Reverse Auctions: features, pros and cons

Reverse Auction is the type of auction, where the standard roles of the seller and buyer are reversed. Here sellers bid for the cost at which they agree to sell their services and goods. There are one purchaser and many potential sellers.

Online Reverse Auction is one of many solutions for e-procurement which makes deals easier nowadays.

What is best to sell or buy in a Reverse Auction?

This type of auction can be used in many procurement spheres. Let’s take a look at some Reverse Auction examples:

• Bidding for government contracts - governments establish a demand for the project and bidders, who are authorized contractors, to suggest a price structure to complete the project
• Bidding for raw materials - a buyer has a wide choice of offers to buy materials used in manufacturing or primary production
• Reverse Auction for cars - a buyer can purchase a car at a below-invoice price while saving thousands of dollars
• Reverse Auction for renewable energy - developers of system-side renewable dispersed generation projects bid the cut prices they would agree to accept to produce renewable energy projects
• Reverse Auction for transportation and logistics - producers find their clients and carriers, who will transfer the goods at conceivably lower prices, in a faster and more efficient way. On the other hand, carriers can provide a larger amount of sellers with their services
• Bidding for car insurance - insurance providers present the best possible policy and cost for the client
• Bidding for services - buyers have a wide range of choice of sellers and their offers of services without overpayment (IT services, marketing services, etc.)
• Reverse Auction for legal services - law firms offer their services to clients at the best price while getting more customers
• Reverse Auction for healthcare - buying consumables such as syringes, gloves, cleaning supplies at the best prices

How does it work?

A Reverse Auction is the opposite of a Forward Auction. A Reverse Auction is launched by the Buyer and the Supplier bids reducing the price.

Rules of Reverse Auctions are:

• The participants submit their bids before the beginning of the auction
• The betting is alternative during the round
• The last sentence is the one who offered the lowest price
• The winner is the participant who was the last to offer the lowest price
• There is no winner if no bet was made
• Auction starts with the original price set by the auction organizer and falls by a predefined minimum step value

Please note, that our version offers you 3 rounds in the auction, and to keep the play fair, all participants remain anonymous in the auction.

Nowadays, as the internet industry is evolving, so does the procurement industry. An online format of auctions makes them more effective by adding more and more advantages each year and without changing the rules of auctions.

Reverse auction pros and cons

The main advantages of the Reverse Auction are:

• You can find out the product’s or service’s real price, without extra charges
• You save time in gathering bids from suppliers
• Full transparency and, therefore, no corruption in a process
• You can save from 18% to 40%
• Increased data security and compliance

However, there are a few disadvantages of using the Reverse Auction:

• Reverse auctions can be quite unprofitable for sellers as they sometimes need to reduce their prices below the lowest minimum to attract buyers. If you believe that reducing the price of your products and services is irrelevant due to their good quality, please try Forward Auction.
• Sometimes at a low price, a customer can get a low quality of the product if the seller doesn’t have a good reputation on the market. But there is an easy solution for that! Online auctions enable you to develop a protection mechanism, i.e. reviews check, which will make e-procurement more transparent. Also, a customer can give detailed requirements for a product or a service to cast unsuitable sellers aside before bidding.

A Reverse Auction is one of the most effective auctions for procurement. Atreus offers efficient reverse auction software, which will make your bidding easier, more transparent, and more practical. You can try out our demo by clicking on the link.