Chapter 9 Dynamic Pricing: Auctions and More (modifications by Judith Molka-Danielsen) 15.02.02

1. Chapter 9Dynamic Pricing:Auctions and More(modifications by Judith Molka-Danielsen)15.02.02 Prentice Hall, 2002

2. Learning Objectives • Types of auctions and characteristics • Process of conducting forward and reverse auctions • Benefits and limitations of auctions • Services that support auctions • E-auction fraud and countermeasures • Bartering and negotiating • Future directions and the role of m-commerce Prentice Hall, 2002

3. Fundamentals of Dynamic Pricing and Auctions • Fundamentals • Traditional auctions • Last only a few minutes (short decision making time) and sellers may not get highest price (unsure bidders do not bid) • Bidders may not get what they want (no time to examine the goods) • Physical presence of bidders, item, intermediaries often required. • Electronic auctions • Like offline auctions, performed on PC • Host sites act like brokers (intermediary) • Buyers may solicit offers from potential sellers • More potential bidders Prentice Hall, 2002

4. Fundamentals • 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 Prentice Hall, 2002

5. Figure 9-2Types of Dynamic Pricing Prentice Hall, 2002

6. Fundamentals • Dynamic pricing and auctions (cont.) • English auctions (sequentially one item at a time) • Miniumum bid - specifies lowest sell price • Can have other criteria besides price (payment date) • Usually one winner • Can take days on the Internet, minutes if live Prentice Hall, 2002

7. Figure 9-3English Auction, Ascending Price Prentice Hall, 2002

8. Fundamentals (cont.) • Dynamic pricing and auctions (cont.) • Yankee auctions—multiple identical items with a minimum bid • Winner pays the winning bid (highest price) • Can be used in reverse auctions (buyer controlled auction) • Dutch auctions—multiple identical items starting at high price and moving lower • Bidders specify price and quantity • Multiple winners pay same price, can be lower that what you bid (but higher bids get priority) Prentice Hall, 2002

9. Figure 9-4Computerized Auction Clockfor Dutch Flower Auctions Source: Used with permission of aquarius-flora.com. Prentice Hall, 2002

10. Fundamentals (cont.) • Dynamic pricing and auctions (cont.) • Free fall (declining price) auction • One item auctioned at a time • Price starts high and is reduced at fixed time intervals • (Reverse Auction or tendering system) One buyer, many potential sellers. The buyer creates an RFQ (Request for Quote) • (Double Auctions) Many sellers, many buyers. Stocks and commodities markets. Prentice Hall, 2002

11. Fundamentals (cont.) • Dynamic pricing and auctions (cont.) • Sealed-bid first-price auction — silent auction, only one bid; item goes to highest bidder • Sealed-bid second-price auction — item awarded to highest bidder, but at highest second bid, also one bid, silent. • Also called a (Vickrey auction). It encourages bidding true value. Prentice Hall, 2002

12. Benefits • Benefits to sellers: • Increase revenues: more potential bidders and shorter cycle times. • Optimal price setting (get best price for buyers and sellers) • Disintermediation — More money goes to the sellers instead of those running the auctions (they do less). Sellers post auctions themselves. • Buyers and sellers – can have more contact and interaction, builds loyalty • Liquidation — easier for sellers trying to be rid of large quantities of obsolete items very quickly Prentice Hall, 2002

13. Benefits (cont.) • Benefits to buyers: • Opportunities to find unique items and collectibles • Chance to bargain — buyers can bid with seller for desired prices (price matches value) • Entertainment — interaction in auction can be entertaining and exciting • Anonymity—3rd party allows buyer anonymity • Convenience — buyers trade from anywhere (Cell phone – Call-ins are also allowed more often in traditional auctions) Prentice Hall, 2002

14. Benefits (cont.) • Benefits to auctioneers: • Higher repeat purchase rates — higher than on 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 Prentice Hall, 2002

15. Possibility of fraud May purchase a defective product buying sight unseen Fraud rate is very high (false seller ratings) Limited participation Invitation only Open to dealers only Security C2C auctions not necessarily secure (no 3rd party) B2B auctions conducted on highly secure private lines Software Few off-the-shelf packages that can handle auctions “Best practices” still being defined Limitations Prentice Hall, 2002

16. Lessons of Auctions • greater liquidity • Efficient way to find best price • At Low cost can hide market operations and offer product quality • Discovery used elsewhere: E-auctions can find information required to price goods traded in traditional marketplace. • E-auctions can provide services at lower transaction cost, all other things equal • Customers abandon a market perceived as unfair (Trust in e-markets because buyers can be closer to the seller.) • Manage all from initiation to settlement and delivery. • Delay in price response causes faster posting times: result in feedback loops and instabilities: disrupt orderly trading • Different speed links can fuel unfair trading (delays) • Order-driven e-auction markets say that markets must clearly define when a sale has been made Prentice Hall, 2002

