Do Name-Your-Own-Price Sites Actually Work?

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It was my first experience negotiating a price online, and, even though all the elements of face-to-face bartering were removed, I still had to work up some nerve. I was fully sucked into Garmentory, a webshop that stocks sale merchandise from contemporary designers and boutiques and lets customers negotiate the final sale price directly with shop owners. The potential for a crazy steal was high, and I wasn't about to waste the opportunity.

After 45 solid minutes of paging back and forth, I wound up at a Finders Keepers dress that was just begging for an offer. It retailed for $150, and the San Francisco-based boutique where it was housed had marked it down to $100. Bolstered by anonymity, I low-balled and offered $50 for the dress. Garmentory informed me that my offer was 67% off the retail price, and my chances were low. Six minutes later, the boutique emailed me back with a counter-offer of $60. I had 24 hours to accept but my deliberation only took about 25 seconds, and minutes later, the deal was closed.

This isn't some sort of online flea market and this isn't eBay, either. Garmentory is one of a growing number of online retailers testing out a pricing model where customers can, quite literally, name their own price on merchandise.

At first glance, Garmentory's webshop has the same look and feel as other contemporary indie retailers like Need Supply and The Dreslyn, so the two founders adopted the price negotiation model as a tool to stand out from the crowd. "[Garmentory co-founder] Sunil came up with the idea for the make-an-offer purchase model," co-founder Adele Tetangco said. "It really was just something new. There's eBay, where you're bidding, but Garmentory's not really bidding because people are submitting an offer [directly to retailers], not bidding against other people. It was something new and different that we thought of doing, and people are using it."

Garmentory is barely a year old but has already signed up 100 boutiques and contemporary designers on the platform—a huge leap from the 25 they had at the time of launch. For now, the site only sells sale merchandise but there are plans to install a 'buy now' option and stock full retail in the future. However, Tetangco explained that Garmentory doesn't plan to allow customers to negotiate on non-sale merchandise because the boutiques wouldn't be properly supported otherwise.

"The stuff I'm selling through Garmentory, I'm not making a profit on," Angelina Rennell, owner of California-based boutique Beklina, told Racked. "I'm just recouping the money that I lost. But I need to move those things. I can freshen up my space and be done with it. She's been able to move some stuff and it's good."

Rennell has been selling Beklina's sale merchandise through Garmentory for about five months. "I think it's fun for people," Rennell added. "There's just something about that bartering—it's kind of that garage sale market mentality. It makes them feel like there's more of a value, like they're participating in that more. I like it."

Collina Strada designer Hillary Taymour started working with Garmentory a couple of weeks ago for similar reasons. The site was appealing for its ability to move inventory and reach a larger customer base, but, like Tetangco, Taymour doesn't expect to be adopting the price negotiation model on regular retail items anytime soon.

"For business, it may not be the best thing," Taymour admitted. "But I think that it's definitely an interesting concept and in today's world it makes sense. Somebody might want that $150 item but they can only spend $120 on it. At the same time, they might be a repeat customer. $30 is not a big deal. Then they buy the item and they fall in love with your brand."

In other corners of the industry, companies are trying to implement price negotiation models on full retail items. Boston-based retailer Nyopoly was founded two years ago using a platform in which customers negotiated with local retailers online and then picked up their bartered items in store along with a small cash back incentive. In late 2012, that model was scrapped and Nyopoly became the direct seller. Customers were able to barter directly with them over merchandise, and prices were negotiated within seconds using a Nyopoly-devised algorithm.

Now they're taking the data gathered as a direct seller and going back to implementing the price negotiation model inside local stores. "You can go right in and you don't have to awkwardly ask a sales associate about it or have any of that awkward conversation," Joe Shartzer, one of Nyopoly's co-founders, explained of the next step. "You can see the product online on your tablet or your phone, but you can also pick up the product, try it on, feel it, make sure it's what you want, and then from there you'll see the list price. You'll be able to make up to three offers on it and then when we land on a price that works, you can walk right up to checkout, show the owner the tablet, get your price, and walk right out of the store with a little reward for next time as well." (Customers will still receive cash back incentives with the new model).

Shartzer is hoping to pull retailers on board with the idea that allowing price negotiations helps to build brand equity, as well as bring in more sales. "Each transaction is discreet and individual," Shartzer said. "You reach out to that price-conscious consumer without taking the hit of your brand equity going down because they know that they're always going to be able to wait to get 40% off in two weeks or something like that." While Shartzer doesn't think that Nyopoly will replace a store's entire pricing strategy, he does believe that the individual pricing negotiations can be a better alternative to using store discounts and sales to move merchandise.

Still others have used price negotiation models as limited time promotional tools. Startup runningwear company OnlyAtoms let customers name their own prices when the web store opened in the beginning of August this year. The approach went over so well that owner Beth Weinstein will be rolling out the promotion again for Black Friday and Cyber Monday shoppers.

For Weinstein, the idea to let customers name their own prices stemmed from frustration with other promotional routes. "I was having bloggers and some media ask me for free garments," Weinstein recalled. "But, being a small startup, I can't afford to just send every blogger a garment; it's impossible. So I was like, 'Well, instead of sending everybody free stuff, I can at least try to make them donate money through a pay-as-you-wish type of thing.' Of course the bloggers don't want to do that anyways."

But Weinstein saw a better response when she opened the option up to her customers. To pull it off she enlisted the help of Generous, a startup out of Portland, Oregon that assists sellers in putting products up for sale with a pay-what-you-want option. She set a minimum price on each item during the promotion to combat profit losses, but discovered that most customers chose to pay more than the bare minimum anyways.

"I found that when I did pay-as-you-wish most people paid near the suggested price," Weinstein said. "I think actually like two or three people paid above the selling price—not much, but a little."

Before starting OnlyAtoms, Weinstein worked in product development for mass market brands where she negotiated product costs for companies including Sears and Macy's and saw firsthand how insane traditional pricing models have become. "I think people are catching on more and more," Weinstein observed. "They know that at Macy's, nothing is ever full-price. Everything's always on sale so no one even buys anything unless its on sale. And that's why they do all these crazy Black Friday sales where they open at four in the morning and offer 80% off; so, trample each other and you'll get a good deal. The reality is they build all that into the price from the beginning."

From a startup point of view, that heavily discounted pricing structure is impossible to match. At OnlyAtoms, allowing customers to pay their own price was the more sustainable answer that Weinstein was looking for. "It's not like a small company can afford to do 50% off and free shipping and 5am doorbusters," Weinstein said. "I can't do this kind of stuff."

Garmentory, Nyopoly, and OnlyAtoms each approached the price negotiation model from different angles, but all three were optimistic about how the model has been good for business. Does this mean that more mainstream retailers might consider price negotiation in the future? Probably not.

"[US consumers] aren't used to that mentality," said Nikki Baird, a retail analyst at Retail Systems Research. "There are outliers, and for those outliers this might appeal to them quite a bit, but I think that there are many more consumers who just want to know what the price is and don't want to have to waste their time trying to negotiate."

Baird sees more potential for the online format, since it takes away the confrontational nature of traditional bartering, but she still believes that the future for price negotiation will remain a niche market in America. "I think that for anybody who looks at the success or opportunity around negotiating prices, you have to look at the cultural willingness of whoever you're trying to convince to participate in this," Baird said. "Pricing in particular is one of those areas where there's just a ton of pyschology and cultural acceptance."