Thursday, 22 January 2015

A brand new application of the reverse auction

The concept of the reverse auction has been around for close to 20 years and is a well-known approach to negotiating effectively with multiple suppliers.   

However, the Morning Star Scholarship Foundation utilised the reverse auction for an entirely new and creative concept that we have not encountered before – to negotiate scholarships towards tuition fees!  Read on to learn more about this innovative idea lead by Mike Sertic and his colleagues at the Morning Star Scholarship Foundation.

The Morning Star Company is the world’s leading tomato ingredient processor, supplying approximately 40% of the U.S. industrial tomato paste and diced tomato markets. 

They operate the Morning Star Scholarship Foundation, a charitable organisation that provides tuition grants to Morning Star colleagues (parents) to help fund their child’s switch from public to private or home school education, a very noble cause.

The Foundation was looking for a way to increase the number of scholarships they could offer to parents within the $15,000 funding allowance that was periodically available. 

They decided to contact Market Dojo, an e-Sourcing software provider focusing on user adoption, to try a closed-market auction as a solution to this, by letting parents compete in a reverse auction to determine their willingness to secure a grant. 

The concept was that the auction would begin at a maximum grant of $3,000 per child, at which point the total available pot of $15,000 would provide 5 scholarships.   However, because there would be more parents bidding than there were available grants, parents could use the ranked auction as an opportunity to bid incrementally lower amounts to ensure themselves of a top 5 position and secure a grant. The difference between the $3,000 opening bid and the bid offered by the parent would be paid for by the parent themself

For example, assuming the cost of the child’s tuition was $3,000, if a parent bid $2,700 to stay within the top 5 places, the parent would be committing to contribute $300 of their own money towards their child’s education, with $2,700 coming directly from the Morning Star Foundation.

The auction would continue until it hit a point where the average grant across the top 6 spots equalled $2,500.  For this amount, the $15,000 total fund would now be able to provide 6 scholarships in total, hence any parent ranked in the top 6 spots would be granted a scholarship for their child.  Should the auction reach an average of $2,142 across the top 7 spots, there would be 7 scholarships on offer, and so on.  Parents were to be notified of the news via the messaging facility in the application. 

Since the parents who were bidding in the auction were essentially consumers and not e-Procurement professionals, it was essential that the software was extremely easy to use and consumer-friendly.  Mike Sertic, who managed the process for Morning Star in a highly adept manner, conducted a series of trials to ensure everyone was up to speed with the concept:

"Prior to the auction, we utilized the neat "Sandpit" feature within Market Dojo for colleagues to practice and also held an informational webcast about the Foundation and auction process."

Absorbing all the feedback from the trials, two live auctions were conducted in late March over a 48 hour duration involving 16 competing parents in total.  Each auction represented a pot of $15,000, which when combined would be able to provide 10 scholarships.  Upon completion of the two auctions, which received over 270 bids, we were delighted to hear from Mike:

"This year we will be awarding $28,789 for a total of 14 scholarships. We hope that in the future, even more colleagues will make the switch to private or home school.  The Morning Star Foundation’s effort in implementing this program was made much easier by the folks at Market Dojo.”

Parents were equally supportive of the process, filling in the Market Dojo post-auction survey with very encouraging comments:

Awesome way to be fair to all colleagues!”, “It is a very generous offer that others could benefit from” and “The process is very user-friendly”.

This was an excellent achievement and only made possible through the team's vision in taking an existing process and modifying it for new solutions.  Mike and his colleagues have used this novel approach to enable an additional 4 children, bringing the total to 14 children, to benefit from the generosity of the Morning Star Scholarship Foundation this year.

As for the reverse auction, it’s great to see innovative ways for it to be used.
 


About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com.

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