E-commerce – assignment 2

MD: ARAFAT HOSSAIN

DBA YEAR 2 SEM 1
BINARY UNIVERSITY COLLEGE, MALAYSIA

1. Analyze the online auction industry and report the following:

Question -A: What is ‘online auction’? Compare online auctions with conducted in the real-
world?

Online auction: The growing popularity of the Internet and digital communications has led
more consumers to experience online auctions. An online auction is the fastest growing segment
of e-commerce. It is the new way of buying and selling just about anything on the Internet.
Online auctions are becoming important selling and buying channels for many companies and
individual. Online auction are similar to traditional offline auctions except that they are done
online. It is brings traditional auctions to the web by providing services to a geographically
dispersed to customer base and thus increases significantly the number of goods and services
auctioned. Based on the brokerage business model, auctions bring the buyers and sellers together
with a similar interest who are geographically dispersed in a virtual marketplace. Online auctions
make good business sense. They help suppliers to manage their stocks more efficiently and
improve profitability, and while customers can cut time and cost from their purchasing process.

Question -B: Explain the major roles of an online Auction house, the seller and the buyer.
What are the criteria of becoming one?

There are some major roles of an online auction house and also a short explanation and criteria
of becoming a buyer or seller in online auction houses:

Auction house: The auction house essentially takes care of everything, bringing buyers and
sellers together with a similar interest. The auction houses also arrange the viewing and the
auction itself, as well as the collection of funds from the buyer and dispersal of money to the
seller. It makes money by charging the sellers a commission on the items sold, usually a
percentage of the sales price, and sometimes also by charging a listing fee, which is often
payable whether the items sells or not. With enough items and enough auctions, an auction house
can become wealthy. For example, e-buy, u bid.

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Criteria of becoming a bidder or buyer: Once buyers have chosen a site, then he or she will
need to register and usually, need to provide credit card details. But some sites are open for
international trades. Here are some things to keep in mind when bidding:

✔ At first buyers need to Check out the seller's rating and making note of any complaints
about failure to deliver or inaccurate descriptions.

✔ Check retail pricing of the same or equivalent items.

✔ Buyers must have idea about the final price of overseas items and also factor in the
exchange rate, shipping, customs, tax etc.

✔ Buyers must check the item description carefully. Is it new, used or damaged. While some
companies will be prepared to replace damaged.

✔ Buyers must have to remember that a bid is a financial commitment. There is no way to
backing out.

✔ Buyers must have to keep in mind the difference between minimum bids and reserve
prices. The minimum bid is the opening bid for an auction, which may be as low as a few
cents. Many auctions also have a reserve price, which is usually undisclosed and which is
much, much higher than the minimum bid.

Criteria of becoming a seller: People can sale their product at online auction sites very easily.
There are only a few things to keep in mind:

✔ Seller must have to write information clearly and co ncisely about their product or item,
include all relevant details and whether they will ship internationally.

✔ Try to include a picture of the items, if possible.

✔ Set a minimum price that he or she can live with. Avoid setting a reserve if possible, as
many people are turned off by reserve-priced auctions.

Question –C: Describe a typical scenario of an online ‘forward auction’ and ‘reverse
auction’?

An online auction means buying and selling of products by the process of bidding and then
offering the goods to the highest bidder on the internet. There are various types of online auction,
but the most common auctions are forward auction and reserve auction.

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Forward auction: Forward auction are electronic auctions, it is the most common and traditional
from, which can be used by sellers to sell their items to many potential buyers. A forward auction
is the most familiar consumer-world scenario, where a seller entertains bids from multiple buyers
and items are sold to the bidder with the highest bid. Items are commonly placed at a special site
for auction and the buyers can continuously bid for the items they are interested in. Eventually
the highest bidder wins the item. Sellers and buyers can be individuals, organizations etc.

Reserve auction: A reverse auction is a web based portal of marketing goods and
service, where a buyer posts a request for quote (RFQ) to a large number of sellers to purchase a
single item or a group of items. Sellers then continually bid until specified time period expires,
such as two days, one week, one month etc. The lowest bidder at the expiration of the auction
wins the auction. Each bid must be less than the previous bid by at least a buyer-determined
amount. But it is important to note that the chosen bid is not always the lowest price. Many
reverse auction platforms allow suppliers to compete on both price and non-price variables and
ultimately, the buyer agrees to purchase from the supplier with the lowest overall total cost.