17. Economic Impacts (cont.) • Impacts • Auctions as a coordination mechanism— to establish equilibrium in price (telecom bandwidth) • Auctions as a social mechanism to determine a price • Offer special items , rare, at a single time • Attract considerable attention (telecom spectrum) • Auctions as a highly visibility distribution mechanism • Deals with special offers (airline seats) • Use the mechanism to attract customers (get attention of bargain hunters) • Auction as a component in e-commerce Prentice Hall, 2002

18. Auction Process and Software Support • 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 Prentice Hall, 2002

19. Auction Process andSoftware Support (cont.) • 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 Prentice Hall, 2002

20. Auction Process andSoftware Support (cont.) • Phase 2: Getting started at an auction • Registration and profiling • Sellers and buyers register before entering the auction • Buyers can check seller’s profile • Listing and promoting • 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 Prentice Hall, 2002

21. 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 Auction Process andSoftware Support (cont.) Prentice Hall, 2002

22. Auction Process andSoftware Support (cont.) • 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 Prentice Hall, 2002

23. 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 Auction Process andSoftware Support (cont.) Prentice Hall, 2002

24. Auction Process andSoftware Support (cont.) • 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 • Pricing and billing • Payment methods (transfer, escrow, credit cards) • Internet Shipping and postage Prentice Hall, 2002

25. Reverse price auction—lowest price a seller is willing to accept 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 Auction Process andSoftware Support (cont.) Additional terms and rules Prentice Hall, 2002

26. Auctions on Private Networks • Pigs in Singapore and Taiwan (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 on Japan’s Aucnet moved to private network, then on to Internet and into the U.S. but closed in 1998 • Livestock in Australia—electronic online system for trading cattle and sheep Prentice Hall, 2002

27. Double Auctions, Bundle Trading, and Pricing Issues • 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 Prentice Hall, 2002

28. Double Auctions, Bundle Trading,and Pricing Issues (cont.) • 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 Prentice Hall, 2002

29. Double Auctions, Bundle Trading, and Pricing Issues (cont.) • 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 Prentice Hall, 2002

30. Double Auctions, Bundle Trading, and Pricing Issues (cont.) • 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 Prentice Hall, 2002

31. Gruppe 9a Lo205 Kjell Vidar Følsvik, Raymond Andre Hagen, Heidi Lyngøy

32. Fastparts.com

33. Fastparts .com tilbyr følgende tjenester • B2B markedsplass for elektroniske komponenter • De muliggjør handel med elektroniske varer via Internet ved hjelp av tjenestene : • ComponentConnectTM • EquipmentConnectTM • SOLD!AuctionTM • Century Catalog services

34. ComponentConnectTM • Tjeneste som viser hvilke komponeneter som det er mulig å kunne få tak i gjennom fastparts.com • Komponentene som blir formidlet gjennom ComponentConnectTM innbefatter aktive og passive halvledere (semiconductors) • Det finnes også en tjeneste som heter AutoWatch™ som virker som en venteliste på deler som er utilgjengelige på ComponentConnectTM

36. EquipmentConnectTM • Det samme som for ComponentConnectTM, men en markedsplass for sammensetning av kretskort, og utstyr for utvikling av halvledere.

37. SOLD!AuctionTM • Tilbyr umiddelbar tilgang på deler spesielt i store volum, men i motsetning til ComponentConnectTM tilbyr ikke SOLD!AuctionTM 1 års garanti på varene.

38. Century Catalog services • Kanal hvor firma kan liste sine produkter, mens de har full kontroll over prising , betingelser og søkeparametre.

39. Takk for oss ..... • Applaus • Neste gruppe

40. FreeMarkets.com Rune Enlien Lene Klemetsen Are Haugsdal

41. Oppgaven… Oppgaven vår gikk ut på å skrive om FreeMarkets.com, og kommentere deres tjenester.

42. Video _ Link

44. Budgivningstyper • Transformation bidding • Index bidding • Net Present Value (NPV) bidding • Multiple Offering bidding • Rank-Only bidding

45. The Sourcing Process • Preparing and distributing detailed Requests for Quotation • Identifying high-quality, global suppliers • Preparing suppliers to bid online • Conducting a real-time, interactive online market

46. The Royal Bank of Scotland "The cost analysis information extracted from our FreeMarkets events allows the Royal Bank of Scotland to plan strategically for long-term sustainable cost reduction and it creates a competitive advantage for our group." -Ed Smith, Director, Group Purchasing Operations, Royal Bank of Scotland "A key attraction of the FreeMarkets bidding process is that it doesn't require specific software or complicated technology. It can be downloaded almost exclusively from the Internet, so there are no IT conversion issues." -Ed Smith, Director, Group Purchasing Operations, Royal Bank of Scotland

49. Eksempel 1

50. The end