Article Reviews

?Priceline case study Essay

Posted on

Priceline case study

Full Description
priceline.com Incorporated (priceline.com) is an online travel company, which offers a range of travel services, including hotel rooms, car rentals, airline tickets, vacation packages, cruises and destination services. Internationally, the Company offer customers hotel room reservations in over 90 countries and 32 languages. In the United States, priceline.com offer the customers the ability to purchase travel services in a price-disclosed manner or the opportunity to use the Name Your Own Price service, which allows the customers to make offers for travel services at discounted prices. The subsidiaries of the Company include Lowestfare.com LLC and Travelweb LLC. In May 2010, the Company acquired TravelJigsaw LTD. Service Offerings-International

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

The Company offer retail, price-disclosed hotel service globally, primarily through the Booking.com and Agoda brands. It works with over 78,000 chain-owned and independently owned hotels in 84 countries offering hotel reservations on various Websites and in 32 languages. Hotels participate in Booking.com, which operates under an agency model, and Agoda, which operates primarily under a merchant model, by filing rates in the extranet. Service Offerings-United States

Through the Name Your Own Price hotel room reservation service, customers could make reservations at hotel properties in the cities and metropolitan areas in the United States and Europe. Hotels participate by filing private discounted rates with related rules in a global distribution system database. The specific rates generally are not available to the general public or to consolidators and other discount distributors who sell to the public; however, hotel participants may make similar rates available to consolidators or other discount providers under other arrangements. The Company also operate a price-disclosed hotel service in the United States, which enables the customers to select the hotel they want to book and the price of the reservation is disclosed prior to booking. The Name Your Own Price rental car service is available in all the United States airport
markets. Consumers can access the Website and select where and when they want to rent a car, what kind of car they want to rent and the price they want to pay per-day, excluding taxes, fees and surcharges. The Company also offer a price-disclosed rental car service on www.priceline.com, which enables the customers in the United States to choose between price-disclosed or Name Your Own Price rental cars. Customers can select the exact car they want to book and the price of the reservation is disclosed prior to purchase. As of December 31, 2009, the Company operated a total of 10 domestic airlines and 20 international airlines participating in the Name Your Own Price airline ticket service. The Name Your Own Price airline ticket service operates in a manner similar to the Name Your Own Price hotel room reservation service. The Company also offer the customers in the United States the ability to purchase retail airline tickets at disclosed prices and with disclosed itineraries. The airline sets the retail price paid by the consumer and is the merchant of record for the transaction. These airline tickets do not have the restrictions associated with the Name Your Own Price service. The vacation package service allows consumers in the United States to purchase packages consisting of airfare, hotel and rental car components. Consumers can select the exact hotel or resort that they want to reserve, and then select either a retail airline ticket or an opaque airline ticket for the air component of their package. Vacation packages are sold at disclosed prices, although consumers cannot determine the exact price of the individual components on the Website. The Company offer customers in the United States the opportunity to purchase destination services such as parking, event tickets, ground transfers, tours and other services available at their travel destinations. The service is offered to consumers as part of the process of booking an air, hotel, rental car and vacation reservation. The Company also offer price-disclosed cruise trips through World Travel Holdings, Inc. (WTH). The cruise service allows consumers in the United States to search for and compare cruise pricing and availability information from 20 cruise lines, and to purchase cruises online or through a call center by selecting from the published offerings and prices. The Company offer air, hotel and vacation package customers in the United States an optional travel insurance package, which provides coverage for, among other things, trip cancellation, trip interruption,
medical expenses, emergency evacuation, and loss of baggage, property and travel documents. It also offers the rental car customer in the United States the opportunity to purchase collision damage waiver insurance. The travel insurance is arranged for by BerkelyCare, a division of Affinity Insurance Services, Inc. and underwritten by Stonebridge Casualty Insurance Company, an AEGON Company. The Company competes with Expedia, Orbitz Worldwide, Sabre, Venre, Tui Travel, Gullivers, octopustravel, Superbreak, hotel.de, Hotel Reservation Service, Ctrip, Rakuten, Wotif, Google, Yahoo!, Bing, AOL, Mobissimo.com, FareChase.com, Kayak.com, SideStep.com, TripAdvisor, Travelzoo, Cheapflights.com, Galileo, Travelport and Amadeus.

Case Study: Priceline
By James Maguire

November 27, 2002
Although many e-commerce businesses were hurt by the events of 9/11, discount airfare site Priceline took a double blow. In the first few months after the terrorist attacks, air travel was viewed as favorably as a trip to the dentist. But even as air travel has rebounded, says Priceline spokesperson Brian Ek, the company’s business “continues to be affected by the prolonged practice of airlines to discount their own retail tickets.” “Consequently, the difference between an online retail ticket and a Priceline ticket is not as great as it once was,” he says. This makes it tough for Priceline’s “name your own price” model, a groundbreaking development in e-commerce. Shoppers enter their desired travel dates, destination, and the price they’re willing to pay. Their bid is accepted only after they’ve committed to it with a credit card. Purchases cannot be cancelled. With a ticket bought through Priceline, you might have to fly at 6:15 a.m. and enjoy a 3-hour layover in Dubuque, and you won’t get to choose your carrier. However – and here’s the Priceline advantage – fares are usually far below retail. If you’ve got some flexibility, offers Priceline, we can save you a bundle. The business model benefits not just consumers, says Ek. It’s also “a very potent way for airlines to fill seats without harming their retail fare structure.” But now that airlines are discounting, “It has an effect on the trade-offs that certain people are willing to make for a Priceline ticket,”
he says. Furthermore, he adds, “As soon as there’s a trend of airline prices to go up, [an airline] jumps in and undercuts.” Not that travelers have stopped loving cheap seats. In the third quarter of 2002, Priceline received 1.2 million bids, and sold 645,000 tickets. However, in the third quarter of 2001, the site received 1.5 million bids, and sold 1.2 million tickets. (In the fourth quarter of 2001, after 9/11, ticket sales fell to 840,000). The Online Travel Market

