Which is Better: Auction or Negotiation?

Selling as an action generates definite revenue. However, to make the best out of it, auction or better say forward auctions gets into the picture. It took place for many centuries by now and have proven records even today. Most of the online versions (i.e. eBay) that rely on reverse auction model had tremendous success and became a topic for many academic papers.

However, the online version of auctions, in other words, e-auctions did not always deliver the best results where it did not always produce purposeful competition and quality on service classes although it was very successful triggering and supercharging price competitions. In most cases, this ends up by the withdrawals of suppliers with a claim that profitability just did not exist.

A balanced approach is to ensure thoughtful processes are in place, exchange of information between buyer and seller lives healthily and the outcome delivers maximum values to both parties make it possible only with the substantial aid of negotiation and naturally the negotiator's skills on it.

Collaborations might not always be necessary if buyers are properly understood, pluses of the product in question is identifiable, illustratable and promotable, the seller has set firm priorities in advance, and the need for speed and transparency forming the best price is ready.     

Sellers should first get familiar with the pool of buyers to their product and services by understanding the potential size of the purchaser, their genres, willingness to take part in the auction and finally the expected valuations they have in mind.

According to a research Subramanian (2009) suggested, the value of having another bidder is negligible for pools that exceed fifteen bidders. Although this claim might appear to be contradicting with general belief of more the merrier, it is exhaustive managing up to seven serious bidders in any given set up.

In certain times, it might not be beneficial to open an auction provided that potential buyers are well-known by the auctioneer in advance and they are properly understood. Approaching the potential buyers directly and without auction makes more sense, where it is possible avoiding the diminishment of the price while during the auction sale as this might be a more efficient alternative than searching new buyers. Nonetheless, if a seller wishes to broadcast his auction and attract the attention of more potential customers all at once, call to the auction will be a much better option.

In the meantime, although it is very challenging to capture, buyers are likely to be concerned whether they can render specifications for the auction item, extract the potential value out of it and whether relationships or service are essential elements of the deal. Compliance with various guidelines, formats, proposal templates and others are already good indicators to the level of collaboration to expect from the buyers or sellers. While strict adherence requirements to above mentioned floors the collaboration expectancy, it also palliates the formation of a possible winning deal.

Until this moment, two different preparation streams (buyer and seller) flowed independently to each other. After examining the importance of the relationship, amalgamation starts forming. It is the right time to assess the requirement and type of speed, identify and setting it, clarifying the tolerance level for risks (applies to both parties) and evaluation of the effects of transparency.

After prompt preparations and at this very point; the best option to sell: Negotiation or Auction will make itself appear to both parties transparently; hopefully to the seller first to ensure expelling the best potential out of the sales deal.

This write-up references to a well-written article of Guhan Subramanian (Negotiation? Auction? A Deal Maker’s Guide. (2009). Harvard Business Review, (December 2009), pp.101-107.).

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