If you are a limousine operator and service corporate travel accounts, then chances are you have experience with e-auctions. E-auctions also known as reverse auctions are a type of reverse sale where the roles of buyers and sellers is reversed. It is a tool used by companies to lower the cost down for service in a way that normally wouldn't be achievable in normal business negotiations. Typically during an e-auction a
limousine company will put in a price for a trip from Point A to Point B. After they put in the price, they will see how they rank in terms of price. For example, if ten companies are bidding on the price, and you are the eighth highest price, your rank will be number eight. Therefore, there are seven lower bidders and companies whose price for the same service is lower. After your ranking is given, you will now have a chance to lower your price for that trip to get a more favorable ranking. Now when you lower the price a new ranking will appear. Let's say you dropped the price and now you are ranked number two. Typically the e-auction will update the rankings after an incremental amount of time, possibly thirty seconds. After thirty seconds you see that your competition bid lower again, and now you are ranked number ten! Now the process will start all over again. E-auctions are also time sensitive. This means that you only have so much time to enter in a lower bid before the bidding process is closed. In the heat of the moment, a company competing for the bid has to make split second decisions to decide what price is appropriate for this trip, and can be susceptible to making bad decisions/knee-jerk reactions to arbitrarily lower the price without actually analyzing if the price is beneficial and profitable for the limousine company. For the inexperienced company who bids on an e-auction, what can happen is that they bid exceptionally low, and will have modest profits with a contracted service agreement between you and that corporation. This type of agreement is not good for the limousine company, and is not good for the corporation who did the e-auction. The end results of an e-auction could be that a limousine company now has to provide service at an exceptionally low cost that can wear down your limousine fleet, maintenance of vehicles may suffer, and ultimately you will not be able to update your fleet like you normally would to compete with your competition, because though you are doing more volume due to the corporation who hired you, your profits are now less.
E-auctions are a very dangerous ground and really need to be examined with all thoroughness.
Corporations who setup e-auctions also may not benefit from this type of reverse auction. If one is to base a decision to hire a limousine company it cannot be solely on price. If a company is looking to book a corporate car service then the company needs to compare apples to apples and not apples to oranges. In the e-auction you may have a limousine company who operates a fleet of vehicles that is primarily older model vehicles. If that company does not update their vehicles often, then their pricing can be significantly lower than another company who updates every two years. Moreover, a low cost company may not have additional amenities such as Wi-Fi, televisions, satellite radio, water, drinks, newspapers, etc. Also if a company makes a decision based on price, they may find that they have contracted with nothing more than a taxi service with no amenities for corporate executives. Furthermore, does the company they hired have a full fleet of vehicles? For example, if that travel manager made a decision based on price, did they realize that the company that they hired only has sedans, but does not have SUVs for inclement weather such as snow, or Vans, Mini-Coaches and Buses for that year's Holiday Parties? Moreover, did the travel manager check to ensure that the company they hired not only had six-passenger and eight-passenger limousines for their executives, but that they were up to date models with the latest technology for the executives laptop computers. Are their corporate desks in the cars so the executive can work in his mobile office?
For limousine companies that take place in e-auctions it is also important to realize that they may not be competing with other limousine companies, but may be competing with taxi services which may be more economical on certain trips, but not have the same level of service. Moreover, the potential for manipulation of the computer based ranking and pricing system can happen. It is not without the possibility that fraud exists in e-auctions where the pricing is artificially manipulated to an unreasonably low level to get the pricing as low as possible by the corporation.
E-auctions/reverse auctions look great on paper, but can actually end up with neither the corporation or the limousine company winning out. It could end up with poor service, lost profits, and ultimately a disappointing experience.
Limousine companies should not try to compete at the lowest possible price, but at a fair price with normal profit margins. If a limousine company chooses to take part in an e-auction they should not try adjust pricing just because you came in at a "Number 10" at the pricing scale instead of "Number 1". Your pricing is your pricing and it is that way because you have been profitable at those levels. After all who knows your business better than you? Signing on a new account is not worth it if it means lower profits that will effect your continued growth, and ability to service your current clients with the service they have come to expect. Short-term satisfaction is not worth sacrificing your long-term goal of expansion and continued quality.
To date only about 5% of total corporate spending is sourced through e-auctions. Could you imagine if every product was purchased through such an auction? Profits would dwindle, and industry growth and quality would suffer.
E-auctions are simply not good for the limousine and car service industry.
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