25-30% new buyer participation
Previously unaddressed small buyers began participating regularly through the auction.
Case Study · Natural Resources
Increasing Market Reach for Commodity Selling Through an Innovative Auction - On a Win-Win Basis
400 small buyers were sourcing from the secondary market instead of buying direct. A dynamic Yankee auction changed that - fairly, and profitably, for both sides.
By Anupam Aggrwal · 14 June 2024
Win-win pricing
Buyers got better prices than the secondary market; the company realized prices above its floor.
Problem Statement
One of the largest natural resources companies had identified through their research that for one of their commodities in India, there were 400 small buyers (by volume) who were not buying their requirement from the company and were meeting the requirement from the secondary market.
Desire
To get these buyers to buy from the company directly through a fair process.
Solution
We created an auction (Yankee) for the company whereby the company regularly started offering quantities (e.g., 2,000 MT) at a floor price (minimum premium), with the quantities of the highest bidder (higher than floor price) being allocated first, and similarly in decreasing order of the bids - i.e., after allocating quantity to the H1 bidder, quantity to the H2 bidder was allocated, and so on, dynamically, for the period of the bid (30 minutes, extended by another 2 minutes for any bid placed in the last minute).
The solution is extremely easy to use - a key requirement given the variety of small buyers participating in it - with a highly decluttered bidder screen, clear relative-position indication, and a simple field to submit the price.
Notifications of upcoming events (multi-channel), participation instructions, etc. are extremely simple, and a broadcast facility makes it easy for the company to dynamically message bidders about any changes to the bidding elements (like a reduced decrement).
Outcome
Approximately 25-30% of the previously unaddressed buyers started participating regularly, and the company has been able to meet their requirements successfully in a win-win condition - buyers getting quality material, on time, at better prices than the secondary market, and the company realizing better prices than the floor price.
Future Plan
Encouraged by the above, the company has targeted doing 15% of its revenues through the platform.
FAQ
Questions about this case study.
What problem was this natural resources company trying to solve?
About 400 small-volume buyers were sourcing from the secondary market instead of buying directly from the company.
What auction format was used to solve it?
A Yankee auction, where quantities were allocated to bidders in descending order of bid price above a floor price, run dynamically over a 30-minute window.
What was the outcome?
About 25-30% of previously unaddressed buyers began participating regularly, with buyers getting better prices than the secondary market and the company realizing prices above its floor.