priceline business model evaluation
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PRICELINE.COM
And the Search for a Business Model that works
GRACE | NURLEEN | ALIREZA | JUNAIDI |
AGENDAOVERVIEW
WHAT IS PRICELINE.COM BUSINESS MODEL
WHY PRICELINE.COM’S GROCERIED AND GASOLINE VENTURE FAILED?
WILL PRICELINE.COM ULTIMATELY SUCCEES OR FAIL? WHY?
START BUSINESSby JAY WALKER @ 1998
2 YEARS LATER…..EXPANSION PHASE
Groceries
Gasoline
Used Goods
2002
2 YEARS LATER…..EXPANSION PHASE
Groceries
Gasoline
Used Goods
3 YEARS LATER…..REORGANIZATION PHASE
2003
20042005
2007
EC BUSINESS MODEL
COMPONENT
VALUE PROPOSITION
REVENUE MODEL
MARKET OPPORTUNITY
COMPETITIVE ENVIRONMENT
COMPETITIVE ADVANTAGE
STRATEGIES
#1 WHAT IS PRICELINE.COM BUSINESS MODEL?
VALUE PROPOSITION
VENDOR CONSUMER
VARIETY
TIME SAVING
COST SAVING
SAVE THE BRAND
PRICE DISCRIMINATION
REVENUE MODEL
SALES FEE
LICENSING PATENT
ADVERTISING SALES
BOOKING & HANDLING
OFFER - VENDOR
PRICE
#2 DO U THINK PRICELINE WILL
ULTIMATELY SUCCEED OR FAIL? WHY?
LOWEST PRICE FIRST MOVER ADVANTAGES
RELIABLE
WELL-KNOWN “NAME YOUR OWN PRICE”
BRAND
LARGE RANGE OF SERVICES
PROVIDED
RESPONSIVE TO CHANGES
WEAKNESESS
The site is less popular outside US and Europe
The main advantage of lowest cost is defenseless
Priceline's tickets are nonrefundable
CURRENT: US , EUROPE, ASIAFUTURE:MIDLLE EAST,SOUTH AFRICA,BRAZIL
U.S TRAVEL SPENDING2008 -$712 BILLION
2009-$7722010-$754
2012-$866.5SOURCE : TRAVEL INDUSTRY ASSOCIATION
WORK-LIFE BALANCE, FAMILY MINDED SOCIETY
BUDGET TRAVELERVS
VENDOR WHO WANT TO GET RID EXCESS/AGING INVENTORY
INCREASE IN BOTH YOUTH AND SENIOR CITIZEN
TRAVELER
INTERNET TRAVEL TREND
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
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
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
SUCCEED OR FAIL?
SOURCE : The 2011 Barcelona European Academic ConferenceThe Impact of Price Perception on Customer Loyalty in the Airline Context
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
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
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
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
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.
#3 WHY PRICELINE’S GROCERIES AND GASOLINE
VENTURE FAILED?Use this: http://www.strategy-business.com/article/23003?
gko=1ccc3
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
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.
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)
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
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.)
• 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
Alternative action & approaches
Airbnb – accommodations marketplace
Vayable – marketplace for unique experiences
Getaround – P2P car rental
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]
Main issues4. 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]