An e-auction is a transaction between sellers (the auctioneers) and bidders (suppliers in business to business scenarios) that takes place on an electronic marketplace. It can occur business to business, business to consumer, or consumer to consumer, and allows suppliers to bid online against each other for contracts against a published specification.
This kind of environment encourages competition, with the result that goods and services are offered at their current market value.
- Types of eAuction
- eAuction Process
- Benefits for Buyers
- Benefits for Suppliers
Types of e-auction
- Classic reverse auction – Multiple sellers compete to obtain the buyer’s business. The buyer can see all the offers and may choose which they would prefer. Predominantly used for procurement.
- English auction –English auctions are where bids are announced by either an auctioneer or the bidders, and winners pay what they bid to receive the object. The most common and straightforward form of e-auction, they’re intuitive, user-friendly, and can help to reduce transaction costs.
- Dutch auction – Dutch auctions start at a high price, which is then incrementally lowered until a buyer accepts the price. The first person to bid wins the auction, which makes them good for quick decisions.
- Japanese auction – Here the buyer sets a high price which decrements at pre-set amounts at pre-set intervals e.g. £500 every 2 hours. If a supplier is happy to provide the goods and services at that price, the transaction then goes ahead.
The process of a B2B e-auction in brief
- Create, test, launch, receive and score requests for proposal (RFP) responses.
- Determine the ‘lot strategy’ – A lot is the term for the item(s) that engage suppliers to submit bids i.e. the products or services that are being sold. A lot strategy is therefore the seller’s strategic combination of these items to increase competition and the opportunity to reduce costs.
- Train participants – A pre-auction training session allows suppliers to overview the auction tool, answer any questions, and hold a mock auction.
- Conduct and monitor the e-auction – Ensuring the bidding activity is running smoothly is essential. A buyer or company representative should be ready to intervene if problems need solving.
- Evaluation of bids – The sourcing team and user departments conduct post-auction analysis based on pre-defined criteria.
- Consumer-to-consumer E-auctions – The C2C marketplace has increased over time too, with more companies entering the space to facilitate C2C transactions. Popular among sellers looking to maximize their sales potential by connecting with customers they otherwise would not reach. Common online platforms include sites like Etsy, eBay, and Craigslist – websites that offer free or low-cost classified advertisements, auctions, forums, and individual pages for start-up entrepreneurs too.
Since there are minimal costs involved, the margins are kept higher for sellers and lower for buyers. There’s also an undeniable convenience; rather than trying to sell in a physical store, consumers can simply list their products online and wait for buyers to come to them. Likewise, buyers only have to search through listings for the items that they want.
An e-auction provides procurement professionals with competitive prices for their products, pitching the suppliers directly against each other to see who can offer the lowest prices. It also streamlines the procurement process and saves time, since each supplier is not required to submit a full proposal.
E-auctions tend to be open, allowing smaller businesses to compete in the process, which in turn also enables suppliers to compete in new sectors. A winning bid can lead to more business, as most buyers will look to source their ‘non-core’ products from their existing supplier.