The method was described in 1964 and is considered one of the cleanest ways to capture willingness to pay in an experiment. Its principle: bidding honestly is the best strategy.
How the method works
The person states the highest price they would pay for a product. A price is then drawn at random. If it is below the bid, the person buys the product at the drawn price, not at the bid. If it is above, they do not buy.
Because the price paid does not depend on one's own bid, it pays neither to bid too high nor too low. Anyone who bids too high risks buying above their own willingness to pay; anyone who bids too low misses a purchase they would have liked to make.
Why this matters for your decision
The BDM auction makes the answer binding and thus reduces hypothetical bias. In three point-of-sale studies it produced lower willingness-to-pay values than non-incentive-compatible methods, and the difference was due to the binding nature, not to cognitive effort (Wertenbroch & Skiera 2002). In a comparison with real purchases, BDM passed statistical and decision-related tests (Miller et al. 2011).
For companies, this means: where a product can actually be sold, BDM provides a more reliable willingness to pay per person than a survey.
Example
In a lab experiment, participants bid for a new insulated lunch box. The average bid is €18. In a parallel survey without any commitment, comparable participants state €26 on average.
The difference shows hypothetical bias. The BDM values are a better basis for price planning, but they come from a lab with a product that already exists.
How it differs
Van Westendorp and Gabor-Granger ask for assessments without consequences. Incentive-compatible conjoint links choices to a real reward. The BDM auction captures a binding willingness to pay per person.
A Painted Door Test does not measure willingness to pay per person, but measured purchase intent per price in the familiar online environment. People do not know they are part of a study, and no deliverable product is needed. In return, the payment step is missing: nothing is sold.
Limitations
BDM requires that the product exists and can be handed out. For offers that are still in development, or for tariffs and services with a contract term, the method is hardly applicable. The situation is also unfamiliar: people bid in an experiment instead of seeing an offer alongside alternatives. The method has to be explained well, and not all participants understand that bidding honestly is the best strategy. Where willingness to pay is uncertain, its incentive compatibility is disputed in the literature.
The Painted Door Test has the opposite limitations: a realistic environment, but no payment and no individual willingness to pay.
Evidence
Becker, DeGroot & Marschak 1964: Origin of the BDM method: a bid against a randomly drawn price, so that the honest bid is the best strategy. Measuring utility by a single-response sequential method, Behavioral Science 9(3). Source
Wertenbroch & Skiera 2002: In three studies, the incentive-compatible BDM method produces lower willingness-to-pay values than non-incentive-compatible methods (open-ended question, double-bounded contingent valuation); the difference is due to the binding nature, not to cognitive effort. Measuring Consumers' Willingness to Pay at the Point of Purchase, Journal of Marketing Research 39(2). Source
Miller et al. 2011: Comparison of open-ended question, choice-based conjoint, BDM and incentive-compatible conjoint with real purchases: BDM and incentive-compatible conjoint pass the tests; even hypothetically biased methods can lead to the right pricing decision in individual cases. How Should Consumers' Willingness to Pay Be Measured? An Empirical Comparison of State-of-the-Art Approaches, Journal of Marketing Research 48(1). Source
Frequently asked questions
Why do you pay the drawn price and not your own bid?
So that the bid does not influence the price. That way, nobody has a reason to bid strategically lower.
Is BDM suitable for new products?
Only if the product has already been manufactured and can be handed out. For offers before development, a behavioural test without a sale is more practical.
How does BDM differ from the Painted Door Test?
BDM measures binding bids in an experiment; the Painted Door Test measures purchase intent in the familiar online environment without a sale. Both reduce hypothetical bias in different ways.
Your offer does not exist yet, but the pricing question does?
Bring your pricing question, and we will outline a possible test design without a sale.
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