E-marketplaces, online auctions and exchanges |
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| Introduction |
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An e-marketplace is a virtual online market where organisations register as buyers or sellers to conduct business-to-business e-commerce over the Internet.
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There are many types of e-marketplace based on a range of business models. They can be operated by an independent third party, or be run by some form of industry consortium that has been set up to serve a particular sector or marketplace.
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Services offered by e-marketplaces include electronic catalogues for online purchasing of goods and services, business directory listings and online auctions.
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This article describes the main components of an e-marketplace, lists the main benefits that can be delivered and discusses the issues to consider prior to participating in an e-marketplace.
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First, a little about the e-purchasing cycle
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E-procurement
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There are two parts to the e-purchasing cycle - the more established of which e-procurement is. E-procurement is the use of the Internet to operate the transactional aspects of requisitioning, authorising, ordering, receipting and payment processes for the required products or services.
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A number of e-marketplaces offer transaction services that automate many aspects of the procurement cycle for both the buyer and the seller.
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E-procurement covers the following areas of the buying process:
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- Requisition against order;
- Authorisation;
- Order;
- Receipt;
- Payment.
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E-sourcing
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The other element of the e-purchasing cycle is e-sourcing which is using the Internet to make decisions and form strategies regarding how and where services or products are obtained. E-marketplaces can play an important role in this activity, since the price and availability of products from multiple suppliers can be checked from a single point.
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E-sourcing covers the elements of the buying process which are at the discretion of specialist buyers, including:
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- Knowledge specification;
- Request for quotation/e-tender/e-auction;
- Evaluation and negotiation;
- Agreeing contractual terms.
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One of the attractions of e-marketplaces in terms of product sourcing is that not only do they provide detailed product information from existing suppliers, they also give access to many new potential partners and suppliers. Furthermore, the use of reverse auctions and online exchanges enables procurement officers to obtain better prices as they encourage competitive bidding between suppliers.
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Types of e-marketplace
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There are many different types of e-marketplace which can be broadly divided into categories based on the way in which they are operated.
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Independent e-marketplace: An independent e-marketplace is usually a business-to-business online platform operated by a third party which is open to buyers or sellers in a particular industry. By registering on an independent e-marketplace, you can access classified ads or requests for quotations or bids in your industry sector. There will typically be some form of payment required to participate.
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Buyer-oriented e-marketplace: A buyer-oriented e-marketplace is normally run by a consortium of buyers in order to establish an efficient purchasing environment. If you are looking to purchase, participating in this sort of e-marketplace can help you lower your administrative costs and achieve the best price from suppliers. As a supplier you can use a buyer-oriented e-marketplace to advertise your catalogue to a pool of relevant customers who are looking to buy.
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Supplier-oriented e-marketplace: Also known as a supplier directory, this marketplace is set up and operated by a number of suppliers who are seeking to establish an efficient sales channel via the Internet to a large number of buyers. They are usually searchable by the product or service being offered.
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Supplier directories benefit buyers by providing information about suppliers for markets and regions they may not be familiar with. Sellers can use these types of marketplace to be found and to get leads.
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Vertical and horizontal e-market places: Vertical e-marketplaces provide online access to businesses vertically up and down every segment of a particular industry sector such as automotive, chemical, construction or textiles. Buying or selling using a vertical e-marketplace for your industry sector can increase your operating efficiency and help to decrease supply chain costs, inventories and cycle time.
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A horizontal e-marketplace connects buyers and sellers across different industries or regions. You can use a horizontal e-marketplace to purchase indirect products such as office equipment or stationery.
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Online auctions
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Online auctions are computerised versions of traditional auctions where prices are set by buyers bidding against each other. What makes online auctions so powerful is that, with Internet technology, vast numbers of businesses or individuals can bid - allowing sellers to get the best price. Conversely, the speed, simplicity and variety of auctions mean that shrewd buyers can cut the time and cost of procurement.
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The two main types of auction are:
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- Forward auctions: where lots are sold to the highest bidder;
- Reverse auctions: where suppliers compete on price and the lowest bid for a tender wins the business.
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Forward auctions: Selling using a forward auction can be a cost-effective way for your business to acquire new customers, test new products or establish pricing points. Excess inventory can be disposed of quickly and sales costs are reduced because of the minimal amount spent on marketing. You can price your goods according to demand and stock levels.
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Some businesses trade solely online using forward auctions on websites such as eBay.
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Forward auctions can also bring benefits when buying for your business. You may be able to source non-critical supplies, for example, office supplies, or acquire specialist, second-hand equipment at a more competitive rate. By setting up automated searches and bid alerts you can reduce the time spent on procurement.
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Reverse auctions: If you are a supplier to larger companies, you may be asked to compete for their business in a reverse auction. Businesses that supply their goods through reverse auctions benefit by being able to compete for business globally. They can also make savings by gaining access to customers who are ready to buy, without having to launch a sales campaign. Reverse auctions are a good way to offload stock or build market share; however, they are normally by invitation only.
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It is unusual for smaller businesses to make purchases using reverse auctions. However, buying for your business using a reverse auction can reduce time and administrative costs and you may attract a larger pool of suppliers. Reverse auctions can also help buyers manage more complex procurement contracts and you may see a reduction in your overall costs - some large companies have reported cost reductions of 10 per cent or more.
