How online auctions work? Types of auctions

The standard model of e-commerce is not always the right match for efficient trading. In some cases, the auction model offers better results. Especially when it comes to rare products, whose supply is limited, while the demand is great.

An online auction platform allows taking the maximum. The seller can be sure that they receive the highest possible price, and the buyer gets the product at a bargain price. In this article, we talk about the features of online auctions and the specifics of their launch.

Before developing an auction, you need to decide on its type. There are 2 major directions:

  • English auction. It is an ascending bidding model. Here, a participant needs to offer the biggest bid to get a lot.
  • Reverse auction. It is a descending bidding model. Here, the price goes down until some participant accepts it.

Along with that, these models can be extended, extra options introduced:

  • Buyout price. At this price, a seller is ready to finish the auction ahead of time.
  • Reserve price. When bidders don’t reach it, a seller doesn’t sell the lot.
  • Buy-now option. Products with this feature can be sold without bidding.

For effective development, you need to think about the bidding model and the type of lots to sell. When the core structure and its options are established, they can form the basis for the final product.

Major Auction Features. User Profile

Besides the standard interface, that resembles the functionality of an online store, there should be widgets that help to purchase goods in an auction manner:

  • A pre-deposit with no fee for withdrawal should a customer fail to win the bidding;
  • A wish list to add favourite lots, track bidding and set notifications;
  • The option to create lots and set bidding features, like time, bidding step, etc.;
  • The freezing of funds during active bidding;
  • Guarantee mechanisms to correctly deliver goods, like intermediary accounts, mutual approval systems, etc.

Every auction requires its own inventory. Depending on the type and characteristics of the goods, other tools may be implemented.

Auction Tools

In addition to the auction specific user functionality, the platform needs tools to ensure smooth bidding:

User registration and verification

Unlike in online shops, where buyers can order goods without registration, it is mandatory in auctions. To participate in bidding, a user must be registered and have money on account. The money will be frozen during bidding. Verification can be processed manually or automatically through integration with specialized services.

Without registration and verification, any visitor can bid, taking no further responsibility for their actions. Moreover, it will open up the door for fraud and price manipulation. Auction participants or even its creator will be able to inflate the price or disrupt the auction from their anonymous accounts.

Diversification of payment

Firstly, not many payment services agree to work with online auctions due to the complex model of settlements and refunds. Secondly, more inbuilt payment means make the platform more competitive because more buyers will be able to deposit and bid. This high demand, in turn, attracts new sellers and advances profit.

Arbitration

Bidders will inevitably have disputes, between themselves or with sellers. The platform as an intermediary should act as an arbitrator. To exclude a possible subjectivity, it is necessary to clearly and unambiguously spell out user regulations and dispute resolution algorithms.

Money transfer mechanisms

To avoid unfair actions on the user part, you need to thoroughly think about the mechanisms to freeze funds and confirm the delivery of a lot. All these should be written down in user scenarios at the stage of project documentation.

When designing and developing an online auction, do not forget that this is not an advertising panel or an online store. The platform should be not only an intermediary in payment transferring, but also an auction moderator and a guarantor of fair trade. These should be incorporated into the site functionality.

Development and Marketing

After the concept has been defined and prescribed, along with its bidding specifics, it’s time you proceeded to the launch of your project. To test the idea, we recommend that you first launch an MVP, a Minimum Viable Product. This is the first version of the product with minimal core functionality. It is faster and cheaper to develop an MVP than the main project.

If the idea appears to be unprofitable, with few positive responses from users, you can modify the project, meanwhile saving most of the budget and time. By the same token, if the MVP shows good results, you can develop it further, gradually building up the main functionality.

To evaluate the effectiveness and get user feedback, you first need to attract the audience. This is a task for marketing. Online auctions lie among business categories that gain tangible extra value with each new client. The more active sellers and buyers there are, the more attractive it is for new users. The snowball effect is obvious.

Yet, marketing is the most challenging step. To start a full-fledged online auction, it is necessary to attract the first users who will trigger the snowball. Therefore, marketing budget should be initially oversized. You need to measure the effectiveness of marketing techniques and choose the most working. This competitive selection will allow you to achieve high advertising efficiency.

Monetization

And finally, we shall talk about income. Any business should profit, and there are many ways to revenue from online auctions:

Commissions

Here, the auction arranges the sale and serves as an intermediary in the transaction. Besides, the company’s marketing efforts allow attracting buyers. That’s why the service can  charge fees from each sale. The question is who should pay? There is no unequivocal answer. It is necessary to consider the goods sold and the characteristics of the market. The standard recommendation is the following:

  • On a loose market — there are more sellers than buyers — sellers should pay;
  • On a tight market, buyers should pay. By the way, this option is common, since the auction nature implies bidding for a rare item. Demand will a priori exceed supply.

Advertising

The audience of online auctions is solvent and shopping-minded users. You can profitably direct your clients’ attention to your partners, both by direct agreements with advertisers and through automatic banner marketing services.

Premium access

It can be anything, from raising lots in the search and highlighting them, to specific bidding advantages. The set of paid functions relies upon the auction type and the goods sold. Premium features can also be introduced for buyers.

Evaluation and other services

Evaluation is usually a paid option. Sellers — especially when it comes to rare and unique products — often cannot evaluate an item on their own. An expert can help with it. Other additional services may include the insurance of lots, their storage and transportation, etc.

Key Takeaways

In sum, an online auction is a rather complex project. Both from the technical and business sides. Moreover, it is a very distinct product. For instance, eBay, an auction for everything, and platforms, like Christie’s and Sotheby’s, the sites for antiques and art, are completely different projects. They differ in structure, technologies and solutions, they are different as marketing projects. For this purpose, a decent comprehension of auction mechanics and a reasonable strategy for a specific auction model should be elaborated in advance.

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