FREE ESSAY ON MARKETING STRATEGY FOR PRICELINE.COM

MARKETING STRATEGY FOR PRICELINE.COM

Introduction
Which is the one place where you can satisfy your every need (almost every need) at your
price? Be it airline tickets, hotel rooms, rental cars, mortgages, new automobiles, or
even long distance calling time. The answer would be Priceline.com. All you have to do is
know your need, state your terms, and make your offer. It doesn't get easier than this!
Priceline.com was one of the pioneer online companies to traverse the traditional
limitations of the Internet and revolutionize online purchasing. It's strategy - letting
the consumer name his/her price, and matching it with a seller who is willing to fill the
demand at that price and those conditions, there by providing the required service the
consumer desires. Thus Priceline.com is basically an integrated, Web-based e-marketing
automated system, which was one of its kinds when it started its business in the consumer
marketplace. In simple word it is the ideal middleman, who gets you what you want, when
you want it through a unique dotcom experience.
Priceline.com was formed on April 6, 1998 as a limited liability company, but looking at
its potential and rapid success it was soon converted into a corporation. It activities
at this time dealt mainly with providing leisure airline tickets with the unique
difference of letting the customer name his/her own price. By December 31, 1999 its
services included hotel rooms, mortgages and new automobiles. The Company's licensee,
Priceline WebHouse Club, Inc., soon launched a 'Name Your Own Price' service for
groceries in the fourth quarter of 1999. Another licensee, Priceline Perfect Yard Sale,
Inc., launched on a test basis in the first quarter of 2000, a consumer-to-consumer based
'Name Your Own Price', which involved the sale of quality, used goods over the Internet.
Today after nearly three years of existence Priceline.com boasts a huge market share,
loyal fan following and 373 employees. Priceline.com can be best described as the
'ultimate Internet middleman'.
How Priceline.com Works?
Ron Rose, Chief Information Officer at Priceline.com, says, Our goal is to lead the
industry as a world-class customer-centric company, with an infrastructure that delivers
the best, personalized customer service experience is absolutely fundamental to our
company's long-term success on the Internet. Priceline.com has pioneered a unique
e-commerce pricing system known as a demand collection system that enables consumers to
save money on a wide range of products and services while enabling sellers to generate
incremental revenue.
Priceline.com uses its 'virtual' business model, which works as a three-step process
while allowing them rapid scaling using the Internet:
The first step consist of Priceline.com collecting consumer demand, of the individual
customer backed with the guarantee of the respective customer's credit card, for a
particular product or service at a price which is set by the customer. In the second step
then, Priceline.com either communicates that demand directly to participating sellers or
accesses participating sellers' private databases to determine whether priceline.com can
fulfill the customer's offer. In the final step, Priceline.com gets back to the consumers
regarding their offers, which they can hold to for a specific period of time and, once
fulfilled, offers cannot be canceled. If Priceline.com doesn't meet the customer price
for a particular demand, the credit card is not charged and the customer is once again
asked to change the price if he/she wants and the procedure is repeated.
Priceline.com benefits consumers by enabling them to save money, while at the same time
benefiting sellers by providing them with a competent revenue management tool capable of
identifying and capturing incremental revenues. By requiring consumers to be flexible
with respect to brands, sellers and product features, priceline.com enables sellers to
generate incremental revenue without disrupting their existing distribution channels or
retail pricing structures.
Target market
An important goal for effective marketing strategy is the reduce costs of marketing
through targeting of marketing efforts. But the today's digital world has shaken
marketing to its core. Today's consumers are more of the cyber consumer. Digital
technology and Internet are changing consumers and are changing the way they relate to
products and markets. Priceline.com has targeted its customers in a different way.
Underlying Priceline.com's marketing strategy is the Company's belief that its target
market is all consumers, not just Internet savvy consumers. It hasn't limited its
customers to net users only, but has also reached the segment of the market, which
doesn't generally use the Internet for shopping, through viral marketing and giving them
choices and prices they cannot resist. It has shown them that they have the power of
pricing, shifting it from companies to the consumers.
