Not all businesses are compatible with this pricing strategy, so most businesses cannot utilize it in their operations. The auto industry is the current industry that uses this kind of strategy.
The name-your-own-price (NYOP) strategy benefits buyers and sellers. But, it is more convenient for businesses, and it poses many challenges to buyers, such as quality, risk of losing, and effort.
Have you ever encountered a business that asked you to name your own price on a product they offer? I recently experienced it too, and I thought about how much it could affect a consumer.
If you’re gonna ask me what happened, I’m afraid I can’t answer that. Instead, I prepared this blog for you. So whenever you encounter something like this, you’ll know how to react because you know what it is and how it works.
Read on, and let’s find out what “Name your own price” means and how it affects a business and consumers.
What is Name Your Own Price (NYOP)?
Name your own price is a pricing strategy wherein sellers let buyers decide the total amount they want to pay for the product. Still, the transaction only occurs if the deal meets or exceeds the seller’s unrevealed threshold.
But how does the transaction flows? Basically, the transaction flows in four steps:
- When the seller list products, they set their own price thresholds on which they’ll accept bids. The buyer is not aware of this threshold price.
- Once buyers decide they like a product, they offer the first purchase.
- The seller will ask the buyer to name the price they want for the product. The buyer’s pricing must match or exceed the threshold for the transaction to proceed at the advertised price.
- There would be following rounds if the buyer’s pricing is lower than the threshold. In this round, the buyer can revise their offer until it meets the pricing all the sellers agreed upon.
Sometimes, the name your own price (NYOP) strategy is called reverse auction.
There are two types of auctions: traditional and reverse auctions. In a traditional auction, a seller provides a service that has a large number of potential customers. Everybody who can pay the price tag has the opportunity to buy the offered service or item.
In the reverse auction, the roles are reversed. The sellers who can give the product or service for the amount specified by the buyer get the auction.
To further understand, here’s an illustration.
The Difference Between Name Your Own Price (NYOP) and Pay What You Want (PWYW)
Many misunderstand the name-your-own-price (NYOP) pricing strategy as the same as pay what you want (PWYW) pricing strategy, but they are both different.
In some ways, name your own price (NYOP) is comparable to the pay what you want (PWYW) pricing strategy. Both include the active involvement of the customer in setting the price.
Nevertheless, in contrast, to pay what you want (PWYW), the seller has more influence over the terms of the customer’s offer and the ultimate amount paid. The seller establishes the lowest price it would accept and can reject a buyer’s offer if it is lower than this amount.
It might also keep information on a certain brand until after the sale to make more money. These elements make the name your own price (NYOP) more difficult for both buyer and seller than the pay-what-you-want (PWYW).
Real-World Examples of Name Your Own Price Strategy
It can be really confusing to differentiate between the name-your-own price (NYOP) and pay-what-you-want (PWYW) pricing strategies. For further understanding, here are real-world examples of name your own price strategy.
Priceline is an online travel service that assists clients in finding the most affordable options for travel-related products, such as airline tickets, hotel rooms, and rental cars. They were the first to implement the name your price (NYOP) strategy.
How does it work?
A buyer at Priceline sets the price by bidding for a service. Priceline’s algorithm selects a service provider at random whose threshold falls short of the cost specified by the buyer.
The buyer is then charged the amount they quoted, and the sale is completed. There is a limitation to this seemingly straightforward method, though.
The buyer does not see the price that the seller has listed. After a certain period, the buyer may re-bid if the price they provided is too low and no vendor is willing to provide the service at that price.
However, the strategy of Priceline didn’t work. Priceline’s strategy was unsuccessful because its rivals offered more simple transactions through set prices.
Priceline also made an excessively rapid and aggressive expansion push by leveraging the name your own price (NYOP) to market its services. The expansion and strategy of Priceline caused investors to lose faith, which resulted in a sharp decline in the value of the company’s shares.
Also, because of the inconvenience, customers had to spend a lot of time filing and resubmitting bids. Priceline later stopped using the name your own price (NYOP) strategy and began charging a fixed fee for its services.
The auto industry especially CarBevy, uses the name your own price (NYOP) strategy to streamline processes and make them more consumer and customer friendly. Despite Priceline’s failure to use the name your own price (NYOP) strategy, this strategy is successful in the automotive industry.
Here are a few reasons why the name your own price (NYOP) strategy is successful in the auto industry.
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- Importance – In today’s world, automobiles are a necessity. Auto dealers benefit from allowing buyers to choose their own pricing. Auto buyers may get brand-new vehicles at a cost they can afford using the name-your-own price (NYOP) strategy.
- Freedom to choose – As previously noted, the name your own price (NYOP) strategy enables buyers to select the automobile that best suits their needs and price. Buyers will be able to select the automobile they want and the attributes that go with it.
- Efficiency – Car buyers will have to complete a ton of paperwork and feel stressed when negotiating since buying a car is a significant investment. By allowing auto sellers to offer their vehicles at the buyer’s price, the name your own price (NYOP) strategy lessens car buyers’ stress.
The Psychology Behind Name Your Own Price Strategy
Although it is simpler to comprehend the psychology of why consumers choose the name your own price (NYOP) strategy, many people genuinely don’t understand why sellers also adopt it.
