Reverse Auctions: 5 Game-Day Strategies
When you're facing off in a live reverse auction, the bidding can feel like gambling, with bluffs, calls, and feints. Here's a sampling of strategies.
- Rely on incumbency
Sometimes a big company's primary motive is to compel a current supplier to cut prices. If you suspect you're the target of this kind of pressure, bid your current price and hold firm. You don't have to win the auction outright because the buyer will factor in the cost of switching suppliers. As long as you are one of the lowest bidders, you have a good shot at keeping the business.
- Look beyond price
A bidding webpage will sometimes provide suppliers with an overall ranking based on factors such as contract terms and shipping costs. Experts call this "transformational bidding." You can use this to your advantage. Improve your offer methodically--first on price, then on shipping, then on terms--and watch to see how your overall ranking changes. You may be able to suss out those factors, aside from price, that matter the most to the buyer.
- Low-ball early
If they think their competitors are not as well prepared as they could be, some companies will make their first bid their lowest. The goal is to scare away rivals that haven't done their homework and will therefore be uncertain they can match the bid profitably. The more prequalifying that's required, the less likely this is to succeed.
- Start high
If you think you will eventually prove to be the cheapest game in town, start high and drop down slowly to preserve as much margin as possible.
- Sabotage the industry
This strategy is nasty and risky, but some companies enter a reverse auction just to drive down prices in the hope that a rival will underbid them--and end up winning an unprofitable piece of business. So-called "shill bidding" is, according to one expert we talked to, "a suicide pact." But it happens.