Inside Money

Business writer David Chaplin blogs on personal finance

Inside Money: How not to be a dick on Trade Me

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Trade Me users pay a 'success fee', which is more commonly known as a 'commission'. Photo / NZH
Trade Me users pay a 'success fee', which is more commonly known as a 'commission'. Photo / NZH

'Don't be a dick' is the seventh and last of Trade Me's "values", according to its 2012 annual report.

Well I reckon the header in the email Trade Me just sent me contravenes at least the spirit of Value 7: "Uh-oh your Trade Me account needs some love..."

As you may have already guessed, Trade Me was really asking me for money, not love, but perhaps wanted to soften the harsh financial request with a dicky word.

But I've always found the language of Trade Me a little disingenuous. For instance, instead of 'buying stuff' you 'win auctions', which is a nice psychological trick designed to keep the shoppers happy.

Likewise, there's the 'success fee' - more commonly known as a 'commission'. The price of success can be surprisingly high, though, when the innocuous percentage-based arrangement converts into an actual dollar amount.

In fact it was a recently-levied 'success fee' that prompted Trade Me to hit me up for some love.

All up my cost of sale came to about 10 per cent of the proceeds. That may not sound like a lot (although I think it does) but it was too much for my account, which unfortunately couldn't keep up with the speed-of-light Trade Me charging system and is temporarily loveless.

Percentage-based fees are, of course, common practice in all manner of industries - finance, real estate, retail, for example - but they are increasingly coming under pressure. Witness the rise of flat-fee real estate agents and the intense debate on financial adviser charging methods (such as this one in Australia).

Flat fees are even infiltrating the funds management business. For instance, it is understood the recently-launched NZ investment business, Salt Funds Management, is managing money for Westpac/BT (where the Salt crew were formerly employed) on a fixed fee agreement as opposed to the typical percentage-of-funds approach.

Trade Me's newest competitor, Wheedle also promotes its flat fee model as a point of difference. Trade Me does have the incumbency advantage for now (plus a genuinely large and loyal audience) but Wheedle's flat fee offer poses a real challenge - it would've reduced my cost of sales to only about 1 per cent, for example.

I couldn't find much research into the relative merits of percentage-based versus flat-fee pricing at short notice, however, this marketing viewpoint on the matter illuminates the nature of this loving relationship:

"In particular, using a percentage will allow you to maximize revenue from customers with the largest purchases - and without much pushback from them."

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