Priceline.com works on the trends of not only attracting their target markets through
prompt website, but also with the advertisements, which have been hit, and toll-free
numbers. Priceline.com not only uses Internet to target the consumers but also with lots
of other advertisement and promotions. The advertisement with William Shatner, with the
oldies of 60's and 70's has become such a hit with the people that they even ask for the
record of the tape. Priceline.com has targeted the whole consumers along with the
Internet savvy people in a total different way. One way, which has benefited
Priceline.com, is the viral marketing or the word of mouth strategy also known as the
referral. Priceline.com with the word-of-mouth referrals has been able to draw large
amount of customers to the site. Today Priceline.com's site is one of the Internet's most
heavily used sites, with more than 1.5 million hits in a week. 
Consumers are required to accept certain trade-offs with respect to brands or product
features in return for saving money. For example, consumers are required to accept a
reservation in any hotel within a specified geographic-area within a designated class of
service (1, 2, 3, 4 or 5-star) and must accept limitations on changes and cancellations.
As with the airline ticket service, the target market for Priceline.com's hotel room
reservation service is the leisure travel market, as the customers have no idea of the
carrier and the time they are flying until the ticket is booked. If the ticket is booked,
it cannot be cancelled or be changed. This is one of the reasons why business personnel
cannot use Priceline.com as they have a fixed schedule.
The Priceline.com Strategy and the 4 P's
Priceline.com's goal is to continue to expand the Priceline.com business and to operate
Priceline.com's demand collection system as a leading source for the purchase of products
and services on the Internet. The key features of Priceline.com's strategy are as
follows:
Leverage the Priceline.com brand over diverse products and services: Priceline.com
intends to continue to leverage of Priceline.com brands across its numerous products and
services to achieve significant revenue scale and growth. In contrast to most e-commerce
businesses that operate in one or two vertical markets, Priceline.com is a horizontal
commerce system that can benefit both buyers and sellers across a broad range of products
and services. Priceline.com's strategy is to make available multiple products and service
offerings at its web site under a common brand to take advantage of these market
opportunities. Priceline.com intends to expand directly in certain vertical markets and
license its business model and name to independent licensees in other markets.
Priceline.com and its licensees have launched or expanded offerings in several new
categories over the past twelve months and these efforts will continue. 
Strengthen the Priceline.com brand: The Company plans to expand consumer recognition of
Priceline.com as the leading consumer brand for buyer-driven commerce over the Internet.
To achieve this goal, Priceline.com intends to continue to pursue an aggressive brand
development strategy through mass market and targeted advertising and promotions, press
coverage and strong word-of- mouth support. While priceline.com is already one of the
most recognized e-commerce brands among adult Americans, priceline.com believes that it
can expand the public's association with the Priceline.com Name Your Own Price
proposition to a broad range of products and services. 
Priceline.com plans to expand, but it seems quite impossible according to the current
stock market prices. Priceline.com for the time being should concentrate on their travel
section and expand as soon as their company is again well established.
Product Strategy
The product offering is considered to be the heart of a marketing mix. It is impossible
to decide on a promotion campaign or set a price without knowing the products to be
marketed. Priceline.com has numerous products and services to offer. Priceline.com
commenced its service with the sale of leisure airline tickets. The number of airlines
participating in Priceline.com's airline ticket service has increased to a total of 10
domestic airlines and 20 international airlines. Few of the major domestic airlines
Priceline.com uses are United Airlines, American Airlines and Northwest, whereas major
international airlines include Virgin Airways, British Airways and Lufthansa.
Priceline.com uses Delta Airlines as both its domestic and international carrier.
Consumers can make offers to purchase airline tickets through the Priceline.com Web site
or the 1-800-PRICELINE-call center. The customer than has to follow the process mentioned
earlier.
In October 1998, Priceline.com launched its Name Your Own Price travel service for hotel
room reservations. Priceline.com's hotel room reservation service currently is available
in substantially all major cities and metropolitan areas in the United States. Hotels
participate by filing private discounted rates with related inventory control rules in
Priceline.com's private database in a central reservation system for hotel rooms. These
rates normally are not available to the general public or to consolidators and other
discount distributors who sell to the public. Priceline.com's hotel room reservation
service operates in a manner similar to its airline ticket service. 
