Eye on B-to-B: A Bid for Ancillary Sales

PC Connection has had success auctioning printers and desktop computers online.

A third-party auction Website can expose a cataloger to a new audience of prospects

Here’s a sign that online business-to-business auctions are coming of age: Web auction giant eBay now hosts a b-to-b section on its site.

In terms of transaction volume, in 2004, the value of b-to-b auction transactions should total $1.3 trillion, up from $34 billion last year. But at the moment, most b-to-b catalogers are “just testing the waters” when it comes to auctioning merchandise via a third-party Website, says Munjal Shah, president/cofounder of Andale, a Mountain View, CA-based developer of software for online auctions.

And some, such as Nasco International, aren’t doing even that. “We have not given it any consideration,” says Phil Neimeyer, executive vice president of the Fort Atkinson, WI-based supplier of math, art, and science equipment to schools as well as farm and ranch supplies to farmers. “Schools don’t buy on auction. Teachers have budgets and purchase orders to fill and can’t just order on a moment’s notice.”

Other catalogers have found that online auctions didn’t offer the return they were looking for. That was the case with J&L Industrial Supply, says Thadd Tucker, marketing manager for e-commerce with the Livonia, MI-based cataloger. During the past year, the company tried to move a small amount of obsolete and overstock inventory by posting the items on several sites for about a week at a time.

“We didn’t see the bang for the buck,” Tucker says. On several sites, the firm received no bids; on one it received just one or two low-ball bids. Tucker estimates that the items went for about half of the price they would have sold for via a sales flier.

The poor response may have been due to the specialized nature of the products J&L was offering, such as grinding equipment used to polish metal. “There may not be critical mass online yet for these highly specialized products,” says Tucker.

The way a business buyer approaches online auction shopping, as opposed to a consumer, may also put b-to-b catalogers at a disadvantage. Consumers tend to be more emotional, viewing auction bidding as a sport, and are therefore often willing to bid prices up higher than are business buyers, says Internet analyst Vern Keenan, head of San Francisco-based research firm Keenan Vision.

Not an impossible dream

Nonetheless, some business mailers have successfully sold overstocks and the like via third-party auction sites. Computer cataloger PC Connection, for example, sells a limited number — typically fewer than 10 items a week — of returned and refurbished products.

The medium “gives the company exposure to different customers, providing another look at demand for our products,” says Mike Turner, vice president of marketing for the $1.45 billion Merrimack, NH-based firm. In other words, online auctions extend PC Connection’s reach to consumers who aren’t necessarily familiar with its product line or company name but are seeking items in this product category.

PC Connection typically auctions off items with fairly broad appeal to both business owners and consumers, such as printers or desktop PCs rather than higher-end servers. That’s a wise strategy, says Shah, who recommends starting with less expensive items to help you build relationships with new customers.

Merchandise that can be readily described in copy also generally sells better than more complex or customized products. As a rule of thumb, the experts say, the b-to-b products that sell best are either of low value individually but are auctioned off in quantity (such as a dozen pairs of workboots) or are of high volume but being sold individually (say, a single truck).

The prices a company can expect to command via an online auction will vary, depending on the type of goods and the age of the items. For instance, newer computer peripherals such as printers and scanners that are sold on online auction site uBid may go for 70%-105% of the manufacturers’ suggested retail price (MSRP), says Tim Takesue, executive vice president of the Chicago-based site. But on USBid.com, a Melbourne, FL-based online marketplace for electronic components, most items capture 25%-35% of their MSRP, says CEO Gary Heyes.

More than 95% of the items that PC Connection puts up for auction sell, similar to the percentage that sell via the clearance section on its own Website, says a spokesperson. But auctioned items can sell for 10%-15% more or less than the products sold on the clearance section.

The possibility of selling merchandise for higher-than-anticipated prices to new customers prevents catalogers such as J&L’s Tucker from ruling out the future use of online auctions. “If we hear from our peers that they’re working,” Tucker says, “we would use them for close-out and overstock situations.”

Timing It Right

How long you keep open your auction can determine how profitable it will be. On the one hand, the longer an auction goes on, the greater the number of people who can bid, which should boost prices. That’s especially important for more expensive or specialized items, which appeal to a more limited pool of buyers, says Tim Takesue, executive vice president of auction site uBid. The majority of items on eBay, for instance, are up for sale for 10 days — the maximum the site allows, says eBay spokesperson Jim Griffith.

Still, a shorter time frame can create excitement, which in itself may encourage people to place bids. “You want excitement so that things don’t drag on,” says Daphne Li, vice president of corporate strategy and marketing for DoveBid, a Foster City, CA-based online auction company specializing in b-to-b audiences. DoveBid has hosted auctions as brief as 24 minutes, although most last for one or two days, says Li.
KK

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