Auctions by suchufp


									MIS 5105
Dr. Garrett
   Forrester Research, October 4, 2005:
   “Online consumer auction sales will reach $65 billion by
    2010, accounting for nearly one-fifth of all online retail
    sales. While sales will grow steadily over the next few
    years, growth will be tempered by slow adoption of the
    format by mainstream consumers. As these shoppers
    turn to the merchants they trust offline, enterprise
    sellers won't see the need to sell through auctions. This
    will force eBay to prioritize integration with to keep sales growth steady, and force
    merchants to rethink search spending strategies. “
   Fundamentals
     Traditional auctions
       Last only a few minutes (short decision making time)
        and sellers may not get highest price
       Bidders may not get what they want
     Electronic auctions
       Like offline auctions, performed on PC
       Host sites act like brokers
       Buyers may solicit offers from potential sellers
   Dynamic pricing refers to a commerce
    transaction in which prices are not fixed
     Forms of dynamic pricing:
       Negotiation
       Bargaining
     Four major configurations depending upon how many
      buyers and sellers are involved:
         One buyer, one seller
         One buyer, many potential buyers
         One seller, one buyer
         One seller, many potential buyers
   Ascending Price (English) Auction
   Descending Price (Free Fall) Auction
   Reverse Auction
   Yankee Auctions (multiple identical items with a
    ascending price and minimum bid)
   Dutch Auctions (multiple identical items with a
    descending price)
Free fall (declining price) auction
   One item auctioned at a time
   Price starts high and is reduced at fixed time intervals
     One buyer, many potential sellers
     Many sellers, many buyers
   Reverse auctions are nothing new in B2B
   The online environment offers several advantages:
     Process is greatly accelerated (sometimes down to
     Buyers can reach a wider range of suppliers
     Continuous outbidding reduces the need for additional
     Suppliers can equally address new geographic markets
     Where prices are open, suppliers can understand the
      various price points and make an informed decision
      whether to enter a market
   The building of relationships is given a lower priority
   Tendency not to involve suppliers during the design
    stages … results in fewer saving or quality
    improvements for the production stage
   Many small ticket items confusing requirements and
   Prices can tumble quickly without commensurate
    reductions in production cost, leading to smaller
    margins and, ultimately, reduced competition and
   Priceline model (
     Enables consumers to achieve significant savings by
      naming their own price for goods and services (C2B)
     Presents consumer offers to sellers who can fill the
      demand—if no success, customer ups the bid (type of
      reverse auction)
     Priceline uses its database of vendors’ minimum prices to
      match supply against requests
     C2B reverse auction—vendors submit offers and lowest-
      priced vendor gets the job
   Other models
    —model for travelers
       Real-time declining-price auction
       Full disclosure of itinerary details
       Discounted international and domestic air travel and
        cruise tickets
     allows travelers to place an RFQ,
      then asks vendors to bid on it
   buying products where there is a clear industry
    specification for the item and recognized quality
   the supplier and manufacturer are well known
    and have a proven track record.
   the industry does not suffer periods of shortages.
   After-purchase service is minimal or very unlikely
   distance is not an inhibitor to the supply or the
    service of the product.
   the required item is difficult to find.
   Benefits to sellers:
     Increase revenues by broadening customer base and
      shortening cycle time
     Optimal price setting
     Disintermediation—sellers gain more customer
      dollars by offering items directly
     Better customer relationships—buyers and sellers
      have more time to interact, creating customer loyalty
     Liquidation—sellers liquidate large quantities of
      obsolete items very quickly
   Benefits to buyers:
     Opportunities to find unique items and collectibles
     Chance to bargain—buyers can bid with seller for
      desired prices
     Entertainment—interaction in auction can be
      entertaining and exciting
     Anonymity—3rd party allows buyer anonymity
     Convenience—buyers trade from anywhere (even
      cell phone)
   Benefits to auctioneers:
     Higher repeat purchase—auction sites garner higher
      repeat-purchase rates than e-commerce B2C sites
     More “sticky” Web site (tendency of customers to stay at
      site longer and come back more often)
     Expansion of auction business—Manheim Auctions
       Sell program cars as response to Japanese efforts to
        penetrate U.S. car auction business
       80,000 car dealers involved
       Provide services to customers
   Possibility of fraud           Security
     May purchase a                 C2C auctions not
                                      necessarily secure
      defective product
      buying sight unseen            B2B auctions conducted
                                      on highly secure private
     Fraud rate is very high         lines
   Limited participation          Software
     Invitation only                Few off-the-shelf
     Open to dealers only            packages that can handle
                                     “Best practices” still being
   Strategic uses of auctions and pricing
     Customers are attracted to e-auction markets
      because they provide greater liquidity than traditional
     Efficient way to find best price at electronic auctions
     Low cost provision of exceptional levels of
      transparency of market to operation and product
   Strategic uses of auctions and pricing
    mechanisms (cont.)
