Priceline.Com

Priceline.Com

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Introduction
Business models are possibly the most discussed and least understood facet of the web. Brokerage models, such as Priceline.com are market makers: they bring buyers and sellers together to facilitate transactions. Priceline.com leads the way to a unique new type of e-commerce known as a "demand collection system". Priceline.com is the world's first online buying service through which consumers name the price they're willing to pay. Leveraging the unique attributes of the Internet, Priceline.com finds sellers willing to meet buyers' needs and price.

Jay Walker, the founder of Priceline.com, created a new concept and business model. This model shifts the setting of prices from sellers to buyers. The company seeks to use its patented system on products such as airline seats, hotel rooms, gasoline and groceries. Using a simple and persuasive consumer proposition called "Name Your Own Price," Priceline.com collects consumer demands for a product or service at a desired price. Priceline.com reroutes that demand within their own databases or simply directly to participating providers. Priceline.com fulfills customers' offers from inventory provided by participating sellers.

Priceline.com enables sellers to generate extra revenue without disrupting their existing distribution channels or retail pricing structures. In this sense it uses the Internet's communication and information abilities to turn customary retailing upside down; alternatively it opens up to the individual consumer a form of transaction which has previously only been open to corporate entities.

Key Issues
Priceline.com incurred tremendous success in its beginning years. However, the success story has been put on hold in 2000. Priceline.com is now faced with many critical issues. Recently, Priceline.com has suffered a serious beating from its investors and is now hanging on the edge of survival with both failures from WebHouse Club and Perfect Yardsale. Major areas of concerns, which will be analysed in further details later on, for Priceline.com include: contested patent techniques, poor customer service, need of new brand identity, dependence on travel industry, falling stock price, and fierce new competitors.

Now, dealing with monumental problems, Priceline.com is faced with a daunting future and a questionable long-term success. Will Priceline.com find itself pushed out the market by copycats, despite its patent? Fundamentally, can Priceline.com's survive?

SWOT
An evaluation of Priceline.com's strengths and weaknesses arises as an inspection of the company's internal mechanisms, which are relatively easier to control than outside factors. On the other hand, opportunities and threats were analyzed as part of an external environmental analysis; over which Priceline.com no control.

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Internal Analysis: Strengths
As one of their biggest strength, Priceline.com not only benefits from having a first mover advantage, Priceline.com diversifies itself through six different products. Current travel products include airline tickets, hotel rooms, and vehicle rental. It also sells non-travel related goods such as automobiles, personal finances and long distance telephones calls. Travel-related services account for virtually all of the company's sales. Priceline.com has formed strong connections with top American airlines, hotels, car rentals, automobile dealers and long distance providers, especially in the travel related products.

Other strengths for priceline.com are related to its marketing strategy. The website's traffic skyrocketed after the success of its advertising campaign with William Shatner. This campaign accelerated Priceline.com's growth. Priceline.com's reputation for name your own price was quickly known by many online users. As well, Priceline.com's pricing strategy is well below regular traveling prices.

Internal Analysis: Weaknesses
The things online shoppers hunger for, above everything else, including cost savings, are convenience and fast service. Customer service suffers regularly in online retailers and at Priceline.com customer satisfaction is low. It is also under examination from the Better Business Bureau. Bidding online does not exactly provide a hassle-free shopping experience for many consumers, and this is where the underlying Priceline.com model shows a serious weakness. Excellent customer service is an extremely vital factor for any online company. That being said, at this point Priceline.com is not even providing reasonable customer service.

As mentioned earlier, Priceline.com is known for it's "name your own price" strategy; however, it is now clear that this brand identity is no longer enough to sustain the business. With the arrival of five direct competitors, Priceline.com's brand identity is no longer unique. They are not the only ones to offer very low prices on airline tickets. Priceline.com can no longer simply rely on their brand identity. They need to find a new strategy for their brand in order to differentiate themselves from competitors.

Furthermore, Priceline.com's weak financial performances have left investors feeling doubtful and hesitant. Priceline.com has seen its stock price go as low as $1.063 and its 2000 financial records suffered tremendously. Priceline.com has also seen growth set backs in 2000 as opposed to 1999 and 1998.

External Analysis: Opportunities
Due to sociocultural trends, Priceline.com faces numerous growth opportunities. More and more consumers are shopping online. Technological advances have made online shopping secure, providing a greater sense of security for online transaction. With younger generations adhering to online purchases, Priceline.com's customer base has room to grow over the years. Also, with dual income families, households are more likely to have extra money to spend on traveling.

External Analysis: Threats
Economically, Priceline.com faces many threats. Priceline.com is reliant upon the travel industry for its product and does not add any value other than providing a medium for transactions to take place. Priceline.com is very susceptible to market conditions and its financial situation could be brutally damaged if consumers settled on a more preferable or convenient way to conduct their purchases. On top of that, the travel industry always takes hits when the global economy is weak.

