Priceline business model evaluation
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  • 1. PRICELINE.COM And the Search for a Business Model that works GRACE | NURLEEN | ALIREZA | JUNAIDI |
  • 2. AGENDA OVERVIEW WHAT IS PRICELINE.COM BUSINESS MODEL WHY PRICELINE.COM’S GROCERIED AND GASOLINE VENTURE FAILED? WILL PRICELINE.COM ULTIMATELY SUCCEES OR FAIL? WHY?
  • 3. by JAY WALKER @ 1998
  • 4. 2YEARS LATER….. Groceries Gasoline Used Goods
  • 5. 2 YEARS LATER…..
  • 6. 3YEARS LATER…..
  • 7. EC BUSINESS MODEL COMPONENT VALUE PROPOSITION REVENUE MODEL MARKET OPPORTUNITY COMPETITIVE ENVIRONMENT COMPETITIVE ADVANTAGE STRATEGIES #1 WHAT IS PRICELINE.COM BUSINESS MODEL?
  • 8. VENDOR CONSUMER
  • 9. SALES FEE
  • 10. #2 DO U THINK PRICELINE WILL ULTIMATELY SUCCEED OR FAIL? WHY?
  • 11. LOWEST PRICE FIRST MOVER ADVANTAGES RELIABLE WELL-KNOWN “NAME YOUR OWN PRICE” BRAND LARGE RANGE OF SERVICES PROVIDED RESPONSIVE TO CHANGES
  • 12. WEAKNESESS The site is less popular outside US and Europe The main advantage of lowest cost is defenseless Priceline's tickets are nonrefundable
  • 13. CURRENT: US , EUROPE, ASIA FUTURE:MIDLLE EAST,SOUTH AFRICA,BRAZIL U.S TRAVEL SPENDING 2008 -$712 BILLION 2009-$772 2010-$754 2012-$866.5 SOURCE : TRAVEL INDUSTRY ASSOCIATION WORK-LIFE BALANCE, FAMILY MINDED SOCIETY BUDGET TRAVELER VS VENDOR WHO WANT TO GET RID EXCESS/AGING INVENTORY INCREASE IN BOTH YOUTH AND SENIOR CITIZEN TRAVELER INTERNET TRAVEL TREND
  • 14. 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
  • 15. 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
  • 16. 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
  • 17. SUCCEED OR FAIL? SOURCE : The 2011 Barcelona European Academic Conference The Impact of Price Perception on Customer Loyalty in the Airline Context
  • 18. 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
  • 19. 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
  • 20. 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
  • 21. 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
  • 22. 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.
  • 23. #3 WHY PRICELINE’S GROCERIES AND GASOLINE VENTURE FAILED? Use this: http://www.strategy- business.com/article/23003?gko=1ccc3
  • 24. 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
  • 25. 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.
  • 26. 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)
  • 27. 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
  • 28. 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.)
  • 29. • 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
  • 30. Airbnb – accommodations marketplace
  • 31. Vayable – marketplace for unique experiences
  • 32. Getaround – P2P car rental
  • 33. 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]
  • 34. Main issues 4. 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]