Here are the seller and customer-centric points of view for further understanding:
The most obvious advantage of the name your own price (NYOP) strategy for the buyer is that they get to pay whatever they want. This is because the bid represents the amount they are prepared to spend on the offering, which, in their eyes, gives them an advantage over the sellers.
Partaking in a pricing scheme in which the price is mostly determined by choice instead of a set cost provides the customer with the psychological relaxation that overspending isn’t a problem.
Sellers are not at a loss because they can choose their threshold price. Several benefits from this strategy since buyers often feel that their bid price is fair.
Moreover, by utilizing upselling and cross-selling techniques, the name-your-own-price (NYOP) vendors can make money.
How Does Name Your Own Price Strategy Work?
Name your own price (NYOP) strategy works very simply. The seller informs the buyer about what is offered, but some aspects are frequently concealed or unavailable.
The greatest example is Priceline, where the consumer may select the hotel quality (second class, high class, etc.) and the location. When specifying their own pricing, buyers cannot select a specific hotel.
Priceline determines the lowest pricing they would take as the seller. This information is intentionally kept from the buyer. For example, a hotel may specify their minimal threshold on Priceline at $70 per night.
By placing a bid, the consumer sets their own pricing. Then, Priceline chooses the hotel randomly and determines if the customer’s bid price is higher than the threshold price for this hotel. If so, the deal is finalized.
The non-refundable purchase is finalized when the buyer’s credit card has been charged. The discrepancy between the hotel’s list price and the customer’s bid price goes to Priceline.
However, suppose the customer’s bid is lower than the threshold. In that case, Priceline proceeds to the next option until an option with a lower threshold than the customer’s offer is discovered.
Name Your Own Price (NYOP) Benefits to Business
Truly, the name your own price (NYOP) is very tricky. Hence, it provides many benefits to a business. The following are the benefits of this strategy to a business.
Promotes Customer Loyalty
Customer loyalty is cultivated through excellent customer service, satisfying products, and distinctive experiences. The name-your-own-price (NYOP) centres on the customers. They make customers believe that they benefit greatly.
Increases Customer Focus
Consumer satisfaction benefits from customer-centric pricing. Moreover, it enables a business to deliver superior client service.
Increases Brand Value
The name your own price (NYOP) raises the value of the business brand by demonstrating that the company is committed to putting the needs of its customers first and that the goods and services it offers are of the highest calibre.
Name Your Own Price (NYOP) Challenges to Business
Although the name-your-own price strategy looks too good to be true, it also challenges businesses. The following are the challenges of this strategy to businesses.
Niche Market and Market Competition
Businesses, therefore, obtain a niche market. While having a niche market typically results in devoted customers, it indicates that a business has only reached a tiny portion of your actual market.
As competition enters the market, your existing smaller market decreases.
A business could become so engrossed in the competition in its eagerness to land a contract that it sets unreasonably low prices. As a result, a second issue arises because buyers are accustomed to low pricing, and businesses believe that buyers are taking advantage of them.
Also, there are forums where purchasers post their offer amounts, making it simple to identify the winning bid. These behaviors damage the buyer-seller relationship, so sellers frequently return to the conventional price model.
Risk of New Entrants
The name-your-own-price strategy allows new entrants to compete. New competitors frequently provide a sizable discount, which harms the suppliers that have been using the strategy.
Name Your Own Price (NYOP) Benefits to Buyers
Of course, businesses are not the only one who benefits from the name your own price (NYOP) strategy. Buyers could also benefit, and those are the following:
Willingness to Pay
Although businesses are the ones who set a threshold. Buyers can get a product or service in the amount that they set.
When there’s no other option, a business may give an option exactly with the price set by the buyer.
Name Your Own Price (NYOP) Challenges to Buyers
Although the name your own price (NYOP) has benefits for buyers, it’s obvious to think that there are more challenges it brings than benefits.
Who wins the contract after a bid is accepted is beyond the buyer’s control.
A low price may compromise the quality of the service or product. It may be hard for buyers to realize that a few dollars they have saved came at a significant expense in terms of quality because they have no opportunity to genuinely understand what is on the table.
Aside from that, this approach does not consider elements like delivery timelines and technological capabilities, which might eventually result in higher real prices because they are among the non-price factors that are not considered.
Risks of Losing
Suppose the initial round of bidding fails to generate any interest. In that case, future rounds may see overbidding to secure the service as quickly as possible.
The name your-own price (NYOP) strategy requires buyers to exert effort in setting the price they want. Which actually consumes time, understanding, and of course, effort.
Indeed, the name your own price (NYOP) strategy benefits businesses. But not all businesses can apply this strategy to their operations. Things could happen if the strategy is incompatible with the type of business.
Regarding buyers, the name your own price (NYOP) could be attractive and tempting. But considering all the challenges it could bring, you’ll realize why this strategy is regarded as psychological pricing.
The name your own price (NYOP) strategy shows that businesses and consumers must consider all factors before deciding on something. You can share your thoughts about the name your own price (NYOP) strategy in the comment section below.
Did you like this article? If you do, and you’re interested in learning more about the name your own price (NYOP) strategy or any strategy that could boost your business success. You can do so by reading my previous blog below.