listings Advanced, which saw increased seller adoption and exposure.– Jamie Iannone, CEO, eBay
Conversion optimisation means eBay are seeing more listings that are promoted achieve sales, which you might be in favour of but when Promoted Listing have higher placement in search than listings without an advertising fee attached it forces sellers to donate a higher fee to eBay.
The pricing change will have had a significant impact as eBay increased the minimum advertising fee from 1% to 2% – doubling the minimum is the equivalent to increasing final value fees by one percent. It’s a stealth fee hike – sellers would go nuts with a 1% final value fee rise and while tacking the increase on to advertising makes it optional, it’s not optional if your listings only sell when you pay for advertising.
War in Ukraine and economy outlook
Touching on the Russian invasion of Ukraine and ongoing war, eBay say it has had disproportionate impact on the European business because of the proximity to Ukraine and the pressure on energy prices with an associated impacts on consumer discretionary spend. However, noting that it’s hard to differentiate discretionary versus nondiscretionary and that eBay don’t have a large grocery or FMCG category, when times are tough, people trade down, and that’s where categories such as Refurbished Tech and Pre Loved clothing come into play.
Overall, eBay are pretty chipper about their Q2 results but have forecast a broader range than normal for the second half of the year to take account the war in Ukraine, supply chain constraints, and the backdrop of elevated inflation and increasing Interest rates.