The Dutch Auction
Primarily used by buyers this is where one party will play 2 or more bidding suppliers against each other to drive the price down. It is usually done on an informal basis and is most effective when the buyer does not tell each bidder what the rival bid was, merely that they have been under-cut and need to reduce their price if they wish to win the business. It is often preceded by the buyer stating that they ‘do not want to get into a Dutch Auction but…’ It is a crude form of Game Theory and is used in transactional situations often for commoditised products or services (Cold or Cool negotiations). The Dutch Auction is not good for building trust.
Counter tactics.
- The most effective way to handle the Dutch Auction is to pre-empt it. Ask the buyer what the decision-making criteria will be (i.e. will the decision be made solely on price?). Only move on your price on the condition that you get something in return – do not concede for anything. Examples of things to get in return are: increased volumes, longer commitment, referrals, testimonials, additional products/services etc.
- Open with enough room to move if you find yourself in this situation.
- Recognise the power that you have. Decide if you are prepared to walk away – can you resurrect discussions if you do?
- Set your break-point and do not break it.
