In a reverse auction, prizes of goods and services is been on competition on who will have the highest bid; and it is also a way of gaining a high investment by the buyers. Now to understand more about the reverse auction, I believe this article will guide you through. It will take you through to know the meaning, dutch, examples, websites, types, benefits, and the strategy of operating on reverse auction.
We will, however, start by understanding what reverse auction is all about; because having the full understanding of it can carry us through the course of this study.
Reverse Auction
This is a type of auction where there are multiple sellers and one buyer, and the seller’s target is high ranking in their competition by pricing the lowest possible price for goods and services that are put for auction. This type of auction thus reverses the role of sellers and buyers, i.e the sellers do the pricing work rather than the buyer.
What Is A Reverse Auction?
A reverse auction is defined as a process whereby the buyer puts a tag price for goods and services they need; the sellers bid the price for the specified goods and services. In addition to this definition, a reverse auction is a process used in sourcing between buyers and suppliers; in which sellers compete so well with one another to win the business of the buyer.
It is also a type of auction in which sellers charge for the prices; at which they are willing to sell their goods and services; Sellers then place their prizes for the amount they are willing to be paid for the goods or service. And at the end of the auction, the seller with the lowest amount wins; because the seller got his product and service at the lowest price for the buyer.
Dutch Reverse Auction
A Dutch reverse auction is a type of Reverse auction that contains a list of items; that buyers want to procure. In this dutch reverse auction, the price of the item rises after fixed intervals until a reserved price is reached. Before the private price is reached if a supplier places a bid for the item; it is allocated to the supplier and the item closes for bidding. At a dutch reverse auction, prices start high and are dropped successively until a bidder accepts the going price. Once a price is accepted, the auction ends.
In considering your company, the dutch reverse auction is a method of public offering; in which the price of the shares provided by your company is cut; until there are enough prizes to sell all shares. The company offering shares will announce the maximum number of shares to be sold and could reveal a potential price for the shares
Examples of Reverse Auction
In study about reverse auction,there are many examples to back it up for a better understanding of what reverse auction is all about. below are the few examples of reverse auction.
- Construction companies or real estate companies often derive benefits from reverse bidding, since it provides a platform where bids can be directly placed on an upcoming project to a new customer.
- Public sector companies might opt for reverse bidding in case they are in search of a contract.
- Dutch auction example – let’s assume that A wants to buy 8,000 widgets at $100 each, then the suppliers get to have three choices: Place a bid for providing all 8,000 widgets at $100 each; Choose not to offer any widgets at that particular price; Or place a bid to provide a low proportion of the products for $100/widget.
- Asking for government contracts is an example of reverse auctions. In this type of auction, governments specify requirements for the project and bidders, who are approved contractors, to come up with a cost structure to finish the project
Reverse Auction Website
1. Autoebid.co.uk: This is a reverse auction website, where you post the highest price you’re prepared to pay for a new car and leave it up to the sellers to do the bidding. They claim to support the buyer in saving up to 24% of their business with them when buying a new car. Click on the web for more information.
2. UK.Ebid.net: Selling rather than bidding? With hundreds of thousands of lots, this large, fast-growing site can work out cheaper than eBay because it does not charge for listings — just a final-value fee of 3%.
3. GovLiquidation.com: This reverse auction website is in the US, click on it to get more information on it.
4. CQout.com: This site claims to be Britain’s second-biggest online auction house. Listings are free after a £2 registration fee.
5. Ubid.com: This reverse auction website is on US heavyweight sells off. You will need to register your payment details and set up an American mailing address. You can click on it to get more information about it.
6. Swoopo.co.uk: this auction website is one of a growing number of “auction” sites where you have to purchase the right to bid on an item. get more information by clicking on it.
7. Bidz.com The home of bling bidding, this US-based site lists thousands of items of jewelry at keen prices, and international postage for items costing less than $300 (£184) is a very reasonable $14.95. You can also get more information about it by clicking on it.
8. BumblebeeAuctions.co.uk: This frill-free police site sells off stolen property that can’t be reunited with its owners, with the proceeds going to buy new traffic cones. Or something. It’s sparse but what there is on offer is extremely cheap.