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Question -D: What are the problems faced by online auction industry?
Now-a-day’s online auction industries facing lots of problem. These are including:

a) Possibility of fraud: The fraud rate in online auctions is very high. Auction items are in
many cases unique, used, or antique. Because buyers cannot see the items, they may get a
defective product. Buyers also may commit fraud.

b) Limited participation: some auction are by invitation only, other are open only to
dealers.

c) Security: Some of the C2C auctions conducted on the internet are not secure, and some
potential participants are scared away by the lack of security.

d) Auction software: Unfortunately, auction software is limited. Only a few off-the-shelf

software solutions that can support the dynamic commerce functionality required for
optimizing pricing strategy and that can be easily customized to a company or industry
available. However, this situation is improving with time.

e) Long cycle time: Some auctions last for days, and in some cases sellers and buyers need
to meet face-to-face or with an escrow agent to complete a deal. This may take time, and
buyers and sellers may not want or be able to invest such time.

f) Monitoring time: Although in some cases buyer can use intelligent agents to monitor an
auction and place bids, in others they have to do this time-consuming job themselves.

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g) Equipment of buyers: buyers need a PC to engage in online auctions, and they also need
to pay for internet access. These requirements have somewhat limited the number of
prudential auction participants. These requirements are changing as people are starting to
use their smart cell phones for auctions; however, this requires a cell phone with internet
capabilities.

h) Other fulfillment costs: Buying at an auction site means that the buyer will pay
shipment and handling costs plus any extra insurance cost.

Question -E: Discuss the advantages of online auction business, in relevance to parties such
as customers, sellers, the auction house, etc.

Online auctions are becoming important selling and buying channels for many companies and
individual. Almost perfect market information is available to both buyers and sellers about price,
products, current supply and demand, and so on. These features provide benefits to all:

Benefit to sellers: online auction provide the following benefit to sellers:

a) Larger reach and increased revenues: By providing the customer base and shortening
the disposal cycle, sellers can reach the most interested buyers in the most efficient and
fastest way possible and sell more at a price equal to buyer valuation of the product.
b) Optimal price setting: Seller can make use of the information about price sensitivity
collected in auctions to prices in fixed-price markets. This eliminates the risk of pricing
items too high or too low.
c) Removal of expensive intermediaries: Seller can gain more customer dollars by
offering items directly rather than going though an expensive intermediary or by using an
expensive physical auction. Furthermore, using online auctions via intermediaries can be
more cost effective than using a physical auction place.
d) Liquidation: Seller can liquidate large quantities of absolute or surplus items very
quickly.
e) Lower transaction costs: Compared with manual auctions and liquidations, online
auction offer lower transaction costs.
f) Lower administrative costs: The costs of selling via online auction can be much lower
than the costs of selling via non-internet auction.
g) Better customer relationships:Buyer and sellers have more chances and time +to
interact with each other, thus creating a sense of community and loyalty. Additionally, by
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making use of information gathered on customer interests, seller can improve the overall
e-commerce experiences of buyers and deliver more personalized content, thus enhancing
customer relationship.

Benefits to buyers: Online auction provide the following benefits to buyers:

a) Opportunity to find unique items and collectibles: Items that are hard to find in certain
areas or at certain times are auctioned regularly on the internet. Because there are a large
number of sellers.
b) Lower price: Instead of buying at a fixed price, buyer can use the bidding mechanism to
reduce prices.
c) Anonymity: With the help of a third party. Online auction buyers can remain anonymous
if they choose to.
d) Convenience: Buyers can trade from anywhere at any time (24/7), even with a cell
phone. (M-commerce auctions)
e) Entertainment: Participating in online auctions can be entertaining and exciting. The
competitive environment, as well as the interaction between buyers and sellers, may
create goodwill and positive feelings. Buyers can interact with sellers as much or as little
as they like.

Benefits to auction houses: Online auction provide the following benefits to auction houses:

a) Higher repeat purchases: Jupiter communication conducted a study in 1998 that

showed comparative repeat-purchase rates across some of the top e-commerce site. The
findings indicated that auction sites, such as e-buy and uBid, tend to garner higher repeat-
purchase rates than the top e-commerce B2C sites, such as Amazon.com.
b) A stickier web site: Stickiness refers to the tendency of customers to stay at web sites
longer and come back more often. Auction sites often are stickier than fixed price site.
With sticky sites, more advertising revenue can be generated because of more
impressions and longer viewing times.
c) Expansion of the auction business: Auctioneers easily can expand their markets. An
example of how auctioneers can expand their business can be seen in the example of
Mannheim auction (business journal of phoenix 2005 and Schermerhorn 2004).

2. Choose a particular ‘Online auction house’ and explain the followings:

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Question –A: List the title, URL and a short history of the house.
http://www.overstock.com

Overstock Auction

Overstock auctions also known as 'The big O". It

was founded in 1997. They changed their name to
overstock.com in 1999 and they began their
auction site in September of 2004. The Overstock
Company has two storefronts, one is online retail
store, and another one is Overstock Auction store.
Overstock Auctions is an attractive auction site
and it is also easy to use. Recently, the Overstock
Company was rated four in customer satisfaction.
Overstock.com has established partnerships with
many leading brand-name companies. Because of these relationships, they can offer their
customer to buy products at significant discounts.

