Priceline.com case study review
What are the core components of Priceline’s business model?
As defined by Alexander Osterwalder in this presentation a business model describes how an organisation creates, delivers and captures value.
With this in mind the core components of Priceline’s business model are based around their pioneered and patented reverse auction pricing model which is a unique offering within the travel market place. This innovative model allows consumers to purchase travel services at a discounted prices by trading off brand and features.
Michael Rappa explains that Priceline uses a business model known as brokerage model where a business creates their own market by bringing buyers and sellers together. Priceline operate as the middle man or broker bringing the two parties together in a seamless and friendly manner.
Priceline receives it’s revenue based on the difference between the “Name your own price” amount entered by the customer and the amount charged by the service provider such as the airline. They also use a more traditional travel agency model offering a list of prices the customer can choose from and in this case Priceline receives a commission/agents fee Wikipedia.
Do you think Priceline will ultimately succeed or fail and why?
I believe Priceline has a sustainable business model which will allow them to succeed in the long term. During Priceline’s early start up days they experimented with variations of its business model by offering groceries and gasoline, which initially had negative impacts on profitability. However Priceline’s management were able to adapt and focus their model so that it started producing significant returns. This is evident by the fact that Priceline improved from a $1 billion loss to a profit of over $10 million between the years of 1999 to 2003. Since 2003 Priceline has continued to be profitable and grow, increasing its stock price over 27 times from its lowest to slightly under $200 USD in 2010 and is now sporting a market valuation of $8.8 billion. Priceline’s revenues are expected to grow 20 percent in 2010, compared with 11 percent at Expedia and 4 percent at Orbitz. If the past few years are any indication, maybe, just maybe, bad times aren’t that bad for Priceline (Ari Levy and Roben Farzad). Additionally Priceline recently announced a ground breaking hotel price guarantee that pays customers a nominal reward if they find a lower price than the one offered by Priceline. As part of their expansion and growth they recently acquired the multinational car hire reservation service TravelJigsaw to provide more their value added services to their customers. (Priceline Investor Relations)
Although the travel industry is saturated and has ever increasing competition, the population of the internet and those willing to buy goods and services over the web also continues to grow. This should also assist Priceline with its well known and strong brand advertising to help maintain their reasonably dominant market share.
How has Priceline and similar online services impacted the travel services industry?
Priceline and other online services have changed the travel industry by acting as the go between providing consumers access to deals with travel providers such as airlines or hotels therefore reducing the layers of separation and the need for agents and broker fees. Additionally Priceline and similar services have provided an avenue for travel services to clear excess inventory and receive revenue from airline seats or hotel rooms which would have otherwise remain unfilled. These efficiencies have reduced the costs to travel providers such as cuts in the booking fees airlines pay distributors. Ultimately lowering costs to consumers.
Services like Priceline have caused a shift in consumer demographics to consumers with a short attention span, and simple easy to use (user friendly) facilities (Business trends in the travel industry). Additionally opening up a new demographic of consumers who previously could not afford airline travel.
Niche travel deals allowing travel services such as airlines and hotels to offer fairly unique one off deals to sell just a few remaining seats or rooms. Without the online services of companies like Priceline it would be difficult if not impossible for travel service providers to advertise these niche deals without impacting their normal retail offering.
As Priceline and other similar services aggregate airline and hotel services they turn them into commodities where people only shop based on price. Brand and other features become non existent when products and services are aggregated against each other purely based on price.
As detailed by Answers.com Priceline’s strongest competitors would be:
Expedia
Orbitz Worldwide
Travelocity
As shown in the direct competitor comparison chart provided here by Yahoo Finance Priceline is well above the industry average and competing quite strongly against it’s direct competitors. However due to the fact that Travelocity is a privately held company they can not be included in the comparison and their position is relatively unknown.
Priceline is currently operating at a profit which can be seen in these key statistics published on Answers.com
Key numbers for fiscal year ending December, 2009:
Sales: $2,338.2M
One year growth: 24.1%
Net income: $489.5M
Income growth: 153.0%
Employee growth: 12.9%
This profit and growth is quite positive given that the world has recently been through a global financial crisis and is still recovering from this and the fact that during this time travel generally takes a lower priority. Given this Priceline is doing all the right things to keep consumers traveling.
