mis 5105 dr. garrett. forrester research, october 4, 2005: online consumer auction sales will reach...
TRANSCRIPT
MIS 5105Dr. 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 Shopping.com 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
minutes) Buyers can reach a wider range of suppliers Continuous outbidding reduces the need for
additional rounds 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 expectations
Prices can tumble quickly without commensurate reductions in production cost, leading to smaller margins and, ultimately, reduced competition and choice
Priceline model (priceline.com) 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 Savvio.com—model for travelers
Real-time declining-price auction Full disclosure of itinerary details Discounted international and domestic air
travel and cruise tickets Asiatravel.com 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 standards.
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 May purchase a
defective product buying sight unseen
Fraud rate is very high
Limited participation Invitation only Open to dealers
only
Security C2C auctions not
necessarily secure B2B auctions
conducted on highly secure private lines
Software Few off-the-shelf
packages that can handle auctions
“Best practices” still being defined
Strategic uses of auctions and pricing mechanisms Customers are attracted to e-auction
markets because they provide greater liquidity than traditional ones
Efficient way to find best price at electronic auctions
Low cost provision of exceptional levels of transparency of market to operation and product quality
Strategic uses of auctions and pricing mechanisms (cont.) E-auction markets are more efficient than
traditional markets E-auctions can provide services at low
transaction cost Customers abandon a market that is not
perceived as fair 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 activity 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—liquidity
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 process
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
AuctionWatch.com—directory of auction sites Internetauctionlist.com—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 items 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 users create attractive ads and auction postings
Auction assistant — helps create attractive auction listings
Auction eposter98 — makes it simple to add pictures, program interacts with eBay
Auction wizard — auction-posting tool that saves cutting and pasting when uploading items for sale
Mister Lister on eBay — allows sellers to upload many items at a time
Bulk Loader — seller can load 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 auction
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 of entering a bid during the very last seconds of an auction and outbidding the highest bidder
E-proxy bidding — software system bids on behalf of the buyers Buyer determines
the maximum bid Place first bid
manually Proxy executes the
bids keeping bids as low as possible
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
Vertical auction — specialized auctions know as “auction vortals” Used in B2B Many auction sites
specialize in one area
Bid retraction Cancellation of a
bid by a bidder, used only in special circumstances
Bids are usually considered to be binding
Featured auctions Extra exposure
when listed on Web sites
Sellers pay extra for this service
Additional terms and rules
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 time
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 seller Auctioneer has a better position to
maximize revenues 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 auctions 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 verification
Authentication service—determines whether an item is genuine and described appropriately
Grading services—determines physical condition of an item
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 auction
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 in”points” 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 negotiation
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
comparisons Computer technology that facilitates
negotiation process Products and services that are bundled and
customized
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