In the modern world, many types of trading platforms are used for commodity-money transactions. One of them is reduction. How auction differs from reduction - let's try to understand this article.
What is a reduction?
Reduction is auction trading, which is conducted on the basis of price reduction. At the reduction, the main subject of the transaction is not the seller, but the customer who wants to purchase the necessary goods. He calls the maximum amount of money that he is willing to pay for the right thing. Sellers of goods offer the customer their price, which is gradually reduced. Bidding continues until the buyer agrees to the transaction. In such auctions, compared to regular auctions, a thing is sold at low prices.
Thus, the main difference between a reduction and an auction is a gradual decrease in prices. As you know, in auction sales, participants show a desire to purchase goods, offering a price higher than other buyers.
Pros and Cons of Reduction
Reduction is a competition between sellers, not only in terms of price. Very often this type of trade is justified by other important offers. So, bidders can offer the customer favorable terms of delivery, a long warranty period, gifts and additional services at low prices. Using these tools can significantly increase the effectiveness of reduction trades.
In addition, reduction is a very profitable event for its organizers, however, the implementation of the competition requires certain skills and knowledge. Firstly, it is very important to be well acquainted with the relevant legislation and have some experience in the field of trade.
Secondly, any changes in the conditions of the tender always affect the final profit. So, sellers carefully prepare before the competition, make all kinds of calculations to reach the planned value of income, and consider possible terms of the transaction. And during the reduction, the customer proposes to revise all calculations again in order to further reduce the cost of the goods. Such conditions not only affect the seller’s profits, but also often affect the quality of the goods, since the participant is trying to reimburse his expenses. In addition, changes in the terms of the transaction also lead to a change in the value of the application itself. In this case, the profit of the organizers of the reduction is reduced.
Given the above features, there are only a few cases where it is justified to carry out a reduction. It:
- Purchase of a large batch of the same type of product or raw material.
- When the winner of the competition is determined by quantitative indicators. For example, the cost of goods.
Trading Rules
A reduction is carried out if at least two sellers have applied for participation in it. Bidding begins after opening the envelopes received for the tender and the declared prices or after comparing the rejected tender applications. Only sellers whose statements were accepted by the organizers can participate in the reduction.
The reduction must be attended by persons who signed the application for participation or an authorized person who has the right on behalf of the participant to make decisions at the competition and change the price of the goods. Authorized bidders are required to present a sealed envelope with a minimum price below which the seller is not entitled to continue bidding. This document is certified by the signatures of the head of the participating company and the chief accountant.
If the participant has not passed such an envelope to the commission, he is not allowed to the competition and is considered not to have participated in the reduction.
Types of Reduction
Organizers have the right to carry out a reduction in an open and closed form. In open bidding, all participants present publicly name the new prices. Bidding is conducted until one of them announces its minimum price, below which it does not agree to a deal. If the final value of the goods is equal to or greater than indicated in the envelope submitted by the participant, the reduction commission will approve the final price.
In the event that the price formed in the auction is lower than the one indicated in the envelope, the commission will reject the price declared during the tender and announce it as final.
If the participants violated the rules for filling the envelope, their applications in the auction are not accepted, and they are considered not to have participated in the reduction.
After the competition, a commission sits, which carries out the necessary calculations and sums up the results. On the basis of the results obtained, the contract is awarded to the participant whose application to the greatest extent met the competitive requirements.
Quite often carry out a reduction in electronic form. Competitions of this kind are held on virtual trading floors on the Internet in real time. All bidders are registered as required and must comply with the bidding rules.