Priceline.com offers two different rental car services. In December 1999, priceline.com
launched its Insiders Rates) service and, in February 2000, Priceline.com launched its
Name Your Own Price service. Priceline.com's rental car services are currently available
in substantially all major United States markets. Under Priceline.com's Insiders Rates
service, participating car rental companies offer Priceline.com customers who have
already purchased an airline ticket from Priceline.com rates on car rentals in connection
with a customer's planned travel arrangements. An offer is provided to a customer by
e-mail and on Priceline.com's web site when a customer checks the status of his or her
request. Priceline.com's Name Your Own Price rental car service operates in a manner
similar to its airline ticket and hotel reservation services. Consumers can access the
priceline.com Web site and select where and when they want to rent a car, what kind of
car they want to rent (i.e. economy, compact, mid-size, SUV) and the price they want to
pay per-day, excluding taxes, fees and surcharges. 
In January 1999, Priceline.com introduced its home financing service. Under the terms of
separate agreements with Alliance Partners, L.P. and Lending Tree, Priceline.com's
financing service allows consumers to set their interest rate and points for mortgages of
a specified term, including, purchase money mortgages, refinancing and home equity
loans.
Priceline.com introduced its new car sales service on a test basis in the New York
metropolitan area in July 1998. Since that time, Price line's new automobile service has
been expanded to include 26 states. Priceline.com's new car sales service accepts offers
for every major brand of automobile. Due to the numerous features and options on a new
automobile, the range of product substitutability that consumers will accept is lower in
the case of new cars than with airline tickets or hotels. Priceline.com does not
negotiate on behalf of customers or dealers and does not represent to its customers or
dealers that it is acting as an agent or broker on behalf of either party. Once a dealer
accepts an offer for a new car, the consumer completes the transaction directly with the
dealer. The Priceline.com new car sales service is differentiated from other Internet car
sales services, which serve as lead generators for participating car dealers. Under such
services, multiple dealers may contact the customer in response to the customer's inquiry
to the Internet service. By contrast, Priceline.com's new car sales service does not
reveal the identity of the customer to the auto dealer until the dealer has accepted the
customer's offer. Furthermore, in contrast to other Internet car sales services, dealers
are not currently required to pay a participation fee to review offers from the
Priceline.com service.
Priceline.com has recently launched a Name Your Own Price service for international and
domestic long distance calls. The company allows consumers to name their own price for
phone-to-phone international and domestic long distance calls. 
Promotion
Priceline.com has developed adaptive marketing programs to help bridge the between
consumer offers and seller prices, provide users of the priceline.com service with other
desired products, and generate additional revenue for the Company. These programs also
serve as an integral part of Priceline.com's strategy of building customer loyalty.
Priceline.com's adaptive marketing programs presently include two distinct initiatives.
The first, which it refers to as adaptive promotions, allows consumers to increase the
amount of their offers, and thus their likelihood of success, at no additional cost by
participating in sponsor promotions during the process of making a priceline.com offer.
For example, a customer making an offer to buy a round-trip airline ticket can
immediately have the amount of his or her offer increased and thereby increases his or
her likelihood of success by applying online for a credit card. The second type of
adaptive marketing program is referred to as adaptive cross selling and utilizes cross
selling of multiple products to increase the number of successful transactions. For
example, a customer whose offer for an airline ticket was marginally below acceptable
levels could be offered a second related product such as a hotel room reservation or a
rental car day at a combined price that provided an acceptable margin for Priceline.com.
During 1999, Priceline.com added adaptive marketing partners and, as a result, reduced
its dependence on any one partner. Priceline.com intends to continue to add adaptive
marketing programs so that consumers have a variety of programs from which to choose and
priceline.com has a diversified source of adaptive marketing revenues.
