What Is Reverse Auctions And Why It Is Effective

Usually it's the buyer going to where the merchandise is being sold

, but in a reverse auction, the sellers go to the buyer to sell what they have. Another difference from a regular auction is the price; in a regular auction, price typically increases over time, while in a reverse auction the price remains the same or decreases. A similarity of a reverse auction with a regular one is the presence of a middle man. One more similarity is the purpose of the auctions. Businesses join these auctions for easy procurement of a massive quantity of goods or a diverse selection of services offered.

A B2B Market Tool

Sellers compete to obtain business. B2B markets are the usual places where reverse auctions are done. One illustration of how this works is the way freelancers bid on a project. A buyer waits for bids to come before awarding the business with an individual or a group that offers the best value. In wholesale procurement, a reverse auction is much more effective as a business tool than an ordinary auction.

A Middle Man's Role in a Reverse Auction

There's a middle man who usually provides the venue for the interaction between buyers and sellers. It is recommended that the price offerings should be estimated with consideration of the middle man's commission. The market organizer must provide several tools for the buyers and sellers. An escrow service is a good example of the market tools that a market organizer provides. In a way, both parties prefer to do their dealings within the premises of the market organizer to keep them safe.

A buyer must disclose his budget for the project or for the sale. It is assumed that the higher the price offering, the more sellers he will attract. The buyer should also disclose his expectations and terms before the bidding starts. Auction rules must also be followed to the letter, to keep the playing field level. Another thing to consider is the mode of payment, which should be made known by the buyer before the auction starts

It is safe to assume that a reverse auction is more cut-throat than a regular one, but you can use the following tips to survive and win a contract. Some of the things you need to succeed as a supplier in reverse auctions include thorough research before placement of bid, knowledge of costs and a shrewd sense to offer what others cannot. A good way to win contracts is to invest on a competent bidder for your organization should you choose to participate in a reverse auction as a seller.

by: John Ronn

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