Dan Nissanoff on the Auction Culture

Daniel Nissanoff, author of FutureShop, spoke at eBay yesterday as part of the eBay Speaker Series. I took notes:

Embracing Reality: Online Exchanges Are Here To Stay

Let me start by talking at a high level about what is happening in the online exchange space. Most people are not aware of what is going on in this space. They don’t understand the magnitude of the company [eBay]. They think of it as a place for collectibles, and for hobbyists. I see drop-off stores, facilitators, as having a significant impact.

Most importantly, the impact [of online exchanges like eBay] will be cultural. We will begin to see an effect on the way we think as consumers. I refer to where we live today as an accumulation nation. This stems from the depression, and what was passed down from our grandparents. Our legacy value system promotes permanent ownership. Overlapping on all of this was a time-frame in which there was much slower innovation -- you bought something and you expected to use it for a long time. There were also no efficient channels for selling things you have used. Part of our innate education at home was being taught to buy -- we weren’t taught the other side of selling something when we were done with it. The notion of selling something, in general, is foreign to most people.

I believe that we are moving from this notion of permanent ownership into a realm of the auction culture -- a culture that recognizes residual value and declining utility, and promotes temporary ownership as an efficient way to live a better life. Until recently we couldn’t quantify the value of things that we own. I can go on eBay and I can research this chair and learn exactly what I can sell it for, which determines what it is worth.

What will change is a "Flight to Luxury". People will consciously choose to buy at two ends of the spectrum: resalable goods with high-residual value on the one hand and disposable goods on the other. Consumers will "reach" because they can. Perhaps the most obvious example of the auction culture is the way the car market has evolved. The notion of a lease allows you to drive a car more luxurious than you could otherwise, because the car has residual value.

"Brand value" will be redefined -- residual value relative to peer products will be a major factor. Products will be "great" because they will retain their value. Because more people want it, it will therefore be considered a better product. You buy a Mercedes because you expect it to retain lots of its value.

The fact that we will be moving to a luxury market brings interesting challenges, such as high risk levels, and higher instanced of fraud. However, the positive attributes of the markets will help drive acceptance. They have a big audience, their technology is seamless, and finally the information that comes from the platform is very powerful.

I stress to audiences I speak to that the secondary market is not going away, and it will become an important part of our lives.

Here are five strategies from the book that I want to highlight.

1. Certification of pre-owned goods, following the lead of the car industry’s success. This allows the brands to control the flow of inventory and good, it helps build brand loyalty, it protects the integrity of the brand.
2. Trade-in/Trade-up programs. Some examples of this are already being done, like Callaway golf clubs
3. Brand marketing: using auctions for marketing purposes instead of to merely drive sales
4. Harnessing the market data.
5. In-Season inventory management. Brands can mask this channel by calling items "previously owned."

My company, Portero, exists to help luxury brands access the secondary market without compromising their brands.

Q & A

Question: Do you think the certified pre-owned program in the car industry is changing their design philosophy?

Daniel: Absolutely, I think this will have an effect on production. Being able to see data on your product and on your competitors’ products will have an effect. I believe that designing to the life expectancy will become more of a consideration. Companies need to start looking at this because of the effect it will have.

Q: Can you speak to what you are seeing with the manufacturers?

Daniel: They are very much aware of this, and are very much interested.

Q: It seemed to me that for years the brands were in denial about all of this. What have you told them that helps them to "get it"?

Daniel: They have misconceptions about the whole thing. They initially see it as a problem, not as a channel. As they have good experience, they want to sell more and more. As these people start to make money and realize that they are not hurting their primary sales, they get it.

Q: One thing that occurs to me is the whole environmental thing -- about how "green" this all is.

Daniel: People have brought this up on their own. People realize that this makes society better. I get to get the best products if I want to, and stuff gets used and recycled.

Q: While you are talking to the luxury good companies about the secondary market, do you also talk to them about the primary market?

Daniel: I pitch to them that they can use the secondary market for data that they can use in the primary market, and that the secondary market creates aspirational demand for the primary market, where if someone doesn’t win something at auction, they might buy it at a retail store. Note that many luxury good companies don’t get the internet, let alone get the secondary market.