Name-your-own-price, A New Pricing Strategy Has Converted More Online Visitors To Loyal Customers

When I was in Singapore last week, I stayed at a 5-star hotel Royal Plaza

, part of Accor, French hotel group. I was participating in their "Name Your Own Price" program, so guess how much I paid for a Deluxe King Room per night? 69 dollars! Their "Name Your Own Price" was a brilliant gimmick to attract more visitors to their hotel in the midst of the global economy crunch. Customers could choose to pay the price they were willing to stay at the hotel.

In a time of crisis, no one wants to pay high prices. Consumers are increasingly interested in shopping online partly because a store in cyberspace is more likely to offer a lower price than what a brick-mortar store does.

Facing fierce competition, ecommerce business owners often ask what I tell if my customer sees my price and then says in a horrifying tone: This is simply too much for me! It is your responsibility to justify your price. The question is - How can you better "sell" your prices that your customers would accept?

First of all: If you ever have customers who find your prices too high, you are likely to be cheap. Seriously! There will always be customers who will find your offer to be expensive. And that's good, because you are focused on a specific target group, which fills a certain price range.

As a business owner, you must give your customers a feel for the value of your performance. But very often it is not so easy to do so, from my frightening experience. On my recent headfirst fall from a mountain at 40 miles/hour, I was happy and so grateful for my pro-helmet, which has probably saved me a hole in the head. That helmet is worth way more than $200 to me. My old running jacket, however, is a bargain. It serves its purpose well for $10. It is just subjective. And make it worse, you probably don"t have time for a website visitor to develop a value for your product, if he/she thinks it is too expensive. Most visitors will only spend a couple of minutes on your website.

Then the situation looks different with "Name Your Own Price".

This is the rationale behind it - "Dear customer, it makes no sense to say my prices if we have not talked about what you're looking for. Why not talk about what you want, and then you will find out if I'm the right guy to continue with. I do have several solutions with different prices and let"s see which is right for you".

Priceline is one of the pioneers and a successful player that adopts the NYOP model. Its users have the option of setting a desired price. The site then tries to match a vendor that sells at that price.

The NYOP model may be a valuable tool for creating differentiation and thus relaxing price competition. The concept can really be applied to a large number of industries - from aerospace to agriculture, furniture, office supplies, toys, or books/audio, etc. I lately came across a new entrant in the ecommerce space in favor of systems that encourage haggling between buyers and sellers. Fididel introduces a middle-person into its ecommerce model, offering real-life human negotiators typing live at their keyboards.

Some other ecommerce websites have employed NYOP approach in an effort to interact with potential customers. LetsHaggle.com is a new UK based site that sells a large variety of products like Prada sunglasses, an Armani scarf, a Nikon camera, etc. It puts your negotiating skills to the test by allowing users to shop for deals on electronic gadgets, home wares to designer accessories and beauty products.

LetsHaggle.com does require the customer to fill in credit card details before he/she is able to bid. Once the offer is accepted, the customer will be charged immediately. This may not be seen a favored arrangement by some potential customers.

Washingtonian Furniture has introduced a more "friendly" NYOP feature that does not require payment obligation to haggle. The US based furniture factory outlet offers discount modern furniture including sectional sofas and modern outdoor furniture to both household consumers and business customers. Their NYOP is reserved mainly for business customers who look to buying multiple pieces of furniture, say leather couch products. All you need to do is click the "Name Your Price" button and put in your preferred price and wait for a response.

The main reason why the online furniture outlet has deployed this model for business customers is that they drop by with a variety of needs in terms of product mix and quantity. And very often they demand customization for the furniture they are buying. So having one fixed list price on the website would in no way accommodate these varying needs. Potential customers would simply walk away without giving the web marketers a chance to talk about the business. Not to mention wining it.

It would be a shame if the customer hangs up, because he does not know what he could get. And the seller does not know how many pieces of product the customer wants, so the seller has a calculation basis. In this type of bargaining, many possibilities cannot occur. The ultimate goal of having a haggling feature on the site is: Collect options and then decide. I'm not set on just one path, but open to many solutions.

Only when you have discussed with a potential buyer and understood what he needs, then you recognize the added value and know about the price you will agree.

Indeed, negotiations are part of our daily life. It is not about winning, but to find solutions that represent a win for both sellers and buyers, which is the philosophy of the Harvard-concept.

With the same token, NYOP, a proven effective marketing tool, is not to find a compromise. A compromise is more characteristic of competitive positional bargaining. In a compromise, one meets in the middle, which is mutually no satisfactory solution. Meeting in the middle may not be a win-win. And there is a risk that the seller does not come up with the idea to develop the solutions further. NYOP is about finding a common solution. Perhaps a better solution than the one I had it in my mind. Then you both win.

by: Simon Tao

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