Posts Tagged ‘reverse auction’

What Ebay Can Teach A Sales Negotiator

Friday, November 26th, 2010
Image Credit Ebay's been very successful, what can they teach you?

Ebay's been very successful, what can they teach you?

Everyone’s heard about the web site Ebay right? That’s where you can go to auction off any junk that you don’t want to have lying around your place any more or where you can go to purchase a GI Joe doll that you remember from your childhood (in its original box!) It turns out that the success of Ebay holds a number of lessons that sales negotiators should learn from…

Maybe We’ve Got This Auction Thing Backwards?

When it comes to conducting a sales negotiation, we generally can’t run an auction to find the best deal. This just isn’t a good way to work out all of the details that go along with striking a good deal.

A much better way of getting a good deal is to use what professional negotiators like to call “a reverse auction”. I like to call this technique “shopping around”.

What Is A Reverse Auction?

In a traditional auction, what’s being bought is presented and then people proceed to bid on it. Everyone gets to see what everyone else is offering. Whomever offers the highest amount of money wins the auction and gets to purchase the item at the highest amount that they stated that they’d be willing to pay.

In a reverse auction, things are run a bit differently. This negotiating technique requires that the buyer approach each potential bidder separately and ask them for a bid. Upon getting an offer from each of them, the buyer now has both a range of prices and a collection of features to choose from.

Things aren’t over yet, they are just getting started. Now the buyer can go back to each one of the bidders and state that they can get a better deal from another bidder and ask them if they’d be willing to lower their price / increase what they are offering.

You can see where this is going now. The buyer keeps having separate discussions with each of the potential bidders and telling them what the current lowest offer is. This is done in order to motivate them to lower their offer in order to stay in the game.

Ultimately, the bidders will reach a price point that they are unwilling to go beneath – effectively this is their lowest price. Once this happens, the buyer will need to make a decision about which offer best meets their needs.

The Danger Of Using A Reverse Auction

Hopefully you can see just how powerful a reverse auction can be. The bidders have so little information that they end up bidding against themselves in many cases.

However, you can also imagine how a bidder must feel after a reverse auction is over – worn out and potentially angry. Sure they got the deal, but is it a good deal for them to get?

The reason that this matters to you is that if you need to make any changes to the deal that you’ve reached with the winning bidder, they’ll permit the changes, but they’ll attempt to reclaim some of their lost profits by increasing their price for the change.

What All Of This Means For You

Ebay is one of the most successful Internet companies in existence for a very good reason. They provide their customers with an opportunity to participate in auctions for just about every product imaginable. Professional negotiators need to realize just how powerful a technique an auction is, and start to use the reverse auction tactic.

The reverse auction tactic requires the buyer to play bidders off against each other in order to get the lowest price. The danger in doing this is that this may leave the winner angry and wanting to regain lost profits if any changes are needed.

A sales negotiator needs to have many different tactics that can be used when needed during a sales negotiation. The reverse auction tactic is one of these. Just be careful when you decided to use it – with great power comes great responsibility…

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: How could you keep one of the losers of a reverse auction on the line as a potential backup?

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What We’ll Be Talking About Next Time

When you are involved in a sales negotiation, just exactly how should you behave? For some odd and unexplained reason, a lot of us think that we need to be stoic statues who never show any emotion. Wait a minute. We’re involved in a sales negotiation where we are trying to get the best deal for our side. We’re not playing poker and trying to hide our reactions to our cards. Maybe it would be helpful to have a talk with some Italians to find out how we can become better negotiators…

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Negotiating Self Defense: Countering The Reverse Auction Tactic

Thursday, January 22nd, 2009
Sellers Need To Defend Themselves Against Buyers Who Use The Reverse Auction Negotiating Tactic

Sellers Need To Defend Themselves Against Buyers Who Use The Reverse Auction Negotiating Tactic

I’ve always liked superheros. From my earliest days of reading comic books to my current-day trips to the movie theater to see Spiderman and Iron Man, I just don’t seem to be able to get my fill of superheros.

I believe that superheros, although fictional (probably – however I still have hope), can teach us a lot about how to become better negotiators. One lesson that all superheros seem to learn in superhero school is that in order to be successful in a fight, they always need to have good self defense skills.

In negotiations, sellers need to have a good defense against one negotiating tactic that a buyer can use which is called the “reverse auction”. It works like this: let’s pretend that you wanted to build buy a new car. You visit three different car dealers and get three different offers. As you can imagine, each of these offers will contain a confusing mix of different financing and option packages.

Your next step will be to call a “reverse auction”. You go back to each dealer an tell them that you’ve visited the other two dealers. Each dealer will then proceed to tell you why they are the best and why you should avoid buying from the other dealers. After you’ve had a chance to talk with all three dealers, you now understand the subtleties and the options associated with buying the car that you want.

With all of this new information, you are now able to more clearly refine your specifications because the alternatives have become clear. You can now specify the specific financing and option packages that the dealers can bid on.

