Priceline business model evaluation

PRICELINE.COM

And the Search for a Business Model that works

GRACE | NURLEEN | ALIREZA | JUNAIDI |

AGENDAOVERVIEW

WHAT IS PRICELINE.COM BUSINESS MODEL

WHY PRICELINE.COM’S GROCERIED AND GASOLINE VENTURE FAILED?

WILL PRICELINE.COM ULTIMATELY SUCCEES OR FAIL? WHY?

START BUSINESSby JAY WALKER @ 1998

2 YEARS LATER…..EXPANSION PHASE

Groceries

Gasoline

Used Goods

2002

2 YEARS LATER…..EXPANSION PHASE

Groceries

Gasoline

Used Goods

3 YEARS LATER…..REORGANIZATION PHASE

2003

20042005

2007

EC BUSINESS MODEL

COMPONENT

VALUE PROPOSITION

REVENUE MODEL

MARKET OPPORTUNITY

COMPETITIVE ENVIRONMENT

COMPETITIVE ADVANTAGE

STRATEGIES

#1 WHAT IS PRICELINE.COM BUSINESS MODEL?

VALUE PROPOSITION

VENDOR CONSUMER

VARIETY

TIME SAVING

COST SAVING

SAVE THE BRAND

PRICE DISCRIMINATION

REVENUE MODEL

SALES FEE

LICENSING PATENT

ADVERTISING SALES

BOOKING & HANDLING

OFFER - VENDOR

PRICE

#2 DO U THINK PRICELINE WILL

ULTIMATELY SUCCEED OR FAIL? WHY?

LOWEST PRICE FIRST MOVER ADVANTAGES

RELIABLE

WELL-KNOWN “NAME YOUR OWN PRICE”

BRAND

LARGE RANGE OF SERVICES

PROVIDED

RESPONSIVE TO CHANGES

WEAKNESESS

The site is less popular outside US and Europe

The main advantage of lowest cost is defenseless

Priceline's tickets are nonrefundable

CURRENT: US , EUROPE, ASIAFUTURE:MIDLLE EAST,SOUTH AFRICA,BRAZIL

U.S TRAVEL SPENDING2008 -$712 BILLION

2009-$7722010-$754

2012-$866.5SOURCE : TRAVEL INDUSTRY ASSOCIATION

WORK-LIFE BALANCE, FAMILY MINDED SOCIETY

BUDGET TRAVELERVS

VENDOR WHO WANT TO GET RID EXCESS/AGING INVENTORY

INCREASE IN BOTH YOUTH AND SENIOR CITIZEN

TRAVELER

INTERNET TRAVEL TREND

TRAVEL INDUSTRY

STRONG COMPETITION BY

MAJOR AIRLINES IN EACH COUNTRY E.G. AMERICAN

AIRLINES, EMIRATES, JAPAN

AIRLINES, SINGAPORE

AIRLINES

INFO WAR E.G. ATTRACTIVE

PACKAGE, VALUE TO THE MONEY

DIRECT COMPETITOR

TRAVEL AGENCY E.G.

EXPEDIA, ORBITZ

VENDOR ITSELF!

E.G. ALL-IN AIRLINES WEBSITES

INDIRECT COMPETITOR

ONLINE MARKET MAKER

E-BAY, AMAZON

OTHERS

GLOBAL ECONOMY CONDITION

INFECTED DESEASE E.G. H1N1

RISE IN MINIMUM WAGE

THREATS

CUSTOMER BRAND LOYALTY

SUCCEED OR FAIL?

Forecast

: FAIL

Travelers simply didn't like the “uncertainty”

“Unbelievable customer service problems.“ 300 complaints - The

Connecticut Better Business Bureau (BBB)

WORST: PriceBreakers--special

incentives for some travel deals--are

unimpressive

Trend : Customer LOYALTY , TRUST

and repeat purchase

Relevancy : Direct competition from

Airlines websites and package

SUCCEED OR FAIL?

”I always fly on one airline specifically because of their brand. Anywhere they fly, I choose them. And, I wish they flew to all of

my destinations -- I trust them and feel safe and to me that's more important than price and times”. Nicole Andre, Teacher

“I develop brand loyalty [to an airline] because they have satisfied me. The question does not arise whether they get me to my

destination on time. If I do not have brand loyalty then naturally I am price conscious person”. Gopinath, Proprietor, Geaar Electrics

“As a brand professional, I may be biased. But I've been flying on Singapore Airlines for the past 8 years. The only time I don't is when I do not have a choice”. Jui Hong Teoh, Brand Director,

Phische/Company, Kuala Lumpur, Malaysia

SUCCEED OR FAIL?

SOURCE : The 2011 Barcelona European Academic ConferenceThe Impact of Price Perception on Customer Loyalty in the Airline Context

SUCCEED OR FAIL?

