Case Study: Priceline.Com 2001

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.

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