You will end up selecting the dealer who can provide the best price while providing the most car for that price. By using a reverse auction, the buyer was able to learn a great deal about buying a specific new car and was able to trade off options that he/she originally did not know existed.

All of this is great if you are a buyer, but what if you are the seller (or the dealer in the case of our example)?

It turns out that although it may initially appear as though the buyer is holding all the cards when they are using the reverse auction tactic, that’s not really true – you still have a great deal of negotiating power.

Your greatest strength comes from the simple fact that the reverse auction takes a great deal of the buyer’s time in order to do correctly. They have to identify sellers, collect bids, evaluate, revisit to collect information, and then revisit again to negotiate a final deal. All this takes time that they may not have to give.

What you need to do is to present yourself as being the seller who best understands that the buyer’s needs are. If you can convince him of your credibility then you’ll be well positioned to close the deal.

Here are a few tips that will help you come out ahead when your buyer decides to us the reverse auction tactic on you:

  1. Be Last: You want to be the last person that the buyer talks with, not the first. This may allow you to short-circuit the reverse auction process.
  2. Use Your Best: When dealing with the buyer, you want to use either your best negotiators or at least make sure that you are well prepared for the discussion (no distractions!).
  3. Give In Slowly: This is always a good tip – do not hurry to make concessions to the buyer.
  4. Sell, Sell, Sell: Make sure that you sell the buyer on your strengths and benefits.
  5. Use Limits: Clearly communicate to the buyer that the scope of your authority is limited in this deal to the bottom-line figure.
  6. Use Experts: The buyer is desperately looking for somebody to believe in so that they can be convinced that you are the right one to buy from. Make sure that you provide the expert that they need to find.
  7. Use Innovation As A Back-Up: Life is unpredictable. Sometimes a reverse auction will start to go badly for you. In these cases, you need to make sure that you have a new and innovative approach that you can whip out if this happens – lifetime free oil changes anyone?
  8. Find The Decision Maker: You can talk with the buyer until you are blue in the face, but it will be all for naught if you haven’t done your homework and made sure that they really are the final decision maker. Check before you invest the time and energy.

Have you ever been in a situation where a buyer used the reverse auction tactic on you? Did you feel as though they had the power in the negotiation or that you had it? Was time a key factor that the buyer was dealing with? Were you able to convince them that you were the expert? Leave me a comment and let me know what you are thinking.

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Negotiation Tactic: The Reverse Auction

Thursday, January 15th, 2009
The Reverse Auction Negotiation Technique Is A Powerful Tool For Buyers

The Reverse Auction Negotiation Technique Is A Powerful Tool For Buyers

In the world of negotiations, there are few tactics as old and as well thought of as the “reverse auction”. This is a powerful negotiating technique that allows a buyer to get the sellers to offer their best pricing for the most amount of work. Not bad if you are a buyer, eh?

Here’s how a reverse action works for you if you are a buyer: let’s pretend that you wanted to build a house. You go out and get three different offers from three different home builders. As you can imagine, when you get the bids they will contain a confusing mix of different options and time frames.

Your next step will be to call a “reverse auction”. You invite all three builders to meet with you. You have them show up early and have them wait in the same room before they meet with you. After they’ve had a chance to sit and glare at each other for a bit, you then call them in to meet with you one by one.

Each builder will then proceed to tell you why they are the best and why you should avoid selecting the other builders. After you’ve had a chance to talk with all three builders, you now understand the subtleties and the risks that are involved in building the house that you want.

With all of this new information, you are now able to more clearly refine your specifications because the alternatives have become clear. You can now provide the builders with an updated proposal that they can bid on.

You will end up selecting the builder who can provide the best price while providing the most house for that price. By using a reverse auction, you were able to learn a great deal about building a house and you were able to trade off options that you originally did not know existed.

Why does a reverse auction work for a seller? Simple, there are four reasons:

  1. Competition Works: when you allow sellers who are competing against each other to “see” each other, it increases the level of competition.
  2. Apply Pressure To Management: the reverse auction technique allows you to move beyond the salesperson that you are dealing with and actually put pressure on the company’s management.
  3. Almost There Syndrome: each of the sellers has already put a lot of time and effort into responding to your original proposal. This means that they all think that with just a little more effort they can close the deal.
  4. It’s Concession Time: you know that sellers are more adverse to losing a deal during negotiations than earlier in a deal. This means that they may make concessions that they normally would not.

This negotiating technique is not without its downside. You need to keep in mind that whichever seller you select is going to feel as though they were put through the ringer. They will probably resent the auction process and will want to make up for being forced to bid a low price.

What this means to you is that any changes that you want to make to the contact after it has been signed will probably end up costing you dearly. Additionally, the seller may end up delivering the product to you late and may even shave some corners on the quality of what gets delivered.

Have you ever had a chance to use a reverse auction during a negotiation? Was it successful? Were you happy with what was delivered in the end? Have you ever had to compete in a reverse auction process? Did you win? How did you feel if you did win? Leave me a comment and let me know what you are thinking.

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