Priceline.com started out with many good ideas, but some of these good ideas went badly for the
company (e.g., WebHouse.com). The idea of name-your-own-price is a great pitch for a business model; however, it cannot be used on all consumable goods. That is where Jay Walker and Walker Digital went wrong. The concept of business success based on convenience and savings is a good one, but there are other factors that may disrupt the synergy of the two. These factors include distribution, urgency of need, and value-added to the customers. Analysis of the case has revealed that some fundamental pieces of Priceline's services marketing puzzle are missing. It appears that the problem surrounding the companies of Walker Digital were not so much the business model concept, but the nature of some of the services that they decided to offer. Apparently they did not research the market for name-your-own gasoline price or for online grocery purchases.
It seems that closing down WebHouse.com answers some of these questions.
The struggle that Priceline.com has continued to battle is its ability to branch out successfully from its airline/travel industry. Its WebHouse Club business existed for only 10 months before the site was closed down. Additionally, Perfect Yardsale was shut down after failing to be a successful Web site venue for low-ticket cost items. Since Priceline.com has done a relatively good job of maintaining its customer's loyalty, it can be assumed that its marketing mix and product offering contribute to the company's success. Hence, the problem of Priceline.com in terms of services marketing is that it has failed to successfully interactively market its other Web sites, causing premature closure of these ventures. Priceline.com needs to recognize the appropriate product mix, such that the company can remain profitable and maintain its consumer base.
KEY ISSUES AND ASSUMPTIONS
Gaps in service quality contributed to the closing of WebHouse Club and Perfect Yardsale. The unmet expectations of consumers and the involved process of separating the prepaid groceries were all related to the total service offering. Low-ticket items are not usually haggled over as much as the creators of these Web sites initially thought. Here the customer expectation is mismatched with that of Priceline's perception. Additionally, inconveniences in the purchasing process involving unstocked items added to the headache of using this service as well.
In Priceline.com's introductory year of operation, it attracted over one million unique customers and continues to add some 300,000 new unique customers every quarter, experiencing the fastest customer increases of any of the new e-commerce services. After one year in the market, an independent study showed that nearly half the entire adult population, or 91 million people, were aware of Priceline.com's name-your-own-price service for leisure airline tickets, hotel rooms, new cars, and home mortgages, making Priceline.com the fifth most-recognized Internet brand and the second most-recognized
e-commerce brand. Awareness of the Internet startup had grown almost 50 percent in the first six months of 1999. Knowing the value of word-of-mouth advertising and the reach of Priceline.com's customer base, it can be assumed that the brand is widely known but that its service is causing the company problems.
Price.line.com has successfully empowered its customers by allowing them to control an aspect of the purchase process. This is the greatest strength of this business model. Otherwise the company would not be as successful as it is currently. By putting the power in the hands of the customer, Priceline has generated a large following and in essence has reached a mass market. To take advantage of this accomplishment, the company now needs to focus on the services that it offers and how they are marketed.
As stated in the case, Priceline's customer base was constantly growing. During the fourth quarter of 2000, its customers numbered 8 million shoppers. It had also experienced significant increases in its product line, with a significant increase in airline ticket purchases. The annual growth in tickets sold was indicative of a consumer trend of seeking bargain airline prices, as well as Priceline's success in attracting new customers.
Based on these key issues, the following assumptions can be made about the company:
1. The name-your-own price model can be successful.
2. The company's profitability shows that it offers a service that customers want/need.
3. Its consumer base will continue to grow.
4. The reasons for failure in some of Priceline's earlier ventures were due to gaps in service quality.
OBJECTIVE TO BE ACHIEVED BY CASE SOLUTION
The need for change within the company is focused on giving the company structure for long-term growth, even during an economic decline, as well as keeping the business profitable. This means offering products that customers can easily evaluate prior to their purchase and, more important, offering services that consumers don't mind purchasing online. Items like groceries, gasoline, and used items do not necessarily match the profile of an online consumer. Ultimately, the resolution for the company will be choosing the appropriate product mix, providing a high-quality service for that product mix, and communicating realistic expectations to consumers.
1. Continue co-marketing with similar companies.
2. Narrow the product mix to improve the quality of service offered.
3. Adapt a consumer service portion for its Web site that directly addresses consumer issues.
4. Enter a new demographic of name-your-own-price offerings.
(Note: These ideas were developed further during class discussion of the case.)
In terms of strategic planning, the appropriate product mix for Priceline's name-your-own-price business model is related to leisure travel and similar needs, including lodging, rental cars, and amusement parks. There should be one theme (and link) for the site. The other products, such as home financing, purchasing a new car, and long-distance services should be separate product categories with their own theme and link. The reason for this recommendation is that these markets are heavily saturated, and Priceline will find it difficult to become a market leader. Service should be focused on what the company does well, and that is empowering customers in their purchase of leisure travel services. Additionally, the site should have a section solely dedicated to customer service, particularly a FAQ (frequently asked questions) section. This may reinforce consumer confidence before using Priceline's service, increasing consumer confidence. Finally, Priceline.com should focus on the teenage demographic. This segment of consumers seems to be overlooked frequently when it comes to services marketing. A name-your-own-price Web site for concert tickets, or CDs, can possibly be the solution for lost revenues as airlines start to discount their own tickets.
BRIEF IMPLEMENTATION PLAN
The first step in implementation is to discover a new venture that will house its other business offerings, such as long-distance service and home financing. Once an umbrella for new business ventures has been discovered, the company should redesign its business site to accommodate travel-related purchases only. Links to its other businesses can be located on the main page. Market research on the likelihood that consumers would be interested in a bidding Web site for concert tickets, CDs, and shows should be performed. The Web site should be launched using the strong brand recognition of Priceline and possibly provide incentives to jumpstart the new ventures.
Short-term marketing plan for the fourth quarter of 2001: For this period, marketing efforts should focus on improved customer relations and a more dedicated site for travel services. Marketing actions should include the following:
1. Business traveler marketing in Fortune, Business Week, and similar magazines.
2. Sports-related marketing. As the football season approaches its playoff season, more and more fans are going to be looking for bargains to attend the "Bowl" games (also opportunities for co-branding).
3. Holiday travel marketing, encouraging travelers to purchase a travel package, inclusive of hotel, ground travel, and air travel, similar to that of services offered by a travel agency.
4. Since the Christmas season is fast approaching, the company may not be able to launch a new site for CDs, tickets, and shows. However, this can be an opportunity to study the market trends in online purchasing in these categories during the heavy shopping season.
Priceline.com has a bright future ahead. However, the company must be careful not to spread itself too thin, robbing its customers of superior service. The company must perfect its core business, allowing investors to retain their confidence in the firm. Lastly, their marketing approach must focus on providing high-quality service, combined with bargain prices, to maintain a competitive advantage.