Priceline has positioned itself as the cheapest outlet among the four online airfare channels. The most expensive outlet (until recently, that is) has been the airlines themselves, whose sites offer a mix of retail and discounted fares. Less expensive are sites like Expedia and Travelocity, essentially online travel agents, which help shoppers by displaying prices across many airlines. They also offer some discounted fares. Below them in price is what’s referred to as “gray marketers,” sites that buy in bulk to offer discounts. Like the Expedia-style sites, these sites publish fares. At the cheapest level, the “opaque providers,” are Priceline and its chief competitor, Hotwire. These sites won’t publish full flight information until after a consumer has committed a credit card. Hotwire publishes prices but won’t reveal what flight you’re on; Priceline doesn’t publish prices. Forrester analyst Henry Harteveldt notes that Priceline is far ahead of Hotwire in the battle for online airfare dollars – at this point. Priceline is #8 among top travel sites; Hotwire is #24, according to recent Forrester research that measures both site traffic and total dollars spent. But Hotwire is still new, Harteveldt points out, having launched in late 2000, and has not been aggressively marketed. And he says that Hotwire may enjoy a competitive advantage because it’s partially owned by the airlines themselves. Because Hotwire publishes its fares, “It takes the guess work out of the process,” Harteveldt says, but adds that there may be better rates available on Priceline. The competition between these two sites is “fiercely contested” says Harteveldt, who expects the competition to extend over the next couple years. “It’s going to be fun to watch it play out.” Changing Rankings

“Priceline has a very strong reach,” says Harteveldt, citing recent research
that says 26 percent of all online travel shoppers visited the site to explore travel options. But this same research demonstrates Priceline’s struggle in the face of airline discounting. Priceline’s current rank of #8 represents a steep fall from last year’s #2 rank. In contrast, many of the airline sites – fueled by discounted fares – saw increases. American, Southwest and Delta are each ranked higher. United Airlines cracked the Top 10 for the first time. “The prices out there are almost absurdly low in the retail market,” Harteveldt says. Consequently, “the benefit of a Priceline or a Hotwire is diminished.” A Shifting Model

Priceline creates revenue using the spread between the price at which airlines sell discounted tickets and consumers buy them. Unseen by shoppers at the site, Priceline monitors changing airline pricing and availability on a minute-by-minute basis. “We have tickets at multiple price points, depending on the restrictions on the ticket,” Ek says. “When you put in an offer, we try to match you up with the ticket that’s closest to what you put in.” The advantage of Priceline’s e-commerce model is that the site owns no inventory, it merely facilitates transactions. The site purchases each ticket only after a consumer has paid for it with a credit card. Priceline is expanding its model using LowestFare.com, a retail site it acquired this spring. With LowestFare, Priceline competes with Expedia and other sites that sell retail tickets, though at this point shoppers can only view these fares at the LowestFare site. But in what Ek refers to as “selective integration,” Priceline plans on displaying LowestFare offers at the Priceline site by early next year. If a Priceline shopper makes a bid that’s not successful, Priceline will offer them fares from LowestFare. The plan is to keep customers from going away empty-handed, Ek says. “If we can offer you the same price as the other guy, why not buy the retail ticket from us?” Harteveldt’s says the acquisition of LowestFare is a strong move, which could allow Priceline to address all a travelers needs, increasing the company’s income by expanding its market niche beyond deep discount. He also sees great value in Priceline’s recent alliance with eBay, in which Priceline uses the popular auction site as an additional “name your own price” sales outlet. Hotels and Cars

While Priceline was originally founded as an airfare discounter, at this point it sells more hotel rooms. The site sold more than a million rooms per quarter for the last two quarters, Ek says. “The trade-offs for hotel rooms are so much less than with airline tickets,” Ek says, explaining that shoppers – still naming their own price – can chose dates, location, and number of stars; everything but brand of hotel. He claims hotels rooms can be discounted 50 percent or more. The site offers the same amount of choice in rental cars; travelers chose everything but brand of vehicle. Ek claims car rental discounts range around 20 percent. Flying in the Future

Harteveldt suspects that market conditions will improve markedly for Priceline. “We’ll continue to see fewer planes flying, and the average number of seats per departure will be smaller next year, so there will be fewer cheap seats out there,” he says. Consequently, Harteveldt says, “Airline pricing will creep back up, at which point Priceline’s value to the consumer becomes higher.”

Officers and directors
Ralph M. Bahna

Chairman of the Board

Age: 67
Bio & Compensation – Reuters
Jeffery H. Boyd

President, Chief Executive Officer, Director

Age: 53
Bio & Compensation – Reuters
Robert J. Mylod Jr.

Vice Chairman of the Board, Head – Worldwide Strategy and Planning

Age: 43
Bio & Compensation – Reuters
Daniel J. Finnegan

Chief Financial Officer, Senior Vice President, Chief Accounting Officer

Age: 48
Bio & Compensation – Reuters
Christopher L. Soder

President, North American Travel

Age: 50
Bio & Compensation – Reuters
Kees Koolen

Chief Executive Officer of Booking.com B.V.

Age: 44
Bio & Compensation – Reuters
Peter J. Millones

Executive Vice President, General Counsel, Corporate Secretary

Age: 40
Bio & Compensation – Reuters
Michael Diliberto

Chief Information Officer, North America

Age: 44
Bio & Compensation – Reuters
Nancy B. Peretsman

Director

Age: 56
Bio & Compensation – Reuters
Howard W. Barker Jr., CPA

Director