I am often asked about the merits of reverse auctions vs request for quote – particularly for directories. It is an interesting topic and one which has been largely answered by the success of the RFQ model vs reverse auctions around the world.
The poster child for RFQ being service magic, with $200m revenue run rate, and there being no reverse auction player with revenues near to that.
The four key aspects of a request for quote (RFQ) business model which make it more attractive for directories than a reverse auction-based model are:
- The known economics of the model: With RFQ, directories know what they can pay to acquire each consumer (for each combination of vertical by suburb) and thereby they are able to optimize yield and maximize margin. In contrast, under a reverse auction model it is difficult to estimate traffic acquisition costs given that job response rates are not always fixed or under your control.
- Consumer Expectations regarding the ‘instant’ timing to resolve their need – consumers come to your directory with expectations that they will be solving a need in short order….that soon, they will be booking a carpet cleaner, and that is one less thing on their ‘to do’ list. Their expectations are not that they will posting a job and across the next 48 hours a number of service providers will bid on the job and they can then go through the negotiations as to when and if the supplier is available to do their work. With the RFQ model that discussion happens with 3 suppliers (once they are briefed with the data from the form) almost immediately ….suppliers know that the sooner they call the consumer the more likely they are to get the job
- Disrupting the value proposition of directories to small businesses - The primary role for YPs over the years has been as the champion of the SME, now with the implementation of a reverse auction model, your message to that market is, ‘we want you to spend your time when you are not ‘cleaning carpets’ online, bidding against others primarily on price….so the net ‘message’ that is relayed is that SMEs need to ‘spend their spare time to decrease their margin’. This marginalizes the YP brand, and it will make it exceptionally hard for you to leverage existing YP sales teams.
- The Perfect Match – Quotify has invested significant resources into building out matching technology that enables each consumer to find the 3 best suppliers that are right for them, based on their exact needs. For example:
For the consumer: I may want a carpet cleaner to arrive on time and you may just want the cheapest quote, there are many different types of carpet cleaners for each consumer – and we find the right supplier(s) for each consumer
For the supplier: We provide the supplier with only leads that match their expertise –we don’t send them jobs for work they can’t do (or where the consumer doesn’t know what to ask for). So suppliers waste less time, and are prepared to pay more for each lead because the leads match the work that they do best.
This matching works very effectively for both the supplier & consumer. With a reverse auction model the consumer may ‘win’ the suppliers that want to do the work (or those that are prepared to discount their price enough to win), rather than the suppliers that can or should be recommended to do the work based on their expertise (there is sometimes some ratings data for the consumer to consider, but the context for that consideration is usually not present)