In addition, Priceline.com's business model patent is being contested by investors. While the law allows companies to get patents on methods of doing business, investors are more and more sceptical that Priceline.com's will hold up in court. Reverse auctions existed long before the Internet, and just transmitting a selling technique to the Internet does not automatically amount to a fresh new invention. Priceline.com's auction patent is at risk. Without this patent Priceline.com does not stand strong; it's just another online retailer.

In conjunction to the weak patent, a significant threat is the introduction of new competitors. Direct competitors consist of Microsoft Expedia, Travelocity.com, SkyAuction.com, Hotwire, and Orbitz.com. They all sell more or less the same product, though all in a different matter.

Expedia, one of Priceline.com's biggest competitors, offers the same products as Pricelines.com except with added value to its customer. Customers can make specific choices and receive answers in a matter of minutes, as opposed to at Priceline.com customers can not. Travelocity.com, is also a leader in online discount tickets, they also offer a larger range of features than Priceline.com and offer superior customer service. SkyAuction.com, not as big a threat as Expedia or Travelocity, auctions the tickets to customers. Hotwire gives customers discount fairs, customers do not set prices. Hotwire is an alliance between six major airlines which poses as a serious menace to Priceline.com. Orbitz.com offers similar services than that of Hotwire; however it is under investigation for anticompetitive behaviour. These 5 competitors pose serious threats to Priceline.com's survival.
It is important to keep in mind that, it is possible to get real service from a regular travel agent who may find customers almost as good a discount as the online services. At the same time as providing clients with assurance, recommendations, and suggestions. There is no doubt that there will always be that market that will go the extra mile simply for a very cheap discount. But they're unpredictable and not very loyal customers. They are more likely to switch online ticket provider simply to find the lowest price.

Alternatives options
Priceline.com's survival is going to be difficult, because it caters to price conscious consumers. Discount and bargain hunters are willing to go online to search for the best possible rates, but that can only go so far. Discounts and excess inventory weren't invented by Priceline.com. Cutting out the middleman seem like a great idea, but Priceline.com needs to do more than what has been doing in the past years. Available options for Priceline.com could be as following:

Option 1: Concentrate only on travel related products. Automobile sales, personal finances and long distance telephone calls could be dropped. In its place, introduce additional products related to traveling such as vacation packages, bus tickets, train tickets and cruises.

Option 2: Improve overall customer service. Create a different approach to servicing customer. Offer more flexibility for customer to choose certain features as regards to their discount inquiry.

Option 3: Expand all products internationally. Priceline.com could consider offering all of its products on an International level. At this point Priceline.com is doing business globally in the airline ticket sales, but not in other products. Especially expanding the hotel and car services internationally. The thirty busiest airports measured by number of passengers are in the United States, Europe and Asia. Interesting new markets for could include Europe and Asia. Airports in England, France, Japan and China are in the top 30 busiest passenger airports.

Option 4: A combination of option 1 and option 2. Concentrate on the travel industry and offer more features and flexibility to the customer, while providing the best customer service.

Option 5: Combination of option 1, 2, and 3. Provide better customer service by offering more feature form witch customers can choose, concentrating on travel related products in an international setting.

Plan of action
At this point, the best alternative for Priceline.com is option 4. Priceline.com need to use its first mover advantage and concentrate on travel related products. This way Priceline.com could concentrate on what it does best, as opposed to spreading out to multiple industries. 92% of its revenues are from the airlines ticket sales. The brand would be attributed to only the travel industry, reinforcing its brand power. Product such as cruises, train tickets, voyager bus tickets and vacation packages could replace the non-travel related products; automobile sales, personal finances and long distance telephones calls. These products are not generating sufficient revenues. Its best if the Priceline.com brand is attributed to travel.

On its own, the patent is no longer a viable source for Priceline.com. "Name your own price", has perhaps created a negative affect for Priceline.com. There are probably customers who wish a faster response mechanism for quotes. By introducing another more straightforward medium for the non-risking customers would be beneficial for priceline.com. Customers could simply type in their desired departure location, destinations, and departure and arrival dates. In turn Priceline.com could search its database and provide customers with instant discounted rates. Also, excellent customer service is a must for Priceline.com, especially with increasing competitors that are offering essentially the same products. Internet businesses can't survive without repeat business. If Priceline.com implements excellent customer service, it will be able to retain and sell again to first-time customers. If not, its customer base will leak away and move on the competitors. Dealing with all aspect of customer service, Priceline.com needs a complete overall.

Obstacles to success of recommendation
An obvious drawback to the above proposal is the mere fact that many of Priceline.com present competitors are already doing this course of action. The answer to that, is that Priceline.com needs to use it first mover advantage and simply offer the above strategy only better that that of its competitors. Priceline.com can easily become the industry's leader. By becoming the number one source of discounted travel fairs in consumers' minds and this can be achieved through advertising and marketing.
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