SOURCE : African Journal of Business Management Vol.5 (11),Effects of promotion on relationship quality and customer loyalty in the airline industry

SUCCEED OR FAIL?

SOURCE : African Journal of Business Management Vol.5 (11),Effects of promotion on relationship quality and customer loyalty in the airline industry

SUCCEED OR FAIL?

SOURCE : African Journal of Business Management Vol.5 (11),Effects of promotion on relationship quality and customer loyalty in the airline industry

Respondents’ perceptions

SUCCEED OR FAIL?

SOURCE : African Journal of Business Management Vol.5 (11),Effects of promotion on relationship quality and customer loyalty in the airline industry

Transaction-orientated vs. Relationship-orientated

SUCCEED OR FAIL?

SOURCE : (May 2011) American Express Global Customer Service barometer

Stat: In a positive economy, 70% of Americans are willing to spend an average of 13% more with companies they believe provide excellent customer service – up from 9% last year

Stat: 60% believe businesses have not increased their focus on providing good customer service. That number is up from 55% last year. Among this group 26% actually think companies are paying less attention to service.

Stat: 78% of consumers have bailed on a transaction or not made an intended purchase because of poor customer service.

Stat: 78% of consumers have bailed on a transaction or not made an intended purchase because of poor customer service.

#3 WHY PRICELINE’S GROCERIES AND GASOLINE

VENTURE FAILED?Use this: http://www.strategy-business.com/article/23003?

gko=1ccc3

Why Priceline’s Web House Failed?

Major issues:

Nature of product

There's an incentive for an airline or hotel to sell off unfilled seats or rooms at the last minute, because they're "perishable."

if a seat on a particular flight isn't filled, or a hotel room on a particular night isn't used, the opportunity to sell them at any price is lost forever.

You can't put them in inventory until you find a customer

Why Priceline’s Web House Failed?

Major issues:

Price flexibility

filling a seat or a bed uses capacity that is already paid for. Therefore, the cost of adding a customer is negligible.

In contrast, with groceries, there are costs for each unit related to manufacturing, processing, shipping, and maintaining inventory that must be covered.

Why Priceline’s Web House Failed?

Major issues:

flexibility to charge different customers different prices

Airlines can offer a lower fare to one customer who is willing to make last-minute travel plans, without cutting prices to others

But There is little flexibility manufactured items (You can sell day-old bread at a discount, but there's no such thing as day-old gasoline or week-old laundry detergent)

Why Priceline’s Web House Failed?

Major issues: difference between commodity products and branded goods

Priceline wants customers whose primary concern is price. For them the product is a commodity

But WebHouse depended on the participation of brand-name packaged-goods manufacturers, which viewed this sort of permanent discounting as a dangerous liability for their brands

So the target packaged-goods marketers for WebHouse weren't as flexible on pricing as Priceline's suppliers

Evaluate Action & Approach

The Web can't compress physical labor and other fixed costs; all it can do is make marketing and other information-intensive processes more efficient..

There must be benefits for both buyers and sellers to change the way they do business. Self-interest has to be part of the system

Middlemen will stay in business as long as they can provide benefits to both sides. At a minimum they must match the right buyer with the right seller (like eBay Inc.)

• Expand into new area through acquisition, good choice would be Airbnb.com, Vayable, Getaround

• Expand new market – middle east, china, india, latin america – through partnership by Maintain mix strategy – normal & reverse

Alternative action & approaches

Airbnb – accommodations marketplace

Vayable – marketplace for unique experiences

Getaround – P2P car rental

NOTES AND SOURCES

1. Michael Rappa(2008) Case Study Priceline.com,[Online], Available: http://digitalenterprise.org/cases/priceline.html [11 [11 March 2012]

2. Seeking Alpha (2011) Priceline Investment Review, [Online], Available: http://seekingalpha.com/article/265840-priceline-investment-review [11 March 2012]

3. Raman Muralidharan ,Rhonda Germany (2000) WebHouse Rocked: Why Priceline's Groceries and Gasoline Venture Failed [Online], Available: http://www.strategy-business.com/article/23003?gko=1ccc3 [11 March 2012]

Main issues4. The Impact of Price Perception on Customer Loyalty in the

Airline Context : http://conferences.cluteonline.com/index.php/IAC/2011SP/paper/viewFile/585/592 [22 March 2012]

5. Customer Service Stats Prove Why Everyone Must Deliver Excellent Customer Service : http://www.hyken.com/customer-service-3/customer-service-stats-prove-why-everyone-must-deliver-excellent-customer-service/ [22 March 2012]

6. Austin Carr (2012), For Turning Spare Rooms into the world hottest hotel chain : http://www.fastcompany.com/most-innovative-companies/2012/airbnb [21 March 2012]