References:
Answers.com, Priceline.com Inc, viewed 16 Jun 2010, http://www.answers.com/topic/priceline-com-incorporated
Business trends in the travel industry 2007, The Paradigm Shift of Travelport, Travelocity, Priceline, Orbitz and Expedia, viewed 16 Jun 2010, http://biztraveltrends.com/
Levy A and Farzad R 2010, How Priceline Fought Its Way to Success, 21 Jun 2010, viewed 21 Jun 2010, http://www.crm-daily.com/story.xhtml?story_id=11100ACSGA1I&full_skip=1
Osterwalder A 2010, What Is A Business Model, Slideshare, Mar 2010, viewed 16 Jun 2010, http://www.slideshare.net/Alex.Osterwalder/what-is-a-business-model
Priceline.com, Wikipedia, 28 May 2010, viewed 14 Jun 2010, http://en.wikipedia.org/wiki/Priceline.com
Priceline.com, Investor Relations, viewed 21 Jun 2010, http://phx.corporate-ir.net/phoenix.zhtml?c=72780&p=irol-IRHome
Prof Fornell C 2010, Q4 2009: Retail Trade; Finance & Insurance; E-Commerce, The American Customer Satisfaction Index, 16 Feb 2010, Viewed 25 Jun 2010, http://www.theacsi.org/index.php?option=com_content&task=view&id=203&Itemid=214
PhoCusWright 2010, Hotel Review System Is Leading Source of Customer Choice, Inside Quality Insider, 9 April 2010, Viewed 25 Jun 2010, http://www.qualitydigest.com/inside/quality-insider-news/hotel-review-system-leading-source-customer-choice.html
Rappa M 2010, BUSINESS MODELS ON THE WEB, Managing the Digital Enterprise, 16 Jan 2010, viewed 14 Jun 2010, http://digitalenterprise.org/models/models.html#Brokerage
Yahoo Finance, Priceline.com Incorporated (PCLN), Competitors, viewed 25 Jun 2010, http://finance.yahoo.com/q/co?s=PCLN
As defined by Alexander Osterwalder in this presentation a business model describes how an organisation creates, delivers and captures value.
With this in mind the core components of Priceline’s business model are based around their pioneered and patented reverse auction pricing model which is a unique offering within the travel market place. This innovative model allows consumers to purchase travel services at a discounted prices by trading off brand and features.
Michael Rappa explains that Priceline uses a business model known as brokerage model where a business creates their own market by bringing buyers and sellers together. Priceline operate as the middle man or broker bringing the two parties together in a seamless and friendly manner.
Priceline receives it’s revenue based on the difference between the “Name your own price” amount entered by the customer and the amount charged by the service provider such as the airline. They also use a more traditional travel agency model offering a list of prices the customer can choose from and in this case Priceline receives a commission/agents fee Wikipedia.
Do you think Priceline will ultimately succeed or fail and why?
I believe Priceline has a sustainable business model which will allow them to succeed in the long term. During Priceline’s early start up days they experimented with variations of its business model by offering groceries and gasoline, which initially had negative impacts on profitability. However Priceline’s management were able to adapt and focus their model so that it started producing significant returns. This is evident by the fact that Priceline improved from a $1 billion loss to a profit of over $10 million between the years of 1999 to 2003. Since 2003 Priceline has continued to be profitable and grow, increasing its stock price over 27 times from its lowest to slightly under $200 USD in 2010 and is now sporting a market valuation of $8.8 billion. Priceline’s revenues are expected to grow 20 percent in 2010, compared with 11 percent at Expedia and 4 percent at Orbitz. If the past few years are any indication, maybe, just maybe, bad times aren’t that bad for Priceline (Ari Levy and Roben Farzad). Additionally Priceline recently announced a ground breaking hotel price guarantee that pays customers a nominal reward if they find a lower price than the one offered by Priceline. As part of their expansion and growth they recently acquired the multinational car hire reservation service TravelJigsaw to provide more their value added services to their customers. (Priceline Investor Relations)
Although the travel industry is saturated and has ever increasing competition, the population of the internet and those willing to buy goods and services over the web also continues to grow. This should also assist Priceline with its well known and strong brand advertising to help maintain their reasonably dominant market share.
How has Priceline and similar online services impacted the travel services industry?
Priceline and other online services have changed the travel industry by acting as the go between providing consumers access to deals with travel providers such as airlines or hotels therefore reducing the layers of separation and the need for agents and broker fees. Additionally Priceline and similar services have provided an avenue for travel services to clear excess inventory and receive revenue from airline seats or hotel rooms which would have otherwise remain unfilled. These efficiencies have reduced the costs to travel providers such as cuts in the booking fees airlines pay distributors. Ultimately lowering costs to consumers.
Services like Priceline have caused a shift in consumer demographics to consumers with a short attention span, and simple easy to use (user friendly) facilities (Business trends in the travel industry). Additionally opening up a new demographic of consumers who previously could not afford airline travel.
Niche travel deals allowing travel services such as airlines and hotels to offer fairly unique one off deals to sell just a few remaining seats or rooms. Without the online services of companies like Priceline it would be difficult if not impossible for travel service providers to advertise these niche deals without impacting their normal retail offering.
