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Priceline. com (PCLN)

Priceline. com (PCLN) may have been able to bring a dynamic reverse auction model to the market, but a cloud of doubt now hangs over the company’s headquarters in Norwalk, Connecticut. Consumer adoption has been hurt by poor Web site functionality and a rigid bidding system that locks customers into buying products such as plane tickets without any control over specific flight details. On a bullish note, the company was recently reinstated into Connecticut’s Better Business Bureau after making improvements to its Web site and customer service.

But the bigger problem facing Priceline is a lack of support from investors, who have driven the company’s stock down 98% from its 52-week high. Executive departures and layoffs aside, the company’s delayed march toward profitability and inability to scale successfully might very well exemplify a doomed model, or a solution in search of a problem. Perhaps an emphasis on price has blinded Priceline to intangibles like quality service and a satisfying experience. It’s unclear whether consumers are willing to sacrifice brand and product features to save a few bucks.

The announcement in early October that the company’s WebHouse Club subsidiary for groceries and gas would close, was a shot heard ’round the Web and Wall Street and signaled the model might be broken. Introduction Which is the one place where you can satisfy your every need (almost every need) at your price? Be it airline tickets, hotel rooms, rental cars, mortgages, new automobiles, or even long distance calling time. The answer would be Priceline. com. All you have to do is know your need, state your terms, and make your offer. It doesnt 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. Its 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.

In simple word it 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.

The Company’s licensee, Priceline WebHouse Club, Inc. oon launched a Name Your Own Price service for groceries in the fourth quarter of 1999. Another licensee, Priceline Perfect Yard Sale, Inc. , launched on a test basis in the first quarter of 2000, a consumer-to-consumer based Name Your Own Price, which involved the sale of quality, used goods over the Internet. Today after nearly three years of existence Priceline. com boasts a huge market share, loyal fan following and 373 employees. Priceline. com can be best described as the ultimate Internet middleman. How Priceline. com Works?

Ron Rose, Chief Information Officer at Priceline. com, says, “Our goal is to lead the industry as a world-class customer-centric company, with an infrastructure that delivers the best, personalized customer service experience is absolutely fundamental to our company’s long-term success on the Internet. ” Priceline. com has pioneered a unique e-commerce pricing system known as a “demand collection system” that enables consumers to save money on a wide range of products and services while enabling sellers to generate incremental revenue.

Priceline. m uses its virtual business model, which works as a three-step process while allowing them rapid scaling using the Internet: The first step consist of Priceline. com collecting consumer demand, of the individual customer backed with the guarantee of the respective customers credit card, for a particular product or service at a price which is set by the customer. In the second step then, Priceline. com either communicates that demand directly to participating sellers or accesses participating sellers’ private databases to determine whether priceline. com can fulfill the customer’s offer.

In the final step, Priceline. com gets back to the consumers regarding their offers, which they can hold to for a specific period of time and, once fulfilled, offers cannot be canceled. If Priceline. com doesnt meet the customer price for a particular demand, the credit card is not charged and the customer is once again asked to change the price if he/she wants and the procedure is repeated. Priceline. com benefits consumers by enabling them to save money, while at the same time benefiting 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 enables sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures. Target market An important goal for effective marketing strategy is the reduce costs of marketing through targeting of marketing efforts. But the todays digital world has shaken marketing to its core. Todays consumers are more of the cyber consumer.

Digital technology and Internet are changing consumers and are changing the way they relate to products and markets. Priceline. com has targeted its customers in a different way. Underlying Priceline. com’s marketing strategy is the Company’s belief that its target market is all consumers, not just Internet savvy consumers. It hasnt limited its customers to net users only, but has also reached the segment of the market, which doesnt generally use the Internet for shopping, through viral marketing and giving them choices and prices they cannot resist.

It has shown them that they have the power of pricing, shifting it from companies to the consumers. Priceline. com works on the trends of not only attracting their target markets through prompt website, but also with the advertisements, which have been hit, and toll-free numbers. Priceline. com not only uses Internet to target the consumers but also with lots of other advertisement and promotions. The advertisement with William Shatner, with the oldies of 60s and 70s has become such a hit with the people that they even ask for the record of the tape.

Priceline. m has targeted the whole consumers along with the Internet savvy people in a total different way. One way, which has benefited Priceline. com, is the viral marketing or the word of mouth strategy also known as the referral. Priceline. com with the word-of-mouth referrals has been able to draw large amount of customers to the site. Today Priceline. coms site is one of the Internets most heavily used sites, with more than 1. 5 million hits in a week. Consumers are required to accept certain trade-offs with respect to brands or product features in return for saving money.

