August 27, 2010, 2:56 PM

eBay’s reward program sparks consumer spending

But shoppers must pay with PayPal to qualify for rewards.

Katie Evans

Managing Editor, International Research

Lead Photo

EBay Inc. has rolled out a cashback loyalty program called eBay Bucks after a year of testing. During that time, shoppers enrolled in the rewards program spent five times as much on eBay.com as those who were not, the online auction site says. Members also purchased more often than nonmembers and bought higher-priced items, an eBay spokeswoman says.

With eBay Bucks, shoppers who buy qualifying items on eBay.com and pay with PayPal have 2% of the purchase price deposited into their eBay accounts. EBay Bucks accumulate during each calendar quarter. At the end of each quarter, buyers have 30 days to redeem their bucks through PayPal purchases on eBay.com.

Classifieds, business and industrial capital equipment, real estate, and eBay Motors items—with the exception of parts and accessories—do not qualify for the rewards, eBay says. Shoppers can earn up to up to $200 eBay Bucks on any single eBay purchase and up to $500 bucks for all qualifying purchases during a given calendar quarter.

Marc Steffens, eBay’s senior manager of loyalty marketing, says the company wanted to keep the program simple. The average U.S. household has 13 loyalty program memberships, he says, so eBay tried to keep the program easy to manage by automatically depositing the rewards currency into accounts.  

“We felt we needed to go beyond the average program in terms of the benefit for the user, Steffens says. “We also heard from many users of eBay Bucks that the program had to work in a very simple fashion.”

The program represents another way for eBay to drive the use of its online payment system, PayPal, says Scot Wingo, CEO of Channel Advisor Corp., a company that helps merchants sell through online marketplaces like eBay and Amazon and through comparison shopping sites. “It is yet another lock-in that eBay has built that gives that payment mechanism a near monopoly on the site,” he says. 

In the last few years, eBay has tried to ramp up use of PayPal. EBay did away with paper payments such as check, cash and money orders.  And while eBay does allow merchants to accept credit and debit cards, it does its best to keep that fact low key, Wingo says. For example, after a shopper clicks the ‘Pay Now’ button, she sees a giant ‘Pay with PayPal’ button and a smaller ‘Other’ button that doesn’t say anything about paying with a credit card.

The public launch of eBay Bucks came as Microsoft Corp. phased out a rewards program for the Bing search engine

That  program, ended late last month, offered consumers a percentage of the product price as cash back from participating retailers. Typical rewards were between 8% and 10%, according to observers, with each retailer setting the refund amount. The funds for the Bing program came from fees retailers paid to Microsoft after consumers completed a purchase through Bing. The fee was a percentage of the item’s retail price. After the transaction Microsoft returned a portion of that fee to the customer.

Wingo says eBay Bucks is tightly integrated with eBay and thus will probably be easier to use and understand than Bing Cashback, which offered discounts and deals from many retailers. However, the quick expiration date on eBay Bucks may irk some consumers, he says.  

“It has an earn-and-burn timeframe that as I buyer I have found to be very inconvenient,” Wingo says.

Plus, he adds, the percentage back is small compared with other web-based cashback programs. Bing’s cashback percentage reached as high as 10-15% in many categories, he says, and other rebate programs offer a bigger bang for consumers’ bucks. “If you go to eBates or another program, you’ll find much higher rates. EBay needs to really juice the program,” he says.

Perhaps most critical to eBay, however, is that eBay Bucks doesn’t offer as compelling an incentive as its top rival’s loyalty program, Wingo says.

“We live in a world where Amazon offers a year of free shipping for $80, so 2% cashback isn’t really significant with that in mind,” he says. “It’s a positive, but a very small one that’s not likely to move the needle.”

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