Bidding Backwards
The buying and selling of media is a $429 billion dollar business. Ad prices in television, radio, print and new media streams are rising, with no guarantee of a positive return. So, companies like Enversa now offer a Web-based tool to broker satisfactory deals between advertisers and media outlets. Thinking backwards can help you and your media buyers move forward.
With their lure of naming a price for a rare or valuable item, auctions usually enjoy a romantic reputation. Much of that aura comes from images of wealthy buyers engaging in a high stakes financial endeavor, where the prize always goes to the highest bidder. By encouraging competition, buyers and sellers, who engage in the reverse auction process, have a new tool to more adequately influence the market rate for all types of products.
It’s not a scenario that is limited to individuals looking to buy anything from a piece of jewelry, art or even a vintage car. Businesses also engage in the practice of bidding for goods and services. Except, the goal isn’t to drive the price up, it’s to force it to go as low as possible. A popular trend in today’s business-to-business dealings is the “reverse auction.
Looking to secure lucrative contracts, suppliers and distributors will underbid each other in real time, online auctions to see who can offer the most rock-bottom price.
Some of the business world’s most recognizable names are using reverse auctions to maintain a healthy bottom line. Home Depot, Sun Microsystems and 3M have all taken advantage of the benefits of reverse auctions. In fact, according to a study by the National Association of Wholesaler-Distributors, nearly 50-percent of the large buyers, who have used reverse auctions, enjoyed an average cost savings of 15-percent.
Adam Fein of Pembroke Consulting in Philadelphia authored the study. He said, “Buyers have been adopting this quickly.” In the airline industry, where a 15-percent reduction in costs can be the difference between survival and bankruptcy, Southwest Airlines used reverse auctions for small items like luggage tags to larger needs like electrical power. And the success has the company looking to expand the practice.
“We’re continuing to look for opportunities to use reverse auctions,” said Ray Sears, vice president of purchasing for Southwest. “They’re a good tool.”
However, reverse auctions aren’t all pie in the sky. While they do allow smaller companies to compete with larger suppliers in the bidding for contracts, getting too aggressive in the price-plunging process can be costly.
“A person can lower their fees, expenses and prices so much that it [becomes] a bad business decision,” says Nuri Otus, 42, a California entrepreneur
“Many small companies focus on their average costs,” Fein says. “That’s a dangerous strategy for pricing on the margins of these contracts where the profitability gets slim.”
Reverse auctions have also breathed life into other industries, where the targets are less tangible than hard goods and measurable services
It shows the willingness of a widening range of companies to expand their traditional, and increasingly ineffective, methods of doing business and embrace a system where all parties involved can emerge winners.
As we mentioned earlier, by encouraging competition and negotiation, buyers and sellers, who engage in the reverse auction process, have a new tool to more adequately influence the market rate for all types of products. While the universality of pitting bidder against bidder to influence a reduction in price is still a work in progress, it would seem that backward thinking is actually becoming forward thinking.
This entry was posted on Tuesday, February 3rd, 2009 at 10:23 pm and is filed under Enversa POV. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.