The online market for travel services will reach $63 billion within a few years, and Priceline.com 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 Priceline.com 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 the product over its lifetime.
2. What can you say about the price sensitivity of Priceline’s customers?
Priceline.com creates a new balance between the interests of buyers, who are willing to accept trade-offs in order to save money, and sellers, who are prepared to generate incremental revenue by selling products at below retail prices, provided that they can do so without disrupting their existing distribution channels or retail pricing structures
3. What effect would Priceline’s prices be likely to have on the reference prices customers bear in mind for travel and mortgage services?
Priceline.com has developed a unique pricing system known as a “demand collection system” that uses the information sharing and communications power of the Internet to create a new way of pricing products and services.. Priceline.com’s demand collection system allows consumers to specify the price they are prepared to pay when submitting an offer for a particular product or service within a specified range of substitutability. Priceline.com then either communicates these offers to participating sellers or accesses participating sellers’ private databases to determine whether it can fulfill the customer’s offer. Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers. Once fulfilled, offers generally cannot be canceled.
This system uses the flexibility of buyers to enable sellers to accept a lower price in order to sell excess inventory or capacity or increase sales velocity. Priceline.com believes that its demand collection system addresses limitations inherent in traditional seller-driven pricing mechanisms in a manner that offers substantial benefits to both buyers and sellers. The principal advantages of the priceline.com system include the following: Priceline.com’s Name Your Own Price(sm) demand collection system allows consumers to save money in a simple and compelling way. Buyers effectively trade off flexibility about brands, product features and/or sellers in return for prices that are lower than those that can be obtained at that time through traditional retail distribution channels. Priceline.com believes that in many cases, such as purchasing a new car or obtaining a home mortgage, the Internet represents a preferred method to traditional retail channels.
4. How does the company’s lowest-cost loan guarantee affect a customer’s perception of the product’s value?
PricelineMortgage enables consumers to choose their own mortgage terms, get guaranteed closing costs, and lock in their personalized rate in as little as 30 minutes. PricelineMortgage can save borrowers up to $1,000 in guaranteed points and closing costs. On larger “jumbo” loans, borrowers can save even more. If borrowers lock in a rate and rates change before the loan closes, PricelineMortgage customers receive whichever is lower – the rate they requested or the rate available when closing documents are prepared, which is generally five days prior to closing. Guaranteed best rates. For a limited time, borrowers will get the best rate available or PricelineMortgage will pay them $300. Online lock-in. At the time a borrower’s offer is accepted, the desired rate is locked in.
Few online loan originators allow consumers to complete the lock-in process electronically and virtually all place substantial restrictions on the rate lock. “Float-down” rate protection. If rates drop between the time the rate is locked in and closing documents are prepared, PricelineMortgage customers will get the lower rate. Guaranteed low closing costs. Unlike other mortgage sites, PricelineMortgage spells out and guarantees closing costs and may save borrowers up to $1,000 in points and closing costs compared to other online and offline lenders. Loan-level pricing. Each customer’s loan request is evaluated based on its own unique loan and credit attributes. Decisions on whether to accept the customer’s requested interest rate is determined based on the customer’s credit history and loan attributes.
Real-time loan request evaluation. By using direct links to automated underwriting tools, PricelineMortgage customers receive a complete credit decision in as little as 30 minutes. Online loan counselors. PricelineMortgage features live chat support from a staff of online loan counselors. To reach a counselor, customers select the PricelineMortgage chat option and then electronically talk with a counselor as they fill out their application.
The limited-time offer is being used to demonstrate PricelineMortgage’s commitment to priceline.com’s core benefit – delivering the best deals on the Internet. If a marketer can identify consumer buyer behavior, he or she will be in a better position to target products and services at them. Buyer behavior is focused upon the needs of individuals, groups and organizations. It is important to understand the relevance of human needs to buyer behavior (remember, marketing is about satisfying needs).
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