IIM Calcutta

Strategic Management

Priceline
Feb 3th, 2010

Word Count: 501

Submitted By:

Group A5 – Section A

Gautam Adukia 022/46

Ajay Bansal 023/46
Alpesh Chaddha 026/46
Aman Deep 027/46
Amit Gupta 032/46
Amit Nagdewani 036/46
Amol Deherkar 040/46
Ankit Jain 048/46
Avinash Pandit 085/46
Ankit Kumar Singh 404/16
INTRODUCTION

Priceline.com is a non-conventional marketing website which allows buyers to advertise a unit of

supply to a group of sellers. The sellers can then decide to fulfil the demand or not. It initially sold
airline tickets where customers posted the desired days of travel and destination and named the price.
It has been extremely successful in its business model and is planning to expand in a lot of other
domains.

ALLIES OF PRICELINE

Priceline helped the buyers find the products and service in accordance to the price they quoted. To
succeed in its business, it made a no. of suppliers its allies. Following are the allies of Priceline:

• Domestic and International Airlines

o America West and TWA.

o United, American and U.S. Air.

o Represented 90% of U.S. American Domestic Capacity.

• Co marketing with Travelocity and Preview Travel

• National Hotel chains

• Lenders

• Car dealers

• Groceries- Webhouse Club

SOURCE OF PRICELINE’S PROFITS

Priceline generated its profits from these sources:

• Per ticket processing charge from air and hotel tickets

• Customer Lock in as sure acceptance of order if price matches

• Airline leisure customer interested in hotels and car rentals

• Network effect (large airline partners) leading to high customer base

• Offering Value to price sensitive customers

EXPANSION IN OTHER VERTICALS

Priceline started with Airline tickets but soon decided to move on to other verticals. The main reasons
of that are:
• Walker saw the great potential in Priceline’s “Name your own price model”
• Executives were confident of the suitability of the model to other product categories
 • Aggressive Brand enhancement strategy
• Expansion in Hotel Business was logical extension to their major source of revenue –
Airline tickets
• Groceries, car rentals and home finance were totally unrelated
• Customer feedback prompted the decision of initiating the grocery vertical
• Quick rise to Internet “Megabrand” status encouraged Priceline to expand vertically and
rapidly
• There was increasing competition in core business

ALYN YOUNG’S ARGUMENTS AND PRICELINE’s MOVES

Alyn Young’s arguments help in understanding Priceline’s moves in following way:

• Progressive division of industries is essential process by which increasing returns are
realized
• Increasing returns depends on progressive division of labor: by growth of indirect or
roundabout methods of production and division of labour among industries
• Division of labor depends upon the extent of market and vice-versa
• Priceline establishes a link between price sensitive but otherwise flexible customers and
airline industry.
• It helps convert a latent demand for seats at a lower price into actual demand thereby
increasing the market and by building a market for vacant seats
• Thus it helps achieve increasing returns by specialisation and division of labour