A reverse auction may land you a new client, but be careful not to spend time and resources chasing unobtainable and unprofitable business.
In my last article, I explained why an incumbent might be better served to say “no” to a reverse auction. To summarize, as the incumbent, you have the relationship with the decision maker and the reverse auction is most likely a procurement process to try to force a lower price. By saying no, you as the incumbent can have a frank dialogue with the decision maker as to why your solutions and company’s value perfectly fit to the client’s goals.
But there is a time and place to be excited to have a potential client put forward a reverse auction. You have been an outsider to this client. You met the decision maker, key influencer and end users and started building a relationship. They’ve been friendly and interested in your solution but have stated that they are happy with their current provider. Then you start to hear about issues with the current provider. Your solution would fit perfectly and fix the issue where the current provider is failing. You do NOT sell your solution but instead explain what your solution does and how it provides value to the client.
You then get a notice that the potential customer is doing a reverse auction and putting their requirements out for bid. If the reverse auction is vague and does not provide details related to support and service levels, then it is most likely a procurement game to drive the incumbent to give a lower price. I recommend not putting much time into the auction but still participate, as it is important that you keep growing the relationship.
However, if the reverse auction provides all the details necessary to fully support the customer, then it is a real opportunity to win the business. This auction is your chance to WIN the business! You will want to carefully read every part of the requirements to ensure that your bid fits exactly what is specified in the auction. Do NOT provide extra service or support that is not specified in the requirements. You will want to provide the lowest price possible that fit the exact requirements detailed in the auction. You oversee the input so do not let upper management dissuade you into trying to put in a higher price but with extra services. You want to be the low-priced solution in this case so that you have an opportunity to discuss the bid further with the decision maker.
That last point is important as you will get an opportunity to discuss your solution with not just the decision maker, but most likely, with the entire buying center (end users, customer support, quality management, etc.). Since you are not the incumbent, everyone that uses the solution will have to get comfortable with your solution, your company and also with YOU! Again, do not SELL your solution but simply put forth the bid and discuss the value proposition that your solution will provide. At this point, you have the lowest bid and a quality solution so the customer will WANT to buy from you.
Procurement will still be part of the negotiation and try to get MORE services, support, or better terms from you prior to signing the contract. Stay firm with the price that you provided in the auction. Extra services, support or terms must come with a higher price! I was involved in a reverse auction that clearly spelled out the warranty, freight, payment terms, customer support and other factors but after we won the auction, the procurement team wanted us to air ship the product and go from a 90-day warranty to a one-year warranty. Both requests would have added substantial cost and turned a reasonable opportunity to a breakeven one. The sales executive wanted to agree and his argument was an old and tired argument: ”We will make up the profit in future orders.” Nonsense. There was no agreement for future orders and even if we had future orders, we had now trained this client to push for additional services for free. In the end, we stuck to the requirements in the auction, we won the business and started a fair relationship with the customer that resulted in many more sales.
Reverse auctions can be very tricky and require a vendor to decide what position they already have with the client and if the auction is truly an opportunity for new business. As the incumbent selling a valued solution, the right decision might be to not participate. If you are an outsider that has started building a relationship with the client, a reverse auction might be the path to winning the business. Do your homework and ensure that your bid is stripped of anything outside of the auction requirements. Then when you win the bid, watch out for scope creep from the customer and unprofitable giveaways from your executive team. Good luck!
