A reverse auction is a form of auction in which the roles of buyers and sellers are reversed. With a fixed rate, the sellers come up with equivalent services so a buyer can choose from several packages without changing his price offering,or lowering it if there are a lot of takers. 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 Tool for the B2B Market
Sellers compete to obtain business. B2B markets are the usual places where reverse auctions are done. In freelancing sites, the concepts of reverse auction are applied. An employer typically accepts several offers as a part of his shortlist, before awarding the business to a group. In wholesale procurement, a reverse auction is much more effective as a business tool than an ordinary auction.
The Role of the Market Organizer
An event is organized by a middle man and he gets a cut every time money changes hands in a reverse auction. It is assumed that any price being offered has included the fees of the middle man. The market organizer must provide several tools for the buyers and sellers. One example of this is an escrow service that both the buyers and the sellers have access to. Protection of both parties’ interests will ensure that the money changes hands in a setting that the market organizer can oversee.
A buyer must declare an estimate of how much he is willing to spend on the sales process. The higher the price offering, the more sellers he attracts in his auction. The buyer should also disclose his expectations and terms before the bidding starts. Buyers, sellers, and market makers should adhere to auction rules and industry codes of conduct for the use of reverse auctions. One more thing to consider in this scenario is the mode of payment, which is usually mandated by the market organizer
For a seller to obtain a contract, here are some recommendations. Identify the needs of your market to the best extent possible, as a lot of buyers will not automatically go for the lowest price. Sellers or businesses with goods to bring in an auction can hire the services of a competent bidder.
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