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Priceline Case Study
Where can a traveler satisfy every need at their price, be it airline tickets, hotel rooms, rental cars, mortgages, new automobiles? The answer is Priceline.com. All you have to do is know your need, state your terms, and make your offer. It doesn't get easier than this. Priceline.com was one of the pioneer online companies to traverse the traditional limitations of the Internet and revolutionize online purchasing. It's strategy - letting the consumer name his/her price, and matching it with a seller who is willing to fill the demand at that price and those conditions, there by providing the required service the consumer desires. Thus Priceline.com is basically an integrated, Web-based e-marketing automated system, which was one of its kinds when it started its business in the consumer marketplace.
Priceline is the ideal middleman, who gets you what you want, when you want it through a unique dotcom experience. Priceline.com was formed on April 6, 1998 as a limited liability company, but looking at its potential and rapid success it was soon converted into a corporation. It activities at this time dealt mainly with providing leisure airline tickets with the unique difference of letting the customer name his/her own price. By December 31, 1999 its services included hotel rooms, mortgages and new automobiles.
After three years of existence Priceline.com boasted a huge market share, loyal fan following and 373 employees. Priceline.com can be best described as the 'ultimate Internet middleman'. However, over the past 2 years, with the implosion of the dotcom marketplace, and the entry of world class competition into the discount travel market, Priceline now faces a series of marketing hurdles.
As the first to move into the Internet travel planning business, Priceline secured a large sector of the market. Introduced to the world in 1998, Priceline went public with an IPO price of $69 in March 1999. By April 3, the company soared to $169 per share. On Wednesday, April 28, Priceline.com's travel services unit recorded its first million-dollar sales day for leisure airline tickets. On the same day, Priceline.com sold a record 5,000-plus tickets in a single 24-hour period, or approximately one ticket sold every 17 seconds. But 18 short months later, at the end of Sept, 2000 the company stock had fallen to $11.88. During October of the same year, Priceline's first major third party travel reseller, Hotwire.com came to market. During the same year, airline companies began to offer their own direct-to-consumer sales web site. By December, 2000, the stock was trading at less than $2, more than $20 billion in market value has been wiped out and one of the hottest stocks of 1999 was a laughingstock.
Statement of the Problem
Priceline.com had pioneered a unique e-commerce pricing system known as a "demand collection system" that enabled consumers to save money on a wide range of products and services while enabling sellers to generate incremental revenue. Priceline.com used its 'virtual' business model, which works as a three-step process while allowing them rapid scaling using the Internet:
Priceline.com collected consumer demand, of the individual customer backed with the guarantee of the respective customer's credit card, for a particular product or service at a price which is set by the customer.
Priceline.com either communicated that demand directly to participating sellers or accessed participating sellers' private databases to determine whether Priceline.com could fulfill the customer's offer.
Priceline.com replied to the consumers regarding their offers, which they held to for a specific period of time. Once fulfilled, the offer could not be canceled. If Priceline.com didn't meet the customer price for a particular demand, the credit card was not charged and the customer was once again asked to change the price if he/she wants and the procedure is repeated.
Priceline.com benefitted consumers by enabling them to save money, while at the same time benefitting sellers by providing them with a competent revenue management tool capable of identifying and capturing incremental revenues. By requiring consumers to be flexible with respect to brands, sellers and product features, Priceline.com enabled sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures.
After creating so much success in the travel industry, Priceline attempted to cross into the consumer commodity market. But as many companies discover through trial and error, it is possible to take a good thing too far. Some customers think Priceline was spreading itself too thin, including Shannon Donovan, 31, a computer analyst for Porsche in Atlanta. He uses Priceline regularly to book hotels and flights. "I'm definitely not going to use Priceline for groceries. It's too much trouble," he says. "When I buy groceries, it's on a whim. I'm not going to spend the time to get online and bid." Priceline also attempted to create a discounted gasoline purchase system. Many problems evolved as the company spread it's resources too thinly, and entered a non-Internet marketplace. The services were not simple, nor were they profitable. Priceline groceries and gas were soon discontinued.
Solving the Problem
Competition is not the problem in the public marketplace. Competition is the engine by which businesses stay competitive, and maintain consumer trust. So the entry into the market place of the other discounted travel services cannot be considered the problem for Priceline. The problem is developing a realistic valuation, and expectation of the company in a competitive environment. Priceline must continue to offer a service which is both "different, and better" than their competition.
It is at this point that the online marketing world meets the traditional marketing approaches in order to build, and maintain a profitable business. The first method for maintaining market dominance is an aggressive advertising campaign. When Priceline was the only store on the block, minimal advertising expense brought maximum results. However, when a consumer turns to the Internet to plan travel, or a vacation, (s)he now has options from over a dozen online portals from which to purchase travel arrangements. Southwest airlines, Delta, Northwest Airlines have their own online stores, and run seasonal special prices on airlines. Hotwire, Expedia, and Travelocity are also directly competing with Priceline for the discounted travel market. So Priceline must continue to develop an aggressive multimedia advertising and marketing campaign if they can expect to remain at the forefront of shoppers minds. They need to pursue online, print, and traditional broadcast marketing campaigns in order to remain a primary source for travel needs.
Secondly, the company needs to evaluate what type of "special purchase" promotions they can create. Although most consumers do not appreciate the junk mail advertisements received in their mailboxes and email in boxes every day, this approach to driving business into a company has shaped the expectations of the consumer. Customers "expect" to be able to purchase "special deals" at various times. This is the unspoken dynamic which propelled Priceline to the front of the marketplace. Shoppers could purchase "special deals" at any time. Now that there are dozens of "special deal merchants" in the marketplace, Priceline must develop their own in-house "special deal" programs. In a crowded marketplace, customers will continue to purchase from Priceline when they perceive that the product value, or service is still at of above the competition.
This identifies the third avenue to gain, and retain market share, service. Monster.com has recently launched a service for blue collar job seekers and employers. Now accessible from the telephone, Monster.com is reaching into the non-wired job market. Priceline could, and should consider how it's service could be automated via telephone, so non-Internet users could access the company. In a wired business environment, the non-Internet user is sometimes forgotten. But there are many consumers who have not made the jump to hyperspace, and are hesitant to engage the world of Internet commerce.
Finally, while Priceline diversified into non-profitable products in 2000,…[continue]
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This focus on the positive benefits of consumer word of mouth behaviour is a natural tendency. I certainly like to think that positive comments have a greater impact on my decisions than negative comments. In fact, the respondents to the survey reported that the two factors that had the biggest impact on their airline choices were comparison-shopping on the Internet (38%) and personal recommendations from an acquaintance on Facebook
As these preferences are determined, the algorithm then determines the best invitations to treat to present to the consumers. Today, these processes are powerful and can drive business at these websites, but they do not yet constitute bona fide interaction between the travel provider, the agent (website) and the consumer. Rather, the algorithms merely produce smarter sales pitches. At such a point when algorithms can literally cater to consumers'
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