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Catalogues and directory listings
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Many e-marketplaces provide information about products and services offered by their supplier members. This is commonly through the use of catalogues or directories.
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Catalogues
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There are various different types of catalogue - some list general product information, while others contain a significant amount of detail. Some are intended to be very informative. Others are used primarily for promotional purposes.
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The prices published in catalogues tend to be fixed and are often not disclosed to the customer until they register with the e-marketplace.
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Directory listings
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A simpler alternative to the catalogue is a basic directory listing service. E-marketplaces offering this facility list suppliers under the appropriate product or service category and include a link to each supplier website. The customer can follow this link in order to access further information about the individual suppliers and the products or services that they offer.
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If your company website is listed on a directory, make sure it is in the most relevant industry sector so customers can find you easily. This can also help improve your website's search engine rankings.
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Online exchanges and trading hubs
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Online exchanges, also known as trading hubs, are websites where buyers and sellers trade goods and services online.
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Online exchanges vary according to the size and number of companies using them and the type of commodity traded. There are already successful exchanges in markets as diverse as energy, textiles and logistics.
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Like online auctions, online exchanges allow participants to trade straightforwardly with a wide variety of buyers and sellers. Two of the biggest factors driving the growth of exchanges are that large businesses can use them to reduce stock holdings while small businesses can bid collectively to earn volume discounts or to jointly deliver a large contract.
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Types of online exchange:
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There are different types of online exchange, each catering for a specific aspect of trading:
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- Request for quotation - an invitation to suppliers to provide a quote for a specific product or service;
- Request for bid - an invitation to buyers to bid for a specific product or service that you are able to provide;
- Commodity exchange - an ongoing process where the price of a standardised commodity such as energy or telecoms bandwidth continuously changes as a result of changes in supply and demand.
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Online exchange considerations:
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If you are considering entering an online exchange, make sure you check the following issues:
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- Choice - are all your major suppliers involved? Does the exchange have a comprehensive list of products and services so you can compare like with like?
- Business relationships - could using an exchange undermine your status as a favoured customer?
- Administration - do you have adequate systems in place for order fulfilment? Are your internal business processes suitable for active online trading?
- Disclosure - are you comfortable with publicising information on prices and stock levels where your competitors, as well as potential customers, can view it?
- Fees - how do these compare to any savings in sales and marketing costs?
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Benefits of e-market places
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The potential advantages to be gained by joining an e-marketplace will vary between industries and businesses, and indeed between buyers and sellers.
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General business benefits:
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- There are greater opportunities for suppliers and buyers to establish new trading partnerships, either within their supply chain or across supply chains;
- E-marketplaces can provide greater transparency in the purchasing process since availability; prices and stock levels are all accessible in an open environment;
- Time constraints and problems with different office hours for international trade are removed as it is possible to operate on a round-the-clock basis.
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Benefits for the buyer:
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- Updated information on price and availability makes it easier to secure the best deal;
- E-marketplaces offer a convenient way to compare prices and products from a single source rather than spending time contacting each individual supplier;
- Established e-marketplaces provide a level of trust for the buyer as they are dealing exclusively with suppliers who are members.
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Benefits for the seller:
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- Regular requests for quotations from both new and current customers are possible;
- It provides an additional sales channel to market and sell products;
- E-marketplaces can offer reduced marketing costs when compared to other sales channels;
- The use of international e-marketplaces can provide opportunities for overseas sales that you would not otherwise be aware of.
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Steps to a Successful Online Auction Business
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Step 1: Familiarise yourself with auction competition
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Before you sell anything, test the water. Buy on your competitors websites. Bidding on an item not only puts you in the shoes of your future customers, but it will start boosting your feedback rating on the site.
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Spend time looking at the auctions of items you might sell. Which ones are getting the bids? What key words do they use? Do they have gallery photos that show up when bidders browse categories or search listings? Collier also suggests you search completed items (you'll find this option in advanced search) to see what items actually sold and for what price. This will help you determine if the products you're interested in have a market and a big enough profit margin.
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Spend time in the ‘Help’ section, too. This is where you'll start to understand the different types of auctions, the many features you can use when listing items, the rules and regulations of the site, the levels of feedback and what you can do when something goes wrong.
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Describe what you sell with clarity
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First things first: Your titles and descriptions. Your titles and gallery photos are what entice a bidder to view your auction. A lot goes into this--you can use all caps sparingly to make certain words jump out, carefully choose key words to attract searchers, or even pay extra for eBay goodies like highlighting ($5 a listing), bold type ($2), gallery photos (a mere quarter to have your photo show up on listings pages--this is Colliers' favourite bargain) and more. Again, go back to those "completed items" searches to see what's worked for those who've gone before you. And remember that every extra you get cuts into your bottom line, so be sure they're worth it.
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As for descriptions, do your research on each and every item and lay out your terms as simply and thoroughly as possible so you're a pleasure to do business with. "You have to write your descriptions thoroughly. Describe the good parts--and the bad parts--of whatever the item is. Because what sells your items on eBay are your titles and your descriptions," says Collier. "That's the most important thing--it sets you apart from other people."
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| Use a well drawn terms and conditions document |
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| Invest in good auction software. |
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