Woo New Customers: Ebay Inc.

While traditional loyalty programs are designed to boost spending at one business, eBay Inc., the San Jose, Calif.-based online auction site, is once again breaking the mold. It's teamed up with American Airlines, Hilton Hotels and eight other companies to offer consumers a new type of loyalty card—one of the first of its kind in the U.S.

Called eBay Anything Points, the program is patterned after the few so-called coalition loyalty programs that have begun to spring up abroad, including the Nectar card in Great Britain.

How does the program work? Consumers can use the loyalty points they earn from one business and swap them for points at eBay. eBay's aim: to woo new customers to its site.

Want to trade in those frequent-flier miles that will never amount to anything for something you really want or need more—like an antique rocking chair or a great deal on a mountain bike? People who have unwanted miles or hotel points can swap them for eBay points. Each eBay point is worth one cent, and you can use those points to pay for items that are for sale on eBay while helping partners like American and Hilton Hotels off-load the number of free perks they need to pay out to customers. At American, for example, this means the more people who trade in their miles to buy goods on eBay, the more "free" seats the airline can now sell at market prices. Other partners, similarly, cut the expense of the freebies they must deliver.

For eBay, it's been a good swap so far: The company's loyalty push, inaugurated in May and handled via the Points.com Web site, has translated into 300,000 new and repeat eBay customers who have signed up with the program. Already, 85 percent of the Anything Points issued through the program have been redeemed for eBay items and seller's fees.

While the value of the redemptions for eBay is in the seven figures, according to Todd Kurie, director of the program—a minuscule drop in the company's revenue bucket—Anything Points already shows signs of being a success for eBay as well as its partners. And as of Nov. 24, the take for eBay got a lot bigger. The company started offering people who sell items on eBay the chance to offer eBay Anything Points as part of their auctions, too. Buyers on eBay who use the company's online PayPal billing service to pay for their eBay purchases can earn one to five points per dollar value of the final auction price they pay.

This way, eBay will essentially be creating a loyalty program that could boost revenue in two ways: more money from auction fees, which average 7 percent to 8 percent per auction transaction, and additional money from PayPal fees, which bring in about 2.5 percent per transaction.

Unlike more targeted loyalty programs, Anything Points aren't used to identify and reward eBay's best customers yet, though Kurie doesn't rule that out. eBay continues to collect data from each customer, new and old. But the sheer breadth of vendors participating in the program puts eBay on the cutting edge of the loyalty program craze. "We're trying to build a new unit of currency," Kurie says. He wants eBay to use its many large, key partnerships and its market power to boost eBay's overall revenues to even higher levels—revenues from transaction fees in 2002 reached $1.2 billion on transactions totaling $15 billion.

eBay plans soon to announce another five to six partnerships—focusing on service providers and retailers, such as supermarkets, that don't compete directly with eBay. The goal: Make eBay Anything Points the currency for just about anything—online or off. "We'd like to move past the four walls of eBay and into the service community," Kurie says. Now that could be a trade worth millions.