Types Of Reverse Auction
We have understood the meaning of reverse auction, but we can’t finish talking about a reverse auction if we do not list or mention the different types of it. Therefore there are types of reverse auction which we need to check out and add to the understanding of reverse auction that we already have. They are enlisted below:
#1. Ranked Auctions
This is one of the most famous types of auction. However, in this type of auction many businesses go for top auctions where they are willing to engage multiple bidders who, in their opinion, are most likely to bid at a similar price range. The position or rank of the bidders against other bids is the key information offered to all the suppliers in this type of auction.
The disadvantage of this auctions could be that the possible bidders that are ranked in the second and third positions will feel really demotivated, and they will start feeling negative about winning the bid; because they are not the ones at the top.
#2. Open Auction
Open auction is also known as an English auction. In this type of bid, all bidders will be aware of the actual value of the winning or leading bid. In this type of reverse auction, the charge usually starts at high or at whatever is defined by the buyer as maximum and falls at a steadier pace.
This signifies that all the bidders have an equal chance of winning the bid as all get a fair share of chances. This type of reverse bidding is designed for such commodity items where the price is most likely the only key differentiator.
#3. Dutch Auction
This type of reverse request is used mainly for public stock offerings. It, however, offers a lot of flexibility, but it can also drop the prices and might even hinder the stock chain process.
#4. Japanese Auction
This type of reverse auction begins when the buyers send suppliers an opening price. Suppliers will then associate themselves after accepting the opening price which is presented to them. which means they all agree with all the defined requirements.
Benefits of Reverse Auction
There are some advantages of engaging on reverse auction, which will improve your will of investing. The following are the benefits of the reverse auction:
- Easy comparison- The buyer can easily take his time in accessing the products and services presented to him, and then decide on the one to go for.
- Faster- In this type of auction, the buyer and seller can thus save a lot of time making research in the market on the best to go for. It is also fast in using.
- Best price- The buyer can gain ownership of the products and services at the possible prices.
- No wastage- The buyer can easily present all he needs in the product or service, which will further help in minimal wastage of time and on other resources.
Reverse Auction Strategy
This is a reverse auction because prices run down as the charge goes on, instead of going up. However, there is a strategy used in supporting buyers and suppliers in which sellers compete with one another to win the business of the buyer.
First of all, the supplier needs to determine the lowest price for which they are willing to sell their products. To do this adequately, they must be able to figure out their valid minimal cost; and identify extra-auctions costs and benefits. However, that does not mean that the best strategy is to bid the lowest price. They should also examine areas where winning or losing can create unexpected benefits or avoided costs. Some examples include:
- Winning or losing changes their volume discount, rebates, and incentives with key suppliers,
- Losing requires laying off personnel with its associated termination costs,
- Winning opens a new account more inexpensively than hiring a sales representative.
What Is Reverse Auction Procurement?
A reverse auction is defined as a process whereby the buyer puts a tag price for goods and services they need; the sellers bid the price for the specified goods and services
What Are the Benefits of Reverse Auction?
There are some advantages of engaging on reverse auction, which will improve your will of investing. The following are the benefits of the reverse auction:
- Easy comparison- The buyer can easily take his time in accessing the products and services presented to him, and then decide on the one to go for.
- Faster- In this type of auction, the buyer and seller can thus save a lot of time making research in the market on the best to go for. It is also fast in using.
How Do Reverse Auctions Work?
The buyer posts a request for a required good or service in a reverse auction. Sellers then place bids for the amount they are willing to be paid for the good or service, and the seller with the lowest bid wins at the end of the auction
What Is the Difference Between Forward and Reverse Auction?
In a regular auction, also called a forward auction, buyers compete to get goods or services by offering prices that are higher and higher. In a reverse auction, on the other hand, the sellers compete to get the buyer’s business. As the sellers underbid each other, prices usually go down.
What Is an Example of Reverse Auction?
On the other hand, buyers are the ones who benefit from a reverse auction, not sellers. Here, a buyer makes a request for a product or service, and sellers bid on it. The lowest bidder gets the request. A common example is what you might see on a hiring platform or in an offer letter for a job.
