Competing suppliers do not always behave honestly, ethically, or credibly during the Reverse Auction process.
As a result, we sometimes see one or more of the following three “dirty-tricks” used in Online B2B Reverse Auctions during the Live-Auction and Post-Auction processes.
In each case, the Prospective (non-Incumbent, Challenging) Supplier bids down to an unsupportable price level with the intention of:
Renegotiating the agreement terms to increase the margin potential
Providing a product that does not meet the listed/required specifications to reduce their costs, or
Driving the bid prices down SIMPLY TO HARM THEIR COMPETITORS by eliminating margins
Does this sound like something one of your competitors would do? Unfortunately for all other participating Suppliers, these techniques are very difficult for the Buyer or Auction Host to identify as fraudulent at the time of the auction, or in the near-term thereafter.
“These techniques are very difficult for the Buyer or Auction Host to identify as fraudulent at the time of the auction”
Minimizing the Effects of Foul Play
Because these tricks are very difficult to identify, foul-play of this nature can (and does) have a devastating impact on the price at which the business is ultimately awarded. Here are a some key strategies for Suppliers to utilize to minimize or negate their impacts.
Before the live auction begins, it is imperative that you establish “walk-away” Price Floors. Price Floors are the lowest acceptable bid prices you are willing to offer to earn the business.
Secondly, schedule time with the relevant people in your organization to discuss the bid and likely competitors. Are these organizations you have seen use unethical practices like these in the past? Understanding the likelihood of these tricks will help you in early identification of their use during the Live Auction.
During the Live Auction
As discussed, identification of trickery is very difficult, particularly if you have very limited information on your competitors. If you strongly suspect something is amiss, however, don’t make the mistake of chasing the perpetrating participant down to a bid position below your Price Floors. I have seen this mistake made several times, and when the perpetrating vendor ultimately backed out of the process the Incumbent was (reasonably) expected by the Buyer to honor their unsupportable bid.
After The Auction
If you believe a competitor used one (or more) of the tricks above, the best Post-Auction strategy is to explain your position to the buyers in detail. We do not recommend directly accusing a competitor, but instead make an appropriate case from your perspective using the relevant data points.
“We do not recommend directly accusing a competitor”
For example, if you suspect the competitor will attempt to renegotiate the shipping terms to make the business profitable, proactively inform the buyer that you could have submitted a lower bid price — if the shipping terms were different. This accomplishes two things without directly telling the buyer they are being tricked (they typically don’t appreciate that). Firstly, this opens the door for you to engage in follow-up negotiations and keeps you involved in the process. Secondly, it subtly alerts the buyer to possible renegotiation attempts that may be coming from the “winning” bidder.
While these three tricks can be difficult to identify, proper preparation and strategic management in all stages of the Reverse Auction process will help you minimize their effects and improve your chances of winning the Auction at a supportable margin level.
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