Charging shoppers a small, nonrefundable fee to make an offer increased seller profits in experiments on name-your-own-price selling, although the advantage weakened when buyers had more experience and help with the calculation.
The finding comes from two laboratory experiments and a short field test reported in the Journal of Retailing. It illustrates a pricing trade-off: an entry fee can generate revenue, but it may also discourage customers from participating.
The results apply to a specific bidding arrangement and do not establish that charging shoppers to make offers is a sound strategy for every retailer.
How the pricing system works
Under a name-your-own-price arrangement, a customer submits an offer rather than paying a published fixed price. The seller accepts the bid if it meets a threshold. In the setup studied, the buyer did not know that threshold in advance.
The researchers compared a free bidding opportunity with a two-part version in which the customer first paid a nonrefundable fee. If the offer was accepted, the customer also paid the bid. If it was rejected, the customer lost the fee and did not receive the product.
For example, someone might pay a small fee to bid on an item and then pay the amount offered only if the bid succeeds. The total cost of a successful purchase includes both the fee and the accepted offer. The example explains the mechanism; it is not a price taken from the experiment.
Participation can change the outcome
Lucas Stich, Robert Zeithammer, Martin Spann and Gerald Häubl found that modest fees could increase seller profit in the settings they examined. The benefit depended on how buyers responded to the chance of paying a fee without obtaining the product.
Experience with the mechanism and a decision aid that helped participants calculate outcomes reduced participation. In the study’s more experienced and better-assisted conditions, charging a fee did not necessarily remain more profitable than allowing free bids.
The authors also tested the approach at a branded pop-up booth at a European university during a three-week sales campaign. The product was a university-themed flying disc. That field test provides evidence about a real transaction, but a single product, location and short campaign cannot establish how customers would react across retail markets.
The cost of a rejected offer
Customers deciding whether to participate must consider more than the price they hope to pay. They also need to weigh the chance their bid will fail, the loss of the entry fee and the price available elsewhere.
For businesses, clear disclosure matters. An offer can appear attractive while still leaving a customer out of pocket if the fee is not refunded. The size of the fee and the rules for accepting bids should be understandable before a customer decides whether to take part.
Related MBN reporting has examined how conditions attached to discounts can affect demand. In both cases, the mechanics of an offer matter alongside its headline price.
What a business would need to measure
A retailer considering a trial should compare profit after product and operating costs, not just the fees collected or the number of bids. It should also monitor how many customers leave without participating and whether the promotion affects later purchases.
The study’s short-run results are not a promise of lasting gains. Customers may respond differently after repeated exposure, and a pricing format that produces revenue in a small experiment may create friction or concern in another setting.
