Page 130 - Marketing the Basics 2nd

122 Marketing: the Basics
DuTcH aucTion
When Google became a publicly traded company, it chose the unusual approach of selecting a Dutch auction method to sell its shares. In this system, the bidding starts with the highest price, reflecting the maximum value the seller believes the product is worth. Then price slowly decreases until the bidder agrees to the price. The price continues to decrease until the entire stock is sold.
engLisH aucTion
An English-style auction is the opposite of a Dutch auction. A minimum price is set and bidders continue to raise their offers, until the person who wants the good the most outbids the competi- tion. This is the most popular of bidding systems. Online auction website eBay is an example of an English auction.
seaLeD BiDs
A sealed-bid system is often employed by a buyer who wants to extract the lowest price from a group of sellers who offer relatively similar goods or services. In a sealed-bid system, the bidders are prevented from knowing the value of other proposed bids. That lack of information forces the seller – in theory at least – not to bid below their cost, and not to bid too high, otherwise they’ll lose the contract. Whenever the government announces a public works programme, it invites bidders to participate in a sealed bid auction. Transparency and having lots of bidders are two requirements to ensure the process is competitive. This is widely used by govern- ment and when ignored a political scandal often ensues, as has happened in Germany, England and the US in recent years. Even if the governing party doesn’t tamper with the bidding process, there is a potential for bidders to get together and agree to rig the price; this is called collusion and is illegal.
COMPLEMENTARY PRODUCT PRICING
Many companies have adopted this strategy nicknamed the ‘Razor Model’. This concept was founded on the principle that razor companies, like Gillette, will realize low margins from selling their