Everyone’s heard about the web site Ebay right? That’s where you can go to auction off any junk that you don’t want to have lying around your place any more or where you can go to purchase a GI Joe doll that you remember from your childhood (in its original box!) It turns out that the success of Ebay holds a number of lessons that sales negotiators should learn from…
Maybe We’ve Got This Auction Thing Backwards?
When it comes to conducting a sales negotiation, we generally can’t run an auction to find the best deal. This just isn’t a good way to work out all of the details that go along with striking a good deal.
A much better way of getting a good deal is to use what professional negotiators like to call “a reverse auction”. I like to call this technique “shopping around”.
What Is A Reverse Auction?
In a traditional auction, what’s being bought is presented and then people proceed to bid on it. Everyone gets to see what everyone else is offering. Whomever offers the highest amount of money wins the auction and gets to purchase the item at the highest amount that they stated that they’d be willing to pay.
In a reverse auction,things are run a bit differently. This negotiating technique requires that the buyer approach each potential bidder separately and ask them for a bid. Upon getting an offer from each of them, the buyer now has both a range of prices and a collection of features to choose from.
Things aren’t over yet, they are just getting started. Now the buyer can go back to each one of the bidders and state that they can get a better deal from another bidder and ask them if they’d be willing to lower their price / increase what they are offering.
You can see where this is going now. The buyer keeps having separate discussions with each of the potential bidders and telling them what the current lowest offer is. This is done in order to motivate them to lower their offer in order to stay in the game.
Ultimately, the bidders will reach a price point that they are unwilling to go beneath – effectively this is their lowest price. Once this happens, the buyer will need to make a decision about which offer best meets their needs.
The Danger Of Using A Reverse Auction
Hopefully you can see just how powerful a reverse auction can be. The bidders have so little information that they end up bidding against themselves in many cases.
However, you can also imagine how a bidder must feel after a reverse auction is over –worn out and potentially angry. Sure they got the deal, but is it a good deal for them to get?
The reason that this matters to you is that if you need to make any changes to the deal that you’ve reached with the winning bidder, they’ll permit the changes, but they’ll attempt to reclaim some of their lost profits by increasing their price for the change.
What All Of This Means For You
Ebay is one of the most successful Internet companies in existence for a very good reason. They provide their customers with an opportunity to participate in auctions for just about every product imaginable. Professional negotiators need to realize just how powerful a technique an auction is, and start to use the reverse auction tactic.
The reverse auction tactic requires the buyer to play bidders off against each other in order to get the lowest price. The danger in doing this is that this may leave the winner angry and wanting to regain lost profits if any changes are needed.
A sales negotiator needs to have many different tactics that can be used when needed during a sales negotiation. The reverse auction tactic is one of these. Just be careful when you decided to use it – with great power comes great responsibility…
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™
Question For You: How could you keep one of the losers of a reverse auction on the line as a potential backup?
What We’ll Be Talking About Next Time
When you are involved in a sales negotiation, just exactly how should you behave? For some odd and unexplained reason, a lot of us think that we need to be stoic statues who never show any emotion. Wait a minute. We’re involved in a sales negotiation where we are trying to get the best deal for our side.We’re not playing poker and trying to hide our reactions to our cards. Maybe it would be helpful to have a talk with some Italians to find out how we can become better negotiators…