Wednesday, 4 January 2017

Stop saying auctions are too price focused

‘Auctions are too price focused’ is something I hear pretty much every day as part of my role as the outbound marketing executive here at Market Dojo. For me, it’s the equivalent of telling the cashier at Tesco that something must be free if it didn’t scan. It’s infuriatingly untrue.

Yes, of course, the aim of a reverse auction is to reduce the price of something. It’s a negotiation tool akin to paper, over the phone or email. In most tender events, you only negotiate on price when you’ve identified someone that can supply the product or service you need in a way that is amenable to you. Saying that auctions are too price focused is basically the same as saying ‘negotiation is just about reducing the amount of money you spend’. 

Of course, there are things you need to take into account when running a reverse auction as a negotiation tool. Many companies are now concerned about the quality of the goods they buy, and rightly so. If you have different suppliers offering different versions of a product but would still like them both to compete on price - you can weight your auction. 

Weighting is essentially scoring quality and other criteria based on pre-considered elements and then applying this to be part of the overall auction ranking.

Imagine this: Company A and Company B have similar products. Company A’s product is higher quality, and thus got a score of 85% in their quality score by the buyer. Company B is only at a 75% quality score. This means that if you weighed an auction rank by 10% to include quality, Company B would have to beat the Company A’s price by more than 1% to become rank 1, to take into account their lower quality score. 

That is just one of the few ways that you can ensure quality in a reverse auction. The other way is much simpler - Only invite to auction those suppliers who can supply at the quality you require.

Auctions are for when you’ve done the hard part - they just make the negotiation part of procurement much easier. If you have a situation where you have 3 bids on the table and are looking to buy from any of the three, and it’s time to negotiate on price, then there is no reason not to use an auction.

I’m aware that I have a bias because I help people to run eAuctions. That also means I’m around them every day and see what a useful tool they can be. But that’s also why you make me cry when you tell me the auctions are just about price….

Market Dojo helps procurement professionals negotiate better with our on-demand eSourcing tools. If you’d like to find out more, get in touch or register for free and play around with our software for yourself!


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