Reverse auctions are becoming increasingly popular with procurement professionals, but it’s not always clear which auction type is right for you.

SaaS provider Market Dojo explains the differences, and how you can choose the right auction to save you time and money.

"There are a number of different formats to choose from, and choosing the right auction for you can be a little overwhelming. We've selected the three most popular auction types to clarify their strengths and weaknesses.


Open Auction

In an Open Auction participants view the Lead Bid per Lot, and are only able to submit a bid that beats it.

Pros

  • Can quickly settle the negotiation, as participants can only bid for the lead
  • Highly effective if you do not mind who wins the Event

Cons

  • There can be large price gaps between each participant, leaving you with less choice than a Ranked Auction. Some participants might be put off by the current lead bid
  • A participant is only able to bid against the leading bid. This is especially important if there are multiple Lots and you wish to make the award decision after the Auction, based on grouping the Lots together

 

Ranked Auction

Participants view their position for each Lot relative to the other participants. This is considered as the most popular B2B auction format due to its flexibility, working for the majority of situations.

Pros

  • Promotes a very close auction when you have a number of participants on a similar price level
  • Gives clear feedback to the participants
  • Only the leading participant knows the best price

Cons

  • A participant in second or third position may be content with their rank, and may cease to compete for the lead unless you have sent a clear message beforehand that the top ranked participant shall have first refusal

 


Japanese Auction

This is an auction type that requires all suppliers to bid at a continuously decreasing price. The bidders may choose to either bid at the current value or drop out of the auction.

Pros

  • Limits the information available to the bidder
  • You can run this auction type when you have low supplier liquidity, even with a minimum of one participant
  • The leading participant has margin to play with yet is unlikely to be challenged in a conventional auction
  • Only ends when the single supplier left has offered their lowest value they wish to bid or their time limit has elapsed during that individual price level

Cons

  • Considered the least popular with suppliers as they receive very little market feedback
  • One of the most difficult auction formats to set up by the host. As the predetermined price decreases, the time limit of each predetermined price decrease and setting the range for the qualification bid, can be integral to the success of the auction"

 


Market Dojo are a pioneering SaaS company, offering intelligent online negotiation software at commoditised pricing. To trial an auction type or learn more about Market Dojo’s software, you can sign up for a free trial.

Alternatively if you have any question please call +44 (0) 117 230 9200

 

This guest article has been written at the invitation of Sourcing Solved. We receive no payment for publishing this article.