The Reverse Auction Tactic

You need to be careful when you get involved in a reverse auction
You need to be careful when you get involved in a reverse auction
Image Credit: PROM C Morgan Follow

When we are negotiating with another party to sell them something, we need to be very careful how they are treating both us and the other vendors that they are talking with. The person who is buying the product is highly motivated to find a way to get the best possible price and to learn as much about what they’ll be buying as possible. One way that they may choose to go about doing this is to run what is called a “reverse auction”.

What Is A Reverse Auction?

Place yourself for just a moment in the shoes of a buyer. They know that they have a need for something. The thing that they need may be complicated, have a lot of parts, or require a long time to implement. There is no way that they can know everything about what they need especially if they have never bought it before. What this means for them is that they are going to have to avoid our negotiation styles and negotiating techniques and create a specification for what they want based on their best available information. It’s not going to be perfect.

The next step is to get multiple vendors to respond to the specification. Once the responses have all been collected, the buyer then asks all of the responders to come and have a meeting with them. The buyer picks the time and the place. They pick this so that each of the responders will see the other people / firms that have responded to the specification. The purpose for doing this is to increase the pressure on each person who responded – let them know who the competition is.

After having had a chance to talk to each responder, and perhaps having them lower their prices once they’ve seen who they are up against, the buyer is now in a better position. They have a much better understanding of what they want and what it will take to deliver it to them. They turn around and issue a revised specification that has been updated with everything that they learned during their discussion with the responders. This time around they’ll get revised offers each with an even lower price. Exactly what they wanted.

How Can You Defend Against A Reverse Auction?

If you selling a product or a service, the last thing in the world that you want to have happen is for you to get involved in a reverse auction situation. Potentially you are going to find yourself going to the effort of responding to the same specification twice before it get awarded and your price is going to be driven down by competition. One simple way to deal with this kind of situation is to simply not participate. When you detect that the buyer is running a reverse auction, decide that the business is not worth it to you and simply don’t respond.

Another approach to dealing with a reverse auction is to go ahead and participate in the auction, but control when you meet with the buyer. When they try to schedule a time to meet with you, take steps to make sure that you are the last seller that the buyer will be meeting with. There are several reasons for setting this up. The first is that when you meet with the buyer, they may reveal to you what they have learned by talking with the other sellers. Additionally, the buyer may be tired of the whole reverse auction process and just want to wrap things up and this may put you in a better position than all of the other sellers. Finally, we all tend to remember the person that we met with last.

When you are dealing with a reverse auction situation, you want to prevent what all too often happens at an auction from happening to you. What can happen at an auction is that bidders get caught up in the moment and just start bidding in order to win the deal. In a reverse auction situation, you might start lowering your price to win the deal and you could end up with a deal that you don’t want to have. In order to make sure that this does not happen to you, make sure that you have a bottom line before you talk with the buyer. Know how much you’ll be willing to lower your price and make sure that you stick to that. You don’t want to find yourself giving away the farm.

What All Of This Means For You

When we have something to sell, we’d like to make a proposal to a buyer, have them evaluate it, decide that we’re the ones they want to do business with, and then select us. However, since we live in the real world, things don’t always turn out this way. All too often, what happens is that the buyer decides that they want to run a reverse auction and we can end up getting sucked into something that won’t turn out well for us.

When a buyer runs a reverse auction, they create a specification, invite multiple vendors to bid on it, and then invite everyone who bid on it to meet with them. They set this meeting up so that everyone sees who else bid on the specification. They use these meetings to collect more information on their specification and to get the vendors to lower their prices. They then re-release the specification and get the vendors to bid again. Ultimately, they get lower prices the second time around. If you don’t want to get caught up in a reverse auction you can choose to not participate. You can also make sure that you are the last vendor that they meet with and you can make sure that you know what your bottom line is.

As sellers, we can understand the buyer’s need to try to create as detailed a specification as possible. However, we need to try to not get pulled into a reverse auction situation because we will generally not get the deal that we want. Keep your eyes open during your next principled negotiation and if it appears as though the buyer is starting a reverse auction, take the necessary steps to protect yourself.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: What do you think would be the best way to make sure that you are the last vendor that the buyer talks with when they are evaluating proposals?

Click here to get automatic updates when The Accidental Negotiator Blog is updated.

P.S.: Free subscriptions to The Accidental Negotiator Newsletter are now available. Learn what you need to know to do the job. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

Let’s face it, being a negotiator is a tough job. When we realize that we need to find a way to get better at the negotiation styles and negotiating techniques that we use, the realization that we need to improve can appear to be such a big task that we will have no idea how best to start. It turns out that the right way to become a better negotiator is to take the big task of improving your skills and break it down into a set of smaller, more manageable tasks. /strong>Master these strategies and you’ll become a better negotiator!

Leave a Comment