     E-auction markets are more efficient than traditional
     E-auctions can provide services at low transaction
     Customers abandon a market that is not perceived as
     Must manage all aspects of trading activities from
      initiation to settlement and delivery
   Strategic uses of auctions and pricing
    mechanisms (cont.)
     E-auction system must manage all aspect of trading
     Delay in price response causes greater potential for
      feedback loops and instabilities
     Order-driven e-auction markets demand that markets
      clearly define when a sale has been made
   Impacts
     Auctions as a coordination mechanism—establish
      equilibrium in price
     Auctions as a social mechanism to determine a price
       Offer special items at a single time
       Attract considerable attention
       Auctions provide exposure of purchase and sale orders—
 Auctions as a highly visible distribution mechanism
   Deals with special offers
   Use the mechanism to attract customers
     Bargain hunters
     Have preference for gambling dimension of auction
 Auction as a component in e-commerce
Source: Modified from Klein (1997), p. 4.
   Phase 1: Searching and comparing auctions and
    their prices
     Mega-searching and comparisons
     —directory of auction sites
     —news about e-auctions and specialty
       auctions worldwide
      Yahoo!’s auction list—400 auction-related links
      Bidder’s Edge—searches eBay, Yahoo, Amazon for specific
      Turbobid—provides mega-search series that helps local
       bidders find items from a pool of
       e-action sites
 Automated search services
   Notify buyers when items they are interested in are available
   Buyers complete a simple form about the item
 Browsing site categories
   Directory of categories for buyers to browse—narrows their search
   May allow sorts by times auctions are held
 DBasic and advanced searching
   Buyers use search engines to look for a single term, multiple terms,
    key words
   Advanced search requires a form to be filled out
   Phase 2: Getting started at an auction
     Registration and profiling
       Sellers and buyers register before entering the auction
         Names
         User Ids
         Passwords
       Buyers can check seller’s profile
     Listing and promoting
   Advertising wizard — helps        Auction wizard — auction-
    users create attractive ads        posting tool that saves
    and auction postings               cutting and pasting when
   Auction assistant — helps          uploading items for sale
    create attractive auction         Mister Lister on eBay —
    listings                           allows sellers to upload many
   Auction eposter98 — makes it       items at a time
    simple to add pictures,           Bulk Loader — seller can load
    program interacts with eBay        several auctions into
                                       spreadsheet programs
 Pricing
   To post an item for bidding, sellers must decide on:
     Minimum bid amount
     Bid increment
     Reserve price (lowest price seller is willing to accept)
   Search past auctions and the transacted prices to provide a
    benchmark for buyer’s bidding strategy
   Phase 3: The actual bidding
     Bid watching and multiple biddings
       Buyers visit the user page of an
        e-auction Web site at any time to check status of an
       They can review bids and auctions
       Tools provided in the U.S. to view bids across several
        auction sites
         BidWatch
         Bid Monitor
         EasyScreen Layout
   Auto-snipping – the act       E-proxy bidding —
    of entering a bid during       software system bids on
    the very last seconds of       behalf of the buyers
    an auction and
                                    Buyer determines the
    outbidding the highest           maximum bid
                                    Place first bid manually
                                    Proxy executes the bids
                                     keeping bids as low as
   Amazon’s BidClick proxy
   Dynamic Posted Pricing models that use agents
    to determine competitive prices
   Phase 4: Post-auction follow-up
     Post auction notifications
         Bidding notifications
         End-of-auction notices
         Seller notices
         Postcards and thank-you notes
     User communication
       Chat groups
       Mailing lists
       Message boards
     Feedback and rating
   Phase 4: Post-auction follow-up (cont.)
