Case Study Of Priceline

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Priceline is one of the Web’s most well-known companies. Its “Name Your Own Price” reverse-auction pricing system is a unique business model that uses the information sharing and communications power of the Internet to create a new way of pricing products and services. At Priceline, consumers can enter a bid for travel, hotels, rental cars, and even home financing. Priceline queries its vendors (airline, hotel, and financial service firms) to see if anyone will accept the bid. Priceline offers a compelling value proposition to customers, allowing them to save money by trading off flexibility about brands, product features, and/or sellers in return for lower prices. Vendors also can gain additional revenue by selling products they might not …show more content…

The good news has continued since. In 2004, Priceline recorded operating income (income before tax adjustments) of $30 million; in 2005, $35 million; in 2006, $61 million; and in 2007, 155.5 million. (During the period between June 2003 and December 2006, Priceline’s stock held relatively steady in the mid-$20–$30 range, but has since steadily increased, reaching a high of $144 in May 2008 before dropping back down into the $95-$100 range in the months following). In 2008, Priceline continued to exceed analyst expectations, with operating income for the second quarter of 2008 totaling $54.1 million compared to $34.6 million for the same period in 2007. Suddenly, Priceline was the darling of Wall Street with its stock price doubling in the course of a year, and far outstripping rivals like Orbitz and Travelocity, both of whom were have earnings declines. Priceline's rise occurred when worldwide travel was declining due to rising oil …show more content…

In October 2000, after only 10 months of operation, Priceline’s affiliate Priceline Webhouse Club, unable to raise additional financing, shut down its business, after running through $363 million. The financial climate at the time, with its renewed emphasis on profitability, made it impossible for Jay Walker, Priceline’s founder, to raise the additional hundreds of millions that would be required before Webhouse might become profitable. Walker did not see the closure as a failure of the Priceline business model, however. Instead, he characterized it as the result of the “fickle sentiments” of investors. Many analysts did not accept Walker’s characterization. Instead, they pointed to other factors. First, many of the major manufacturers of food and dried goods chose not to participate in Priceline Webhouse. So, to generate consumer interest, Priceline Webhouse subsidized discounts on most products itself. Although some major manufacturers, such as Kellogg’s and Hershey’s, did eventually sign up, many, such as Kraft, Procter & Gamble, and Lever Brothers, did not. The second miscalculation was that bidding on groceries and gasoline did not exactly provide a “hassle-free” way to shop. Customers were required to bid on and pay for groceries online, then use a special identification card to pick them up at a participating supermarket. If the particular items purchased were not available at the store, the customer would

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