priceline.

com
BUSINESS MODEL AND SUSTAINABILITY ANALYSIS
Business Model
Services offered
Value proposition
 Customer
 Vendor

Revenue Model
Competition from niche players
Airline
Originating Points - United States and Puerto Rico
US Market (1998) – 75B, load factors – 65%-75% , 35-25% tickets were unsold
Customer specified
 Dates of travel
 Departure and arrival cities
 Number of passengers in the party (up to eight)
 Acceptable airports

Increase chances by - off-peak hours (before 6:00 a.m. and after 10:00 p.m.); On non-jet aircraft; Routes with more than one connection.
Guarantee through a credit card, travel on a recognised airline
Tickets were sometimes subsidized – first 3 months they paid $1.13 per $ of tickets sold
Only 7 days for next offer
standard fees/taxes and a $5 per ticket processing charge
First 9 months 1999, filled 25.8% of customer offers, 52% of “reasonable” offers (defined as no less than 30% below the lowest fare)
Cars
Desired make and model
Dealer cost and the Manufacturers Suggested Retail Price (MSRP) of the car plus options selected
Buyer then specified acceptable color combinations
Provided “market price” based on previous sales as a guide
An answer was provided within one business day
$200 penalty was charged in case customer didn’t show up
Dealers filling the demand pay a fixed fee to Priceline in addition to the $50 collected from the
customer.
Priceline charged a fee ($50) to the customer of the car- buying service if the process resulted in a
transaction.
Groceries
Licensed its business method, affiliated trademark, technology and software to privately held start-up
WebHouse Club
Royalties and warrants to acquire a majority interest in the company.
WebHouse Club member accessed 175 product categories were available
Customer was presented with options; required to specify at least two acceptable brands
System provided the “Typical Price Range” (for cola, $2.59 to $3.29 for a 12-pack), and the customer
designated one of four prices characterized by Priceline as offering a “Great Chance” (for cola -
$2.31), “Good Chance” ($2.15), “Fair Chance” ($2.02) or “Low Chance” ($1.89) of being accepted
Prices were “locked-in” via a credit card. Response in 60 seconds
User printed out a “Prepaid Grocery List” of items and accepted prices; went to a chosen store
(selecting from 1,000 participating stores in the New York rollout for example), collected the items on
the grocery list; proceeded to the checkout counter and claimed the order
Hotels
12 “leading national hotel chains” were involved
Space in 1,300 cities, towns, and resorts
Customer specified date(s), acceptable locations, and required level of room from one-
star/economy to four-star/luxury
Customer guaranteed the demand to a credit card and received an answer within an hour. On
some days, the service booked over 1,000 rooms
 Revenues
Airlines:
- Processing Fees from customer
- Spread between ‘Named Price’ and airline fare (although in initial months Priceline subsidized
the ticket by $1.13/ticket on an average)
Grocery
- Licensing revenues from Webhouse Club
Cars
- 50 fee collected from customers and fixed fee collected from dealers
Value Proposition
•Vendor
• Partner companies can exercise price discrimination by charging lower price for leftover inventory
• Partner companies can offer lower price anonymously without any effect on their brand and premium pricing
• Unsold perishable inventory through new channel
• Warrants reserved share purchase right at discounted price (callable if sales target are met)

•Consumer
• Cost saving - The consumer who is flexible with the product requirements (i.e. trip itinerary) can save on cost of
product by naming a reasonable price
• Time saving - The customer didn't face the hassle of sifting through prices at different websites. They had the
conveneience of listing down their requirement and a valid price that they could afford, and finally find out if there is
any available itnierary at the said price.
SWOT analysis
Strengths
• First mover advantage
• Strong value proposition for price-
elastic customers
• Large range of services
Opportunities
• Leveraging the customer database
to understand their preferences
• Cross selling
Weaknesses
• No flexibility in travel timings,
airlines and airports
• No service/product ownership eg.
no hotels, airlines owned
Threats
• Absence of binding supplier
contracts
• Low switching costs for customers
Success vs. risk factors - Customer
Success factor:
•High percentage of airline traffic already available to be booked on the platform
•Network effect due to expanding into allied services (airline/hotel/car rental)
•High customer involvement: Credit card to be provided for instant booking, preventing customer
to switch from a trusted website like priceline.com

Risk factors:
•No customer lock in mechanism to promote recurring purchase
•Low success rate of naming a price and getting it in provided services can cause disinterest.
•Expansion into services where ”name the price” or reverse buying doesn’t work.
Success vs. risk factors - Vendor
Success factor:
No effect on brand image: Partner companies can offer lower price anonymously without diluting
their brand and premium pricing
Unused inventory usage : Partner companies have obtained a new channel through which they are
able to sell its perishable inventory and salvage some profit from unsold inventory which would
otherwise have garnered zero revenue.
 Price Discrimination : All companies that partner with Priceline.com have a benefit of being able to
offer lower prices for leftover inventory (ex. of airline seats) without having to lower prices for all
consumers i.e. sell to business travellrs at a premium and at the same time sell the leftover seats at
"name the price" rates to price sensitive consumers
Risk factors:
In absence of exclusivity deals, airlines can provide similar deals to multiple competing websites.
Supplier will lock in only if customer asks for a particular airline.