For example, consumers are required to accept a reservation in any hotel within a specified geographic-area within a designated “class” of service (1, 2, 3, 4 or 5-star) and must accept limitations on changes and cancellations. As with the airline ticket service, the target market for Priceline. com’s hotel room reservation service is the leisure travel market, as the customers have no idea of the carrier and the time they are flying until the ticket is booked. If the ticket is booked, it cannot be cancelled or be changed. This is one of the reasons why business personnel cannot use Priceline. com as they have a fixed schedule.

The Priceline. com Strategy and the 4 Ps Priceline. coms goal is to continue to expand the Priceline. com business and to operate Priceline. com’s demand collection system as a leading source for the purchase of products and services on the Internet. The key features of Priceline. com’s strategy are as follows: Leverage the Priceline. com brand over diverse products and services: Priceline. com intends to continue to leverage of Priceline. com brands across its numerous products and services to achieve significant revenue scale and growth.

In contrast to most e-commerce businesses that operate in one or two “vertical” markets, Priceline. m is a “horizontal” commerce system that can benefit both buyers and sellers across a broad range of products and services. Priceline. com’s strategy is to make available multiple products and service offerings at its web site under a common brand to take advantage of these market opportunities. Priceline. com intends to expand directly in certain vertical markets and license its business model and name to independent licensees in other markets. Priceline. com and its licensees have launched or expanded offerings in several new categories over the past twelve months and these efforts will continue.

Strengthen the Priceline. com brand: The Company plans to expand consumer recognition of Priceline. com as the leading consumer brand for buyer-driven commerce over the Internet. To achieve this goal, Priceline. com intends to continue to pursue an aggressive brand development strategy through mass market and targeted advertising and promotions, press coverage and strong word-of- mouth support. While priceline. com is already one of the most recognized e-commerce brands among adult Americans, priceline. com believes that it can expand the public’s association with the Priceline. m Name Your Own Price proposition to a broad range of products and services.

Priceline. com plans to expand, but it seems quite impossible according to the current stock market prices. Priceline. com for the time being should concentrate on their travel section and expand as soon as their company is again well established. Product Strategy The product offering is considered to be the heart of a marketing mix. It is impossible to decide on a promotion campaign or set a price without knowing the products to be marketed. Priceline. com has numerous products and services to offer. Priceline. m commenced its service with the sale of leisure airline tickets.

The number of airlines participating in Priceline. com’s airline ticket service has increased to a total of 10 domestic airlines and 20 international airlines. Few of the major domestic airlines Priceline. com uses are United Airlines, American Airlines and Northwest, whereas major international airlines include Virgin Airways, British Airways and Lufthansa. Priceline. com uses Delta Airlines as both its domestic and international carrier. Consumers can make offers to purchase airline tickets through the Priceline. com Web site or the 1-800-PRICELINE-call center.

The customer than has to follow the process mentioned earlier. In October 1998, Priceline. com launched its Name Your Own Price travel service for hotel room reservations. Priceline. com’s hotel room reservation service currently is available in substantially all major cities and metropolitan areas in the United States. Hotels participate by filing private discounted rates with related inventory control rules in Priceline. com’s private database in a central reservation system for hotel rooms. These rates normally are not available to the general public or to consolidators and other discount distributors who sell to the public.

Priceline. com’s hotel room reservation service operates in a manner similar to its airline ticket service. Priceline. com offers two different rental car services. In December 1999, priceline. com launched its Insiders Rates) service and, in February 2000, Priceline. com launched its Name Your Own Price service. Priceline. com’s rental car services are currently available in substantially all major United States markets. Under Priceline. com’s Insiders Rates service, participating car rental companies offer Priceline. com customers who have already purchased an airline ticket from Priceline. m rates on car rentals in connection with a customer’s planned travel arrangements.

An offer is provided to a customer by e-mail and on Priceline. com’s web site when a customer checks the status of his or her request. Priceline. com’s Name Your Own Price rental car service operates in a manner similar to its airline ticket and hotel reservation services. Consumers can access the priceline. com Web site and select where and when they want to rent a car, what kind of car they want to rent (i. e. economy, compact, mid-size, SUV) and the price they want to pay per-day, excluding taxes, fees and surcharges.

In January 1999, Priceline. com introduced its home financing service. Under the terms of separate agreements with Alliance Partners, L. P. and Lending Tree, Priceline. com’s financing service allows consumers to set their interest rate and points for mortgages of a specified term, including, purchase money mortgages, refinancing and home equity loans. Priceline. com introduced its new car sales service on a test basis in the New York metropolitan area in July 1998. Since that time, Price lines new automobile service has been expanded to include 26 states. Priceline. m’s new car sales service accepts offers for every major brand of automobile.

