John Ganger a product manager at James Tower, a full-service Internet marketing firm in Mankato, MN recalls an experience he had with a print service provider involved in a reverse auction.
As you can imagine the reverse auction quickly went south for the printer:
Also pricing did not start coming in to the auction site until the last 3 or 4 hours and then got really heated in the last few minutes which by looking at the price differences that printers were providing there was margin the whole time. In addition, the customer was fairly savy in that they were using a ringer. They had a supplier that truly had no intention of doing the job but was there strictly to drive the price as low as possible. Every time pricing was submitted the ringer would respond within a minute or two and counter the price by a percentage point. So if a print supplier was truly interested in the job they were forced to drop the price even further if they wanted it.
The print supplier I was working with had decided early on that they were not going to get the work and that this was a waste of their time. The supplier estimated the job with their standard markup, a discounted price, and with their cost. When the auction started he offered up his discount price immediately which was a 0.5% profit margin. Within an hour he countered with his cost price which meant no profit on the job. One minute later the ringer countered that price which would have put the print supplier at a 1% loss. The right thing to do for the printer would have been to walk away at that point.
However the printer knew e needed to fill the press and chose to go .5% lower (now at a 1.5% loss.) With a half hour left in the auction another supplier countered his offer. The printer while frustrated chose at this point to walk away from the job.
As John points out his blog post, the print buyer's decision to use a reverse auction provided them with a missed opportunity to engage in a consultative sales process that would have benefited both parties.
Reverse auctions are generally considered harmful to the printing industry. What has been your experience with auctions? Have you had any luck with them or been burned by them? What do you do if a customer asks you take part in one? Do you walk away from that customer as the printer in John's blog post ended up doing?
Discussion
By Brian Regan on Oct 01, 2007
While my firm is not a printing firm, but a staffing firm for printers, I can say that reverse auctions have not be a positive for the staffing industry. Semper has participated in a few reverse auctions for large staffing contracts and what we find is that they quite quickly go to such a low margin that it makes it impossible to A) Make any money and B) Offer a quality service since you are struggle to push as much volume through as possible to hope to not lose money. Pushing volume is a big piece of low quality since you throw bodies at client needs and not place the right skilled person in where the client needs them. We have stopped doing them and allow the larger generalist staffing firms to split pennies. In some cases the global staffing firms will take a loss in US operations to gain a large companies non US business. In many cases staffing still sees higher margin in non US and Western European business. Perhaps in printing reverse auctions are different than in staffing, however, I suspect not. Just more of the same attack on the industries margins and whoever wants the work enough to bid the lowest. My $.02
By Noel Ward on Oct 01, 2007
Reverse auctions are like the old joke in which a man says to a woman, "Will you sleep with me for $5000?" "Well, yes!" he is told. "Will you sleep with me for $50? he asks. "NO WAY! What do you think I am?" she replies angrily. "We've already established that," he responds. "Now we're negotiating." Sounds like a reverse auction to me. I am yet to talk with a printer who likes reverse auctions. They reduce everything to dollars and cents and eradicate any of the added value a print provider offers. And when you have someone acting as a ringer you wind up bidding against yourself.
By Dan Kreppein on Oct 01, 2007
I participated in a few of them when I was calling on Ford Motor Company. A nightmare for the supplier. As an equipment supplier, I would absolutely walk away today, and I would tell any printer to do the same and go find some new customers who actually valued the work that the printer did. Life's too short, and we're not selling soap.
By Bob on Oct 04, 2007
I have participated in and won several reverse auctions. I have been the incumbent in a few. Usually all items that the companies actually print are not listed on the auctions. They limit the items to business cards and the most popular items to save auction time and expense. The people conducting the auctions usually don't know much about printing either! We have found that the other items that usually get requested to be "added to the contract" can be added at regular or higher than normal margins to help offset some of the ridiculous prices you see auction participants bid. I have not heard of the "ringer" approach of using someone with no intention of performing the contract for the sole purpose of driving down prices. I believe this is unethical and maybe illegal and if I had proof I would report this activity to the highest level of management of the company engaged in such behavior! In general I very much believe that reverse auctions are detrimental to our already comoditized business.
By reverse auctions on Oct 14, 2007
Reverse auctions utilize a variety of different platforms for their success, I personally have seen quite alot of good from them.