E-Market Places and Auctions

This page is part of our Resources section. The aim of this section is to provide useful information to support clients interested in our ecommerce order fulfilment services.

Introduction 

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.

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.

Services offered by e-marketplaces include electronic catalogues for online purchasing of goods and services, business directory listings and online auctions.

This guide will describe the main components of an e-marketplace, list the main benefits that can be delivered and discuss the issues to consider prior to participating in an e-marketplace.

E-marketplaces, online auctions and exchanges

Types of e-marketplace

There are many different types of e-marketplace based on a range of business models. They can be broadly divided into categories based on the way in which they are operated.

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.

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.

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.

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 increase their visibility to potential buyers and to get leads.

Vertical and horizontal e-marketplaces

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 procurement-cycle time.

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.

E-marketplaces, online auctions and exchanges

Online auctions

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.

The two main types of auction are:

• 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

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.

Some businesses trade solely online using forward auctions on websites such as eBay. See our guide on how to create an online shop.

Forward auctions can also bring benefits when buying for your business. You may be able to source non-critical supplies, eg stationery and office furniture, 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.

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.

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.

Best practice in auctions

If you are considering entering an online auction, make sure you check:

• accreditation - some auctions have qualifying criteria
• fee structures - there may be a registration fee
• how payment is managed - sometimes this is between the parties, sometimes through the auction site itself
• supplier reputation - monitor feedback from previous bidders
• the bidding system - how the bidding works and how to withdraw bids during the auction period
• what's on offer - if the description is vague, contact the seller for more information
• costs - make sure you factor in all the costs including taxes, packing and shipping charges

It is worth spending some time browsing what is on offer so you can get a feel for the pricing of items you are interested in. Narrow your search down by specifying a category or using the advanced search criteria. When bidding, set yourself a maximum price you are willing to pay for an item and stick to it.

E-marketplaces, online auctions and exchanges

Catalogues and directory listings

Many e-marketplaces provide information about products and services offered by their supplier members. This is commonly through the use of catalogues or directories.

Catalogues

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.

The prices published in catalogues tend to be fixed and are often not disclosed to the customer until they register with the e-marketplace.

Some e-marketplaces provide a single electronic catalogue containing all the products that are available from all supplier members. Others offer a link to several catalogues, with the option to purchase goods from each catalogue either directly from the central site or from the suppliers' sites.

The attraction to the customer is that e-marketplace catalogues enable them to search an industry sector that has a wide range of products and suppliers from a single, central point. They can also then make their purchases from a single site in a single transaction.

Some e-marketplaces also offer both the buyers and the sellers the opportunity to integrate the order process with their own in-house enterprise resource planning systems. This has the significant advantage of streamlining the overall e-purchasing activity.

Directory listings

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.

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. See our guide on search engine optimisation.

E-marketplaces, online auctions and exchanges

Online exchanges and trading hubs

Online exchanges, also known as trading hubs, are websites where buyers and sellers trade goods and services online.

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.

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.

Types of online exchange

There are different types of online exchange, each catering for a specific aspect of trading:

• 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

Online exchange considerations

If you are considering entering an online exchange, make sure you check the following issues:

• 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?

E-marketplaces, online auctions and exchanges

Benefits of e-marketplaces

The potential advantages to be gained by joining an e-marketplace will vary between industries and businesses, and indeed between buyers and sellers. Some of the potential benefits are summarised below.

General business benefits

• 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.

Benefits for the buyer

• 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.

Benefits for the seller

• 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 with other sales channels.
• The use of international e-marketplaces can provide opportunities for overseas sales that you would not otherwise be aware of.

E-marketplaces, online auctions and exchanges

Deciding if an e-marketplace is for you

The following issues need to be considered when assessing how appropriate it is for your business to participate in an e-marketplace.

Industry fit

What is the purpose of the e-marketplace and is it compatible with your business strategy? Ensure that you understand who buys from the e-marketplace and that your business is likely to fit the profile of the sellers and/or buyers on there.

Management of the e-marketplace

It is important to establish the ownership of the e-marketplace. Successful e-marketplaces require a sound financial backing to ensure their success and longevity. So, you need to know who shares the profits and the risks. Equally, you do not want to be involved in a marketplace if your competitor is the major owner.

Costs

What does it cost to participate in the e-marketplace? Possible charges include commissions for completed transactions, membership fees and listing fees. You should also establish if there are any costs associated with changing to another e-marketplace should your original choice not live up to expectations.

Marketing

Does the e-marketplace have a strong brand or image that will assist in marketing activities? What are the marketing plans, how aggressively will the marketplace be promoted and is it likely to attract the attention of the right types of customer for your own business?

E-marketplace design

Does the overall design and functionality of the e-marketplace make it easy for would-be purchasers to locate and buy products? Does it take account of good website design principles?

You should also establish how your presence will be displayed on the site. Will your logo and brand image be clearly displayed?

Technical issues

Is the e-marketplace adequately staffed to ensure that services are maintained on a round-the-clock basis, since any down time will impact directly upon your own business?

Also, establish if there are any costs associated with making your own IT systems compatible with the systems used by the e-marketplace.

E-marketplaces, online auctions and exchanges

The implications for e-purchasing

Online auctions and exchanges have played an important role in the growth of e-purchasing within businesses of all sizes and types.

E-procurement

There are two parts to the e-purchasing cycle - the more established of which is e-procurement. This has been developed in recent years to deal with the process element of electronic purchasing.

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.

A number of e-marketplaces offer transaction services that automate many aspects of the procurement cycle for both the buyer and the seller.

E-procurement covers the following areas of the buying process:

• requisition against order
• authorisation
• order
• receipt
• payment

E-sourcing

The other element of the e-purchasing cycle is e-sourcing.

E-sourcing is the use of 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.

E-sourcing covers the elements of the buying process which are at the discretion of specialist buyers, including:

• knowledge specification
• request for quotation/e-tender/e-auction
• evaluation and negotiation
• agreeing contractual terms

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.