Due to the numerous features and options on a new automobile, the range of product substitutability that consumers will accept is lower in the case of new cars than with airline tickets or hotels. Priceline. com does not negotiate on behalf of customers or dealers and does not represent to its customers or dealers that it is acting as an agent or broker on behalf of either party. Once a dealer accepts an offer for a new car, the consumer completes the transaction directly with the dealer.

The Priceline. m new car sales service is differentiated from other Internet car sales services, which serve as lead generators for participating car dealers. Under such services, multiple dealers may contact the customer in response to the customer’s inquiry to the Internet service. By contrast, Priceline. com’s new car sales service does not reveal the identity of the customer to the auto dealer until the dealer has accepted the customer’s offer. Furthermore, in contrast to other Internet car sales services, dealers are not currently required to pay a participation fee to review offers from the Priceline. m service.

Priceline. com has recently launched a Name Your Own Price service for international and domestic long distance calls. The company allows consumers to name their own price for phone-to-phone international and domestic long distance calls. Promotion Priceline. com has developed adaptive marketing programs to help bridge the between consumer offers and seller prices, provide users of the priceline. com service with other desired products, and generate additional revenue for the Company. These programs also serve as an integral part of Priceline. com’s strategy of building customer loyalty.

Priceline. com’s adaptive marketing programs presently include two distinct initiatives. The first, which it refers to as “adaptive promotions,” allows consumers to increase the amount of their offers, and thus their likelihood of success, at no additional cost by participating in sponsor promotions during the process of making a priceline. com offer. For example, a customer making an offer to buy a round-trip airline ticket can immediately have the amount of his or her offer increased and thereby increases his or her likelihood of success by applying online for a credit card.

The second type of adaptive marketing program is referred to as “adaptive cross selling” and utilizes cross selling of multiple products to increase the number of successful transactions. For example, a customer whose offer for an airline ticket was marginally below acceptable levels could be offered a second related product such as a hotel room reservation or a rental car day at a combined price that provided an acceptable margin for Priceline. com. During 1999, Priceline. com added adaptive marketing partners and, as a result, reduced its dependence on any one partner.

Priceline. m intends to continue to add adaptive marketing programs so that consumers have a variety of programs from which to choose and priceline. com has a diversified source of adaptive marketing revenues. Pricing Strategy The Internet and the World Wide Web has fundamental impacts on the pricing strategy of firms. Similarly, the technology has open many doors to buyers hitherto closed by the effects of time, cost and effort. Technology may combine with market forces to reduce the vast majority of a firm’s transactions to the level of commodity trades, leaving managers with little opportunity to make prices.

The information age – and the advent of computer-controlled machine tools – lets consumers have it both ways: customized and cheap, automated and personal. Particularly in consumer markets, suppliers tend to make prices while customers “take” them. There are a number of instances on the World Wide Web where the opposite situation is now occurring. One of them is Priceline. com. It is a kind of Internet pricing system that enables consumers to achieve significant savings by naming their own price for goods and services. Their primary products are new cars, travel, and personal finance products.

Priceline. com takes an offer of purchase to the seller and they have the option of accepting or rejecting any offers. Not unlike EBay, Priceline. com has no warehouse or inventories. At a higher level of customer price making, Priceline. com invite customers to name their price on products and services ranging from air tickets to hotel rooms, and new cars to home mortgages. In the case of air tickets for example, customers name the price they are willing to pay for a ticket to a destination, and provide credit card details to establish good faith.

Priceline. m then contacts airlines electronically to see if the fare can be obtained at the named price or lower, and undertakes to return to the customer within an hour. Priceline. com’s margin is the differential between the customer’s offer price and the fare charged by the airline. Place strategy The market space replaces market place, and in the land of ‘clicks vs. bricks’, you buy online in a virtual store and have the option of taking it back to a physical store “Place” will be online and not of much interest or it will consider virtual places as “real”.

Every company now competes in two worlds: a physical world marketplace and a digital world “market space”. Within a decade, most products and services will be sold in the market space. Priceline. coms market place is this market space and the web. Priceline. com continues to frequently update and enhance the features of the Priceline. com service. Priceline. com constantly monitors feedback from consumers and regularly adds new features to further simplify the buying process. Priceline. com also receives offers by telephone and provides customer service by telephone and e-mail to assist customers in the offer process.

 

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