When many potential sellers bid for the prices at which they are willing to sell their goods and services to a buyer, this is known as a reverse auction or buyer-determined reverse auction. In a forward auction, a seller puts up an item, buyers compete to obtain goods or services by offering increasingly higher prices. In a reverse auction, the buyer puts up a request for a required good or service, the sellers compete to obtain business from the buyer and prices will usually decrease as the sellers make a lower bid than each other.
The basic principle of a reverse auction is similar to a unique bid auction, and the difference is that each bid is kept confidential until the winner is declared.
Defining Product Technical Specifications
Defining product technical specifications is an important factor in deciding whether this product is suitable for reverse auctions. Reverse auctions are usually more likely to lead to a purchase when the specifications are simple and there are not a lot of differences between supplier offerings. If the items being purchased are valuable and useful or the specified items are defined by a well acceptable industry standard, the nature of the items and supplier offerings makes them more likely to a price based negotiation like reverse auctions.
The supplier needs to deliver products that are genuine. The organization buyer could take considerations in supplier offerings and make comparisons in order to achieve the best value.