Haggling is an age-old tradition at marketplaces around the world, but price negotiations between merchants and buyers haven’t quite made their way into the world of e-commerce.
Theorem, a San Francisco-based startup headed by MIT grads Ryan Jackson and Adam Roberts, is trying to change that. It offers high-end clothing and accessories from more than 90 up-and-coming designers, prices negotiable. "There are a lot of tools for shopping online—e-commerce is a huge space—but we’ve never seen a platform that lets customers name their own price," Jackson tells Co.Design. They launched in beta in April and are now a part of Y Combinator’s 2014 class, and are looking to become the "Priceline for fashion."
Here’s how Theorem works: items are listed with descriptions and photos, with full price and a recommended price. A sliding scale lets you decide on your offer, with a possible minimum of 50% the list price. You then send your offer, which Theorem aggregates with all the other offers and sends to the merchant. The merchant then decides which to accept (Theorem organizes them in such a way that lets them accept offers in batches, making the process less labor-intensive). So far, merchants have been taking around 60% of offers, and about 60% of the time, shoppers are offering more than the minimum possible price.
It’s obvious what shoppers get out of using Theorem—discounts on high-end clothes—and Theorem itself gets a cut on every item sold, usually in the 10% to 20% range. But what do the merchants get out of it? "For merchants, using Theorem is one way of bringing in new customers and building brand loyalty," Jackson says. A shopper who couldn't otherwise afford a given retailer's products now can, which expands their customer base. "Most of the merchants we’re working with are independent, and very geographically tied. They’re very much makers, not business gurus. We’re helping them expand their business to different areas," Jackson says. One merchant from Tallahassee said he never thought he’d have buyers in New York. Another merchant, ASPECD, has seen a 10% boost in weekly sales after partnering with Theorem.
Traditional models for discounting—offering mass discounts quickly—can actually hurt growing businesses. But in Theorem’s model, since it’s a blind auction (you don’t see what other users pay for the same item), merchants can offer discounts to just one or a few users at a time. "A lot of our brands don’t discount anywhere else online," Jackson says. This lets them discount in a way that doesn't stifle growth. And when merchants decide which offers they accept, they don’t necessarily just take all the highest bids. If they have a pair of jeans they’d be willing to sell for $50, and someone offers $60, they make $10 more than they technically need. If another customer then offers $45, they can accept that, because it averages out to making $5 more than they need. They’re willing to dip below minimum prices in individual instances order to gain new customers as long as others are offering more.
For now, still in its early stages, Theorem is focusing on smaller businesses. The model might be difficult to scale up, as sifting through larger numbers of bids could become labor intensive, despite the ability to accept offers in batches. The model might also be difficult to apply to bigger, established brands, which already offer discounts on a larger scale.
But it's an intriguing new tool for small businesses to try on for size. Theorem's analytic tools also give merchants access to invaluable market data about pricing and products, something that's usually only available to bigger brands. 'We're on the merchants' side," Jackson says.