Shaping the Market Offering

Essay by toyaplayUniversity, Master'sA+, December 2004

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The online market for travel services will reach $63 billion within a few years, and aims to capture a significant share; already, it is high on the top-ten list of travel Web sites. After a brief period of diversification into name-your-price sales of groceries and gasoline, the company has refocused on its core travel and financial services offerings, including airline tickets, hotel rooms, rental cars, and mortgage loans. The company guarantees that a mortgage is the "lowest-cost loan on the market" and backs this up by paying $300 to any customer who finds a better price.

Visit the Cybrary and other Internet sources, to see how the Priceline system works. At the Priceline website, follow the link marked "How it works" to read about the name-your-price process. Then return to the home page and follow several of the links promoting discounted offerings.

1. Define price sensitivity.

Provide relevant examples.

Price sensitivity is when a customer is willing to trade off dollars against product or service benefits. Some factors that influence price sensitivity are:

Customer perception of uniqueness

Factors Influencing Price Sensitivity

Customer perception of uniqueness

Awareness / availability of substitutes

Difficulty of direct comparison

Total expenditure (i.e., relative value in bundle)

Shared cost (e.g., employer pays part)

Sunk investments / switching costs

Price -quality inferences

Ability of customer to carry inventory

Price-sensitivity decreases if the person choosing the product isn't the person paying for the product Example: Business travelers are fewer prices sensitive because their employers are footing the bill. Customers are most price sensitive that cost a lot or are bought frequently. They are less price-sensitive to low cost item or items they buy infrequently. They are also less when the price is only a small part of the total cost obtaining, operating and servicig...