Reverse pricing, also known as “name-your-own-price“, describes a method of pricing in which the seller no longer sets a price, but the buyer makes a price bid.
Potential buyers bid for a specific product without knowing the seller’s selling price. The purchase is made as soon as a bid exceeds the price threshold of the seller. With the help of this auction procedure the buyer’s individual willingness to pay should be better exploited. Reverse pricing is therefore a form of value pricing.
An example of this is the company Priceline. The latter operates a platform on which travelers can place bids for hotels, among other things. Travelers do not bid directly for a specific hotel, but only for hotels within a specially defined geographical area and star classification. If a bid exceeds the price threshold of a suitable hotel, a hotel booking is made. Priceline cash flows are a result of the difference between the bid and the price threshold.