Negotiating Self Defense: Countering The Reverse Auction Tactic

by drjim on January 22, 2009

Sellers Need To Defend Themselves Against Buyers Who Use The Reverse Auction Negotiating Tactic

Sellers Need To Defend Themselves Against Buyers Who Use The Reverse Auction Negotiating Tactic

I’ve always liked superheros. From my earliest days of reading comic books to my current-day trips to the movie theater to see Spiderman and Iron Man, I just don’t seem to be able to get my fill of superheros.

I believe that superheros, although fictional (probably – however I still have hope), can teach us a lot about how to become better negotiators. One lesson that all superheros seem to learn in superhero school is that in order to be successful in a fight, they always need to have good self defense skills.

In negotiations, sellers need to have a good defense against one negotiating tactic that a buyer can use which is called the “reverse auction”. It works like this: let’s pretend that you wanted to build buy a new car. You visit three different car dealers and get three different offers. As you can imagine, each of these offers will contain a confusing mix of different financing and option packages.

Check out my reverse auction training video here by clicking here!

Your next step will be to call a “reverse auction”. You go back to each dealer an tell them that you’ve visited the other two dealers. Each dealer will then proceed to tell you why they are the best and why you should avoid buying from the other dealers. After you’ve had a chance to talk with all three dealers, you now understand the subtleties and the options associated with buying the car that you want.

With all of this new information, you are now able to more clearly refine your specifications because the alternatives have become clear. You can now specify the specific financing and option packages that the dealers can bid on.

You will end up selecting the dealer who can provide the best price while providing the most car for that price. By using a reverse auction, the buyer was able to learn a great deal about buying a specific new car and was able to trade off options that he/she originally did not know existed.

All of this is great if you are a buyer, but what if you are the seller (or the dealer in the case of our example)?

It turns out that although it may initially appear as though the buyer is holding all the cards when they are using the reverse auction tactic, that’s not really true – you still have a great deal of negotiating power.

Check out my reverse auction training video here by clicking here!

Your greatest strength comes from the simple fact that the reverse auction takes a great deal of the buyer’s time in order to do correctly. They have to identify sellers, collect bids, evaluate, revisit to collect information, and then revisit again to negotiate a final deal. All this takes time that they may not have to give.

What you need to do is to present yourself as being the seller who best understands that the buyer’s needs are. If you can convince him of your credibility then you’ll be well positioned to close the deal.

Here are a few tips that will help you come out ahead when your buyer decides to us the reverse auction tactic on you:

  1. Be Last: You want to be the last person that the buyer talks with, not the first. This may allow you to short-circuit the reverse auction process.
  2. Use Your Best: When dealing with the buyer, you want to use either your best negotiators or at least make sure that you are well prepared for the discussion (no distractions!).
  3. Give In Slowly: This is always a good tip – do not hurry to make concessions to the buyer.
  4. Sell, Sell, Sell: Make sure that you sell the buyer on your strengths and benefits.
  5. Use Limits: Clearly communicate to the buyer that the scope of your authority is limited in this deal to the bottom-line figure.
  6. Use Experts: The buyer is desperately looking for somebody to believe in so that they can be convinced that you are the right one to buy from. Make sure that you provide the expert that they need to find.
  7. Use Innovation As A Back-Up: Life is unpredictable. Sometimes a reverse auction will start to go badly for you. In these cases, you need to make sure that you have a new and innovative approach that you can whip out if this happens – lifetime free oil changes anyone?
  8. Find The Decision Maker: You can talk with the buyer until you are blue in the face, but it will be all for naught if you haven’t done your homework and made sure that they really are the final decision maker. Check before you invest the time and energy.

Have you ever been in a situation where a buyer used the reverse auction tactic on you? Did you feel as though they had the power in the negotiation or that you had it? Was time a key factor that the buyer was dealing with? Were you able to convince them that you were the expert? Leave me a comment and let me know what you are thinking.

Check out my reverse auction training video here by clicking here!

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{ 2 comments… read them below or add one }

Paolo Tavella June 6, 2011 at 8:32 am

I had my first experience as a supplier in a three-day reverse auction laat week. I have over 20 years of sales and operation experience in the heavy industrial equipment. The product I sell for a leader manufacturer in this field is not “commodity” but highly customized, differentiated equipment. Still, this reverse auction was be adopted – in my opinion not the correct strategy – from the customer who invited three major suppliers for simultaneous negotiation in a hotel last week. Needless to say, it didn’t go very well for the suppliers and we lostthe deal. I do not think the supplier awarded the PO hasanything to celebrate either.

In any case, based on this experience, I wonder now what the author thonk about responding to a reverse auction with a Dutch auction: you start with your lowest “walk away” price and you increase it every so often, until the customer is either pressed to buy or to tell you you are no longer competitive. It might not help much in getting a deal, but I think it would help to build a reputation and send a message to the other suppliers and buyers. This is for a highly customized product, not a commodity.

Thanks,

Paolo Tavella

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Dr. Jim Anderson June 7, 2011 at 7:17 am

Paolo: You make a very good point — it appears as though this auction was just the start of a longer term relationship. Since you say that your product is highly customized, differentiated equipment the buyer and the seller will have a relationship that exists long after the auction is over. It sure seems as though it is in the buyers best interest to make sure that the seller feels that they were able to sell at a fair price so that the relationship will be a good one!

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