Reverse auctions might be compared to something like polka music. Those who like polka music, for example, tend to really like it. But for the rest of the musical listeners....

This "acquired taste" theory might hold true for reverse auctions—or e-auctions, if you prefer. For the right company, selling the right item, at the right auction price—their customers tend to really like them.

But for those who don't fall into these "right" categories, the reverse auction is met with mixed reactions, at best.

Industrial Distribution's 59th Annual Survey of Distributor Operations found that more than one out of three surveyed distributors had participated in such auctions. But only one out of five who participated called their reverse auction experience favorable.

In addition, the survey found that auctions were occurring less frequently, with only 3 percent having participated more than once a week.

For those who have benefited from participating in a reverse auction—usually the customer—the determining factor has almost always been the price and nothing but the price. After-the-sale service? Value-added benefits? A personal-business relationship with a distributor? All are placed on the back burner, if they are even considered at all by the customer.

Chris Bursack, director of marketing, Industrial Supply Co., admits that he's not a big fan of the reverse auction concept for this very reason.

"I don't like them in that it's difficult to demonstrate the value we as a distributor bring to the table," he says. "It brings the process to the lowest common denominator: what price you're going to pay. And we can bring a lot of other value."

ISC, based in Minneapolis, sells bearings, power transmission, machining and fabrication equipment. They have landed the occasional customer via the auction process, Bursack says.

But he and his colleagues have had to take steps to ensure that the customer doesn't get overly obsessed with only the price. Anticipating this, as well as reminding customers of the value and service a distributor can bring, is important, Bursack explains.

To date, Bursack says ISC has not had to reduce service to customers they have landed through reverse auctions. If customers are realistic, he says, that will remain the case.

"Fortunately, it hasn't come to that yet. It has occasionally reached the point where I had to have some very frank conversations with customers," Bursack says. "We'd tell them that if they expected us to maintain a certain level of service they've come to expect from us, then we'd have to have 'this' price."

Satisfied customers can sometimes take the value-added services for granted. Reminding customers of the extent of those services—the money-saving value to them—is a good idea "to justify our existence," Bursack explains.

"We'll list the services and the way we've saved them money and provided extra value. But that's difficult to do in a reverse auction situation," he says.

Along with customers becoming too seduced by price alone, another distributor advises that an offshoot of the price obsession is when the customer may not be as forthcoming with their information as they should.

Communication is essential in order for a reverse auction to have a chance of working, says Mark Sewell, president of Northwest Industrial Supply in Billings, Mont. Sewell tells of one way not to run your auction.

A couple of years ago, Northwest Industrial took part in one reverse auction, he says, and did not win the account. Nonetheless, he and his company learned a few things from the experience.

"We weren't successful," Sewell says, "but neither was the customer. They eventually went back to their previous distributor."

From Sewell's perspective, the main reason for this was the customer's failure to provide full information about what they were looking for and what they would need from the "winner."

"They gave them 'bad specs,'" he says, "meaning they did not give the bidders all the information they'd need."

As a result, Sewell says, "some bidder misinterpreted the information that was sent out."

Sewell and Northwest Industrial had no regrets about not landing that particular account. He does see the very occasional benefits of a reverse auction, however, "at least for some of the high-volume, commodity items."

"But you don't see that many of those [products] here in Montana as much as in the densely populated states," he says.

Commodity-type items have been sold via the reverse auction method. Most observers agree that for an item that is strictly a commodity, and figures to need little or no value-added services after the sale, buying and selling this way can work.

There is some concern, though, that a possible Catch-22 could develop: if reverse auctions work best for a commodity, does a participating distributor run the possible risk of causing their products to be viewed as a commodity by an auction customer?

In the short term, the grass might look greener when focusing on the price of an item. But observers say customers will miss not having the after-the-sale service that a good distributor can provide.

Kerry Baskins is OEM sales manager for Grundfos Pumps Corp., a global manufacturer of pumps, based in Olathe, Kan. He voices definite concerns about the commodity perception, especially along the lines of service.

When companies or distributors start selling in a reverse auction, "they obviously don't get the after-market service.... We can't control it, though, if people are selling used equipment or have inventory they are trying to sell down. But it will dilute the market...if people readily look at [an auction] before they'd actually come and buy new pumps or parts."

Bursack also cautions that incentive for manufacturers to pursue product innovation could be diminished if reverse auctions become more common.

"You could bring in products of superior quality that will run more efficiently, and consume less energy, but might be more expensive up front," he says.

He points to electric motors as an example. With most new models, the overall cost is usually about 5 percent of the purchase price, Bursack says, "while the majority of [long-term cost] is the electrical consumption. So if you want to save money on a motor, buy one that is 2 percent more efficient and you'll save many times the amount than you would if I just come in with a price that is 3 percent lower. But you can't demonstrate that in a reverse auction."

A number of Grundfos' smaller pumps could be classified as commodities, Baskins admits. In fact, those types of models are even re-sold occasionally by distributors using eBay, Baskins says.

"There are 91 items here for sale right now," Baskins says, looking at the eBay site on his computer. "Most of them appear to be sold by distributors."

The format for a reverse auction can vary slightly from customer to customer. But the framework has remained the same. The customer will usually set a starting price to get things rolling. Come the designated auction date, it's "what do I bid" time for the participants.

Bursack laughs a little when he hears a reverse auction compared to an Internet chat room.

"It's not a whole lot more sophisticated," he says. "You submit your price. You then see where you are relative to the others. Sometimes bidders can see prices but other times you just see the order in which the bids are ranked."

ISC participates in a few auctions, "not a lot, a small handful," he says. A recent one was from an existing customer with whom ISC was doing a great deal of business, Bursack recalls.

"We felt like we needed to produce something in order to remain a player with them," he says. "Others, we were on the outside looking in. So we've looked at it from both as an incumbent as well as an outsider."

One piece of auction advice that Bursack extends to other distributors is to decide on a price—and stick to it. That may sound like a contradiction in terms—an auction is supposed to be, well, an auction—but knowing how low in price a distributor can afford to go is crucial, he says.

"We treat reverse auctions like we treat any competitive situation," Bursack explains. "We go in with one price that is competitive, but is also where we need to be to make money from our end. We don't get caught up in going back and forth and lowering price. We put in the one price and hang our hat on that price."

The customer is always right, the saying goes. And when requesting a reverse auction, that customer is certainly in the driver's seat. But distributors caution that what may seem "right" at first can turn out wrong down the road.

Sewell agrees with Bursack that the unique value and resulting cost savings that a good distributor can provide often gets lost when a reverse auction begins.

"We all want to think our services are valuable," Sewell says. "But ultimately, that is something the customer gets to decide."