Pricing Strategy
The Internet and the World Wide Web has fundamental impacts on the pricing strategy of
firms. Similarly, the technology has open many doors to buyers hitherto closed by the
effects of time, cost and effort. Technology may combine with market forces to reduce the
vast majority of a firm's transactions to the level of commodity trades, leaving managers
with little opportunity to make prices. The information age - and the advent of
computer-controlled machine tools - lets consumers have it both ways: customized and
cheap, automated and personal. Particularly in consumer markets, suppliers tend to make
prices while customers take them. There are a number of instances on the World Wide Web
where the opposite situation is now occurring. One of them is Priceline.com. It is a kind
of Internet pricing system that enables consumers to achieve significant savings by
naming their own price for goods and services. Their primary products are new cars,
travel, and personal finance products. Priceline.com takes an offer of purchase to the
seller and they have the option of accepting or rejecting any offers. Not unlike EBay,
Priceline.com has no warehouse or inventories. At a higher level of customer price
making, Priceline.com invite customers to name their price on products and services
ranging from air tickets to hotel rooms, and new cars to home mortgages. In the case of
air tickets for example, customers name the price they are willing to pay for a ticket to
a destination, and provide credit card details to establish good faith. Priceline.com
then contacts airlines electronically to see if the fare can be obtained at the named
price or lower, and undertakes to return to the customer within an hour. Priceline.com's
margin is the differential between the customer's offer price and the fare charged by the
airline.
Place strategy
The market space replaces market place, and in the land of 'clicks vs. bricks', you buy
online in a virtual store and have the option of taking it back to a physical store Place
will be online and not of much interest or it will consider virtual places as real. Every
company now competes in two worlds: a physical world marketplace and a digital world
market space. Within a decade, most products and services will be sold in the market
space. 
Priceline.com's market place is this "market space" and the web. Priceline.com continues
to frequently update and enhance the features of the Priceline.com service. Priceline.com
constantly monitors feedback from consumers and regularly adds new features to further
simplify the buying process. Priceline.com also receives offers by telephone and provides
customer service by telephone and e-mail to assist customers in the offer process.
Priceline.com believes that it will continue to increase customer usage and loyalty by
continuing to increase the functionality of the service and enhance consumer experience.
Priceline.com understands that the international scope of the Internet and the global
demand for the types of products and services available through Priceline.com presents
opportunities to expand its service internationally. Priceline.com has already launched
web sites in Australia, which is named Myprice.com.au, which currently uses its Name Your
Own Price strategy only for long distance calling cards, while the other web site for
United Kingdom; Priceline.co.uk uses its Name Your Own Price just for Air plane tickets.
What went wrong with Priceline.com?
Most of revenues to date have been derived from airline ticket sales, hotel room
reservations and related adaptive marketing programs. As Priceline's business model
evolved, they introduced a number of new products and services. The Company had licensed
its patented Name Your Own Price business model and affiliated trademarks and software
systems to Priceline WebHouse Club, Inc., which operated an Internet-based service for
groceries and other retail products. In connection with the WebHouse Club transaction,
Walker Digital, granted to Priceline.com a worldwide license to certain intellectual
property, including patent and patent applications, useful in WebHouse Club's business.
Priceline.com also introduced the sale of gasoline.
These new businesses typically incurred start-up costs and operating losses and were not
successful. The problem with the gasoline was that, the price of gas changes frequently,
the sellers couldn't stand through it. Priceline.com had to heavily subsidize them; this
in return affected the other businesses Consumers did not favorably receive these new
businesses. The association of their brand name with these new entities might have
adversely affected their business and reputation and may have diluted the value of
Priceline.com's brand name. Priceline.com started two new products almost at the same
time, the online gasoline and groceries. 
The idea behind the gasoline was that the customer would pay on the website the amount of
the gasoline they wanted and they could name the price. Priceline.com than would contact
the gas station nearby the customer's given address and if any dealer is ready to accept
the price, than they would give the customer the product at the amount they asked for.
