Priceline.com Name Your Own Price Case Solution

1. Page 2 of the case quotes a Fortune article describing Priceline and its idea of “buyer-driven commerce” as “more of a marketing gimmick than the centerpiece of a revolution.” What’s your point of view on this – is this just a “marketing gimmick?”

Considering the business model initially adopted by Priceline, it is no surprise that many people considered it a marketing gimmick. There are certain aspects of the model, which are not only dubious but also different from current valid practices. First of all, the tag line of Priceline ‘name your own price’ was not completely true because, ultimately, it was the airline who managed the price by allowing discounts and as evident from the case study that in the initial twelve months of operation only a quarter of the total bids were accepted, which shows that it was not purely a buyer-driven commerce. Considering this scenario and the tag line of Priceline, some people were of the opinion that Priceline is purely a marketing gimmick. The second dubious element of the business model adopted by Priceline was that it paid $1.13 to airline companies for every $1 they made, during the first year of operation. It was hard to understand why a company would adopt such a model where it would have to face a loss on the overall transaction. Third, Priceline did not disclose the actual price of the ticket to the buyer, which raised concerns regarding the actual price. In addition to this, there were instances where customers actually ended up paying more than the actual off the shelf price of the ticket. Moreover, the company had plans of entering into every possible category like groceries, hotels, long-distance calling cards, etc., which left no option but to accept the idea that Priceline is nothing but a marketing gimmick and will fall in a similar fashion as many other dot com companies.

2. How viable is Priceline’s airline ticket model? Can the airline disintermediate Priceline i.e. now that they have seen how the model works, just do it themselves?

Priceline airline ticket model is viable to a very little extent particularly because of the non-transparent pricing element. As was the case with the travel agent’s model, after the popularity of online sites, travel agents were affected considerably as many travelers preferred going directly on the company’s website for all travel arrangements. So, once prices become transparent, which would certainly sometime in the future then it would be nearly impossible for Priceline to survive with this model only. Secondly, according to the current model, the buyer has absolutely no idea about the travel time, intra-flight stay, etc. For example, a college student would not mind lying over for six hours during his flight, but a family on vacation or a business man would not accept it, certainly. So the target market that is willing to take the risk is very limited.

Though there is absolutely no doubt that airlines can emulate the exact model and ultimately disintermediate Priceline, but it would not be feasible for airlines to work on this model because of a couple of aspects. First, it would deteriorate the brand equity of the airline as it would be offering off-season discounts to customers. At present, only limited number of customers was buying tickets at a discounted rate, but once this model would be adopted by the airline company, increasing number of customers would prefer buying tickets through this method than normal one. In addition to this, in an airline industry, customers are usually ready to pay higher prices for the ticket at the eleventh hour. If airline companies adopt the Priceline’s model, then they would eliminate the window of deriving higher value from eleventh-hour customers.

3. Evaluate Priceline’s expansion strategy. Do the extensions to hotels, home financing, cars, and groceries make sense? What criteria are you using to make the judgment?

Priceline has just started the business, and it is very early to review the model of the company. Though its revenue as reached $480 million marks, but it should be considered that Priceline is yet to earn a single penny in profit. The airline ticket selling model, which accounts for nearly 95% of the revenue, has failed to be successful.