     Pricing and billing
     Payment methods
       Electronic transfer service
       Escrow service
       Credit-card payment
     Shipping and postage
       Internet shippers
       Internet postage
Additional terms and rules
   Vertical auction —             Bid retraction
    specialized auctions             Cancellation of a bid by a
                                      bidder, used only in
    know as “auction vortals”         special circumstances
     Used in B2B                    Bids are usually
     Many auction sites              considered to be binding
      specialize in one area       Featured auctions
                                     Extra exposure when
                                      listed on Web sites
                                     Sellers pay extra for this
   Pigs in Singapore and Taiwan
     Conducted on private networks more than 10 years
     Forward auction of pigs that are brought to a
      physical site while data is displayed to bidders
     Computers monitor bidder’s financial capability
   Cars in Japan’s Aucnet
     Auctioned used cars to dealers on television
     Moved to private network, then on to Internet and into
      the U.S. but closed in 1998
     Today in Japan these auctions sell:
       Computer hardware
       Software
       Services like insurance and leasing
   Livestock in Australia—electronic online system
    for trading cattle and sheep
   Double auctions
     Single auction
       Item is offered for sale with multiple buyers making bids on
        the item
       Multiple sellers make offers to sell an item
     Double auction
       Multiple units of a product may be auctioned off at the same
       Buyers and sellers can make bids during trading periods
     Prices in double auctions—multiple buyers and sellers
   Bundle trading—personalization and
    customization of products and services
     Collection of complementary goods and services (e.g.,
      airline tickets, hotel reservations, rental cars)
     Simplified, efficient alternative solution to purchasing
      from multiple sellers
     Management and operation of bundle markets is
      complex and differs considerably from single or
      double auction markets
   Prices in auctions: higher or lower?
     Prices tend to be higher when there is only one
     Auctioneer has a better position to maximize
     Prices are lower in cases of liquidation
     Seller’s objective is to sell as quickly as possible
   Pricing strategies in online auctions
     Both sellers and buyers may develop strategies for
     Sellers have option to use different mechanisms
     Buyers need to develop strategy regarding
      increases in bids and when to stop bidding
   Types of e-auction fraud
     Bid shielding—the use of phantom bidders to bid at a very
      high price when an auction begins
     Shilling—sellers arrange to have fake bids placed on their
      items to artificially jack up prices
     Fake photos and misleading descriptions—sellers distort
      items (e.g., borrowing images, ambiguous descriptions)
     Improper grading techniques—description of the
      condition of an item may be interpreted differently
      between seller and buyer
 Selling reproductions – selling a reproduction described
  as an original
 High shipping cost and handling fees—used by seller as
  a source of revenue to offset low selling price
 Failure to ship merchandise—money is paid out but
  merchandise never arrives
 Loss and damage claims—buyers claim they never
  received an item or received it in damaged condition,
  request a refund
 Switch and return—seller accepts a return, but receives
  broken or mangled objects
   Protecting against e-auction fraud
     User identity verification—voluntary program encourages
      users to supply eBay with information for online
      verification—qualifies them for highest level of
     Authentication service—determines whether an item is
      genuine and described appropriately
     Grading services—determines physical condition of an
     Feedback forum—provides users with ability to comment
      on their experiences with other individuals
 Insurance policy—eBay offers insurance underwritten
  by Lloyd’s of London at no cost to eBay users
 Escrow services—items valued at more than $200,
  eBay recommends escrow services (for a fee)
 Non-payment punishment—1st-time nonpayment
  warning, 4th offense is cause for suspension from
 Appraisal services—use a variety of methods to
  appraise items
   Assessment of authenticity and condition
   Review of what comparable items have sold for in
    recent months
 Verifications—a way of confirming the identity and
  evaluating the condition of an item
   Bartering—exchange of goods and services
     Bartering exchanges
       Give your offer to intermediary
       Intermediary asses value of your product or service
       Use “points” to buy what you need
     Bartering sites must be financially secure
     Alternative to bartering is to auction surplus and then use
      the money collected to buy items needed
   Dynamic prices can be determined by
   Negotiated prices result from interactions and
    bargaining among sellers and buyers
     Expensive items like cars and real estate
     Deal with nonpricing terms like payment method
      and credit
   Three factors that facilitate negotiated prices
     Intelligent agents that perform searches and
     Computer technology that facilitates negotiation
     Products and services that are bundled and
   Technologies for bargaining
     Search—gathering information about products, services,
      potential vendors and customers
     Selection—processing and filtering information in order
      to select a product and trading partner
     Negotiation—interactions with bids, offers, agreements,
      and contracts
     Continuing selection and negotiation—repeated
      sequentially until an agreement is reached
     Transaction completion—payment and delivery
   Benefits of online auctions
     Convenience and ubiquity
     Simpler and faster
     Privacy
   Limitations of online auctions
     Visual quality
     Memory capacity
     Security
   General auctions—face regular problems of
    selling online in international environment
   Selling art online in real-time auctions—allows
    real-time auction bidding and partners with eBay
   Strategic alliances—major impact on
    competition and industry structure
   Your own auction site vs. a third-party site
   Cost benefit analysis
   Auction strategies
   Support services
   Payment
   Controlling what is auctioned
   Change agent
   Building auction applications
   Bartering
   Building auction sites

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