This whole product was valid for three months. The reason why the gasoline business had
to shut down because the OPEC raised the price of oil, and so dealers were paying more
for fuel. They were passing part of the fuel charge on to Priceline.com. Also the main
reason was the change of the price of the gasoline so frequently that if the customer's
price is valid for 3 months than the dealers were having loss. These lead dealers to
adjust their price much above the customer wanted as they started seeing in the future
prices of the gasoline. This eventually lead to the regular customers complaining about
the prices or high prices asked by the Priceline.com, which resulted in the stopping of
the product, i.e. the gasoline.
The other product, which went wrong, was the online groceries. The idea behind the whole
thing was the same, with customers getting cheaper groceries at the price they wanted and
also the dealers agreeing to it. But as the time went on, the customers started having
difficulties in getting groceries. Many times the customer would not get the thing they
wanted when they went to collect the groceries. There was also a lack of variety in
products. It offers only a few brands, sizes and items to finish online shopping. Also,
the touch and feel of the things you get when you actually go and buy it is totally
different, the customers also started complaining about it. One of the reasons also was
that Americans love buying their own groceries with their own time. This particular
product segment was meant for the people who are really busy and don't have time to buy
them. But eventually they landed using Priceline's Web clubhouse, which also takes a long
time to come up with a shopping list. People didn't welcome it with much enthusiasm and
after the initial sales; the people started avoiding which lead Priceline.com to stop
this fragment of their business. 
The graphs below as shown are the price and volume of the Priceline.com, in the year of
2000. As shown there, there has been decline in both after the launching of the groceries
and gasoline, which was removed in the last quarter of this year from the product line.
Also shown is the earnings per share ratio of the priceline.com for the last year, an as
shown in the second graph which were down for the year are expected to go up next year. 
Price-Share Volume Graph for year 2000:
Earnings per share for the year 2000:
What Priceline.com can do?
Priceline.com was formed in July 1997 and began operations on April 6, 1998, so has a
limited operating history. Priceline.com is a new company Priceline.com should expand its
products and services within the leisure travel industry over the next two years to
encompass cruises, all-inclusive resorts, time-share and vacation packages. They also
should include the sky miles, as its going to encourage customers travel regularly
through them. Priceline.com intends to expand its products and services within the
financial services industry over the next two years to include unsecured personal loans,
automobile loans, credit cards and credit card balance consolidations and automobile and
life insurance policies. As with its other products and services, Priceline.com may
expand its financial services products by entering into licensing transactions or
strategic relationships with leading industry participants. They should expand their new
car sales service from just 26 states to all 50 states. They should also cut down their
massive advertisement expenses, which would enable them to bring the operating cash flow
to $70 million yearly. All Priceline.com needs is time to backtrack and focus on how it
can rebuild itself again. 
Conclusion
As the digital revolution has taken place, companies tend to look at the technology
itself while paying too little attention to its implications of marketing to customers.
World has shifted from physical to virtual, as values moves from greasy gears and hard
steel of the industrial age to the high concepts of a knowledge economy, customers comes
first. Priceline.com has brought a revolution in the technology itself and also to the
decade of the upcoming e-commerce business. With its demand collection pricing system,
Priceline.com changed the look and feel of the old marketing strategy, and brought in the
customer before the companies. With its unique strategies, Priceline.com took the world
into a new different spectrum, where customer values and requirements meet up to the
price they are willing to pay for it. Thus, though Priceline.com is going down for
sometime now, it will bounce back again, with some new ideas and new technology, some new
marketing strategies to put it back up.
Bibliography
Bibliography:
? www.priceline.com as on 12/1/00
? Annual Report of Priceline.com for the year ended on December 31st,1999.
? Hoovers Inc
? www.success-stories.compaq.com/css/cgi-bin/cssextusr/s=display/I=586, p.1
? 'How Priceline's Grocery Service Delivers Headaches' by Diane Brady in Business Week,
November 19, 1999
? www.google.com
? 4 Ps of the Internet, Don Topscott
? Value Line
? http://www.fortune.com/fortune/sections/ecustomer/e-customer.htm
? www.finance.yahoo.com
? www.cnnfn.com
? www.etrade.com