Question –B: Describe the special features or service provided by this house compared
to other rivals.
Overstock Auctions is a reliable storefront that offers features similar to eBay. But in overstock
website, a new buyer can get information on the feedback rating of all sellers, such as how many
items the seller has sold, what type of payment method seller required and also general
information on the product. Links like ‘Customer Care’ and ‘Sell an Item’ are clearly displayed
as well. The overstock website is easy cheap and more user-friendly compared than the other
online auction sites. In overstock site a buyer can use PayPal, check, credit card or money order
or Cashier's Check like most of the other auction sites. This auction site has a very nice message
board, where a buyer or new user can get any possible question answered. Beside that the
overstock company also offers the following features to their customer:

• Dozens of categories and hundreds of different auctions

• Easy-to-understand rating system for buyers and sellers

• Top Overstock featured searches

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• Online auction references and guides

• My Homepage-make your own customized Overstock homepage

• OMuse-read and write about topics of interest such as ‘decorating’

The Overstock auctions have the opportunity to sell large aviation surplus inventories via a
closed e-mail bidding system and also provide advice about fraud on the overstock.com web site.

Question –C: What are the types of payment methods offered by this house to its customers?
Describe a typical scenario of a customer purchase process in this house?

In overstock auction, buyer can choose many methods to pay for their item that they have bought
from this site. Such as credit card, online payment service, debit card, personal check, cashier's
check, money order, or escrow service. In this site, sometimes seller also limits the types of
payment accepted and posts that information in the auction listing. Many sellers require receipt
of a cashier's check or money order before they send an item. Higher volume sellers often accept
credit cards directly.

Customer purchase process in overstock auction house:

In order to buy from overstock.com auctions, a buyer must have to become a verified registered
user first. After registration a buyer can browse the site by clicking on a department link, such as
"Antiques" in the left-hand navigation bar.

Items or product search: A buyer also can search for item by performing a simple search (by
entering text into the Overstock.com Auctions search box) or an advance search. An advance
search a buyer has to enter the following terms to perform a search on the Advanced Search
Page.

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Bidding: Once the buyer has found an item that he or she want to bid on that item than click on
that item’s photo or title to see the item details description page for that auction. The buyer
clicking on the ‘place bid’ button and enter the amount that he or she want to bid then click the
place bid button again.

Receive confirmation from buyer: When a buyer placed a bid then he or she will be asked to
confirm it before the bid is actually placed. If a buyer place a bid that does not exceed the current
high bid then the buyer will be informed that “your bid is less than the current high bid” or if
buyers are the highest bidder the screen will show him or her “Your bid has been successfully
placed, you are now the highest bidder” and he or she will receive an email notification

Monitor an action: Buyer need to place bids to the maximum amount that he or she willing to
pay for the item by reviewing the bidding on their home page daily. Buyer can use proxy service
to continue auto-bid system on behalf of the highest bidder until another user enters a bid that

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exceeds the current high bidder's maximum bid price. Buyers also can set email remainder in
their preference.
Winning Bidder Notification: At the time an auction closes, the buyer or winning bidder will
receive an email stating that he or she has won the item. Additionally, the seller should contact
the winning bidder to request payment.
Make Payment: Finally buyer need to send friendly email to the seller about the payment
method he or she is planning to use. Most of the time seller may require the limited types of
payment. The winning bidder should send payment after receiving an invoice from the seller that
indicates available payment options. Buyer also has to leave a business rating for the seller after
the auction has closed and he or she has received the item from the seller.
Reference
1. Turban, King, Mckay, Marshall, Lee, Viehland, (2008), “Electronic commerce”, person
education limited, inc., Upper Saddle River, New Jersey.

2. How to buy on overstock.com auctions, [online], available: http://auctions.overstock.com/cgi-

bin/auctions.cgi?PAGE=static&pagenum=105

3. Overstock Star review, 2009, [online], available: http://www.starreviews.com/OverStock.aspx

4. Hossein Bidgoli, Electronic commerce, [online], available: http://books.google.com/books?id=Untq-
XwlnsoC&pg=PA92&dq=Explain+the+major+roles+of+an+online+Auction+house,#PPA88,M1
5. Michael Lamoureux, David Bush, Melissa Beuc, Agatha Degasperi, 2008, e-Auctions in
sourcing, [online], available: http://www.esourcingwiki.com/index.php/E-
Auctions_in_Sourcing#Success_Enabler:_Standardized_buyer_rules
6. The Role of the Auction House, ExploreAuctions, 2009, [online], available:
http://www.exploreauctions.co.uk/AuctionHouses.html
7. Charles A. Wood (2004), Current and Future Insights From Online Auctions, [online],
available: www.nd.edu/~cwood1/research/ShawAuctionChapter.pdf

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