Guide

E-marketplaces, online auctions and exchanges

Online auctions

Online auctions are computerised versions of traditional auctions where buyers bid against each other. What makes online auctions so powerful is that vast numbers of businesses or individuals can bid - allowing sellers to get the best price. Conversely, the speed, simplicity and variety of auctions mean that shrewd buyers can cut the time and cost of procurement.

The two main types of auction are:

  • forward auctions - where lots are sold to the highest bidder
  • reverse auctions - where suppliers compete on price and the lowest bid for a tender wins

Forward auctions

Using a forward auction can be a cost-effective way of acquiring new customers, testing new products or establishing pricing points. Excess inventory can be disposed of quickly and sales costs are reduced because of the minimal amount spent on marketing. You can price your goods according to demand and stock levels.

Some businesses trade solely online using forward auctions on websites such as eBay. See selling through online marketplaces.

Forward auctions can also bring benefits when making business purchases. You may be able to source non-critical or specialist equipment at a more competitive rate. You can also reduce procurement time by setting up automated searches and bids.

Reverse auctions

If you supply larger companies, you may be asked to compete for their business in a reverse auction. Reverse auctions allow businesses to compete for business globally. Businesses can also make savings by gaining access to customers who are ready to buy, without having to launch a sales campaign. Reverse auctions are a good way to offload stock or build market share - however, they are normally by invitation only.

It is unusual for smaller businesses to make purchases using reverse auctions. However, using a reverse auction can save you time and administrative costs and you may attract a larger pool of suppliers. Reverse auctions can also help you manage complex procurement contracts and reduce your overall costs.

Best practice in auctions

Before entering an online auction, check:

  • accreditation - some auctions have qualifying criteria
  • fee structures - there may be a registration fee
  • how payment is managed - sometimes this is between the parties, sometimes through the auction site itself
  • supplier reputation - monitor feedback from previous bidders
  • the bidding system - how to place or withdraw bids
  • what's on offer - if the description is vague, contact the seller for more information
  • costs - factor in all the costs including taxes, packing and shipping charges

Spend some time browsing what is on offer and what it costs. Narrow your search down by specifying a category or using the advanced search criteria. When bidding, set yourself a maximum price you are willing to pay for an item and stick to it.