Priceline.Com Case Study Questions and Answers

Case Study Questions

1. What are the core components of Priceline.com's business model?

The fundamental concept of Priceline.com's model lies in its reverse auction pricing system which allows its users the ability to find discount travel related items by placing bids. Priceline's model is geared toward industries which have rapidly aging inventory, items such as airplane tickets, hotel room reservations, and car rentals. The company is not a direct supplier of these services; it functions more as a middleman, providing price quotes from various major hotel chains, airlines, and rental car companies. Its name your own price system is geared more toward bargain hunters seeking low prices as selecting the brand of hotel and airline using the Priceline system is not possible.

2. Do you think Priceline will ultimately succeed or fail? Why?

While Priceline initially started out running in the red unable to generate a profit running at a loss of upwards of $1 billion during its infancy, it has since reached the point of profitability. Since its turnaround in 2003 it has been able to reach and maintain sustained profitability. This is due to the demand from consumers for discount travel tickets and hotels. The reverse auction model which Priceline uses to link the sellers with buyers is what has made it profitable. However, during times of recession luxury items are usually sacrificed by the consumer and thus the impending recession will have a significant impact on the travel and tourism industry which in turn could cut into Priceline's profitability.

3. How has Priceline (and similar online services) impacted the travel services industry?

The use of these business models has given the travel services industry more flexibility in arranging for the sales of its services. This allows vendors the opportunity to gain additional revenue by selling its products for below retail prices without having to change its existing pricing structure. It also allows the general population an alternate means to book more affordable vacations.