As Priceline and other similar services aggregate airline and hotel services they turn them into commodities where people only shop based on price. Brand and other features become non existent when products and services are aggregated against each other purely based on price.
Has Priceline’s business model
changed since 2007? And if so how? Who are its strongest competitors? Is
it profitable or operating at a loss?
Priceline has changed its business model since 2007 focusing more on traditional online reservation services where customers have the flexibility to select from brand and features rather than their more restrictive and discount “Name your own price” model. The Priceline website is now organized much like those of its competitors. Customers can still choose to bid, but this is no longer the only option. More alternatives, up to a point, usually increase customer satisfaction and this has been the case for Priceline, now up 6% to an all-time high ACSI score of 76. Value for money remains high, strengthened by elimination of booking fees, while service quality has improved. Alongside the improvement in customer satisfaction, Priceline’s stock value soared by nearly 200% in 2009 (ACSI).
Priceline also continues to strive towards providing customers with a
superior user-friendly service such as the launch in Jan 2009 of a The
Travel Ekspert blog providing advice to consumers and also offering over
2.5 million hotel reviews (PhoCusWright).Priceline has changed its business model since 2007 focusing more on traditional online reservation services where customers have the flexibility to select from brand and features rather than their more restrictive and discount “Name your own price” model. The Priceline website is now organized much like those of its competitors. Customers can still choose to bid, but this is no longer the only option. More alternatives, up to a point, usually increase customer satisfaction and this has been the case for Priceline, now up 6% to an all-time high ACSI score of 76. Value for money remains high, strengthened by elimination of booking fees, while service quality has improved. Alongside the improvement in customer satisfaction, Priceline’s stock value soared by nearly 200% in 2009 (ACSI).
As detailed by Answers.com Priceline’s strongest competitors would be:
Expedia
Orbitz Worldwide
Travelocity
As shown in the direct competitor comparison chart provided here by Yahoo Finance Priceline is well above the industry average and competing quite strongly against it’s direct competitors. However due to the fact that Travelocity is a privately held company they can not be included in the comparison and their position is relatively unknown.
Priceline is currently operating at a profit which can be seen in these key statistics published on Answers.com
Key numbers for fiscal year ending December, 2009:
Sales: $2,338.2M
One year growth: 24.1%
Net income: $489.5M
Income growth: 153.0%
Employee growth: 12.9%
This profit and growth is quite positive given that the world has recently been through a global financial crisis and is still recovering from this and the fact that during this time travel generally takes a lower priority. Given this Priceline is doing all the right things to keep consumers traveling.
References:
Answers.com, Priceline.com Inc, viewed 16 Jun 2010, http://www.answers.com/topic/priceline-com-incorporated
Business trends in the travel industry 2007, The Paradigm Shift of Travelport, Travelocity, Priceline, Orbitz and Expedia, viewed 16 Jun 2010, http://biztraveltrends.com/
Levy A and Farzad R 2010, How Priceline Fought Its Way to Success, 21 Jun 2010, viewed 21 Jun 2010, http://www.crm-daily.com/story.xhtml?story_id=11100ACSGA1I&full_skip=1
Osterwalder A 2010, What Is A Business Model, Slideshare, Mar 2010, viewed 16 Jun 2010, http://www.slideshare.net/Alex.Osterwalder/what-is-a-business-model
Priceline.com, Wikipedia, 28 May 2010, viewed 14 Jun 2010, http://en.wikipedia.org/wiki/Priceline.com
Priceline.com, Investor Relations, viewed 21 Jun 2010, http://phx.corporate-ir.net/phoenix.zhtml?c=72780&p=irol-IRHome
Prof Fornell C 2010, Q4 2009: Retail Trade; Finance & Insurance; E-Commerce, The American Customer Satisfaction Index, 16 Feb 2010, Viewed 25 Jun 2010, http://www.theacsi.org/index.php?option=com_content&task=view&id=203&Itemid=214
PhoCusWright 2010, Hotel Review System Is Leading Source of Customer Choice, Inside Quality Insider, 9 April 2010, Viewed 25 Jun 2010, http://www.qualitydigest.com/inside/quality-insider-news/hotel-review-system-leading-source-customer-choice.html
Rappa M 2010, BUSINESS MODELS ON THE WEB, Managing the Digital Enterprise, 16 Jan 2010, viewed 14 Jun 2010, http://digitalenterprise.org/models/models.html#Brokerage
Yahoo Finance, Priceline.com Incorporated (PCLN), Competitors, viewed 25 Jun 2010, http://finance.yahoo.com/q/co?s=PCLN
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