Priceline.Com

SUMMARY

Price sensitivity is relative to a customer's thought process when

dealing with significant purchases. Priceline.com is a travel service that offers leisure

airline tickets, hotel rooms, rental cars, vacation packages and cruises. Priceline.com

also has a personal finance service that offers home mortgages, refinancing and home

equity loans through an independent licensee.

Price sensitivity is the extent to which price is an important criterion in the customer's decision- making process; thus a price sensitive customer is likely to notice a price rise and switch to a cheaper brand or supplier. By improving customer intimacy, suppliers reduce price sensitivity and increase the amount they can charge customers. For example, by offering their customers overdraft protection, banks increase the utility credit card holders see in staying with them. Another advantage is that credit card companies cannot offer the same type of insurance. Another familiar example is AOL's strategy. AOL distributes thousands of CDs with their software and 6 months of free service. Their correct assumption is that once a customer has an account with their own email, a buddy list and other features, the willingness of customers to switch Internet provides is significantly reduced. Low incremental costs by user registration automation and a great out-of-the-box experience are what make this approach possible. Price sensitivity is can also be related to the number of competing flights and the willingness to pay of passengers utilizing a hub-and-spoke network, relative to those traveling point-to-point, more commonly associated with low cost carriers(Shefer, 2005.)

Priceline utilizes a method that incorporates the basic economics of shopping. The critical point to recognize is that all consumers aren't created equal. Some have strong brand preferences, while some are sensitive to price and care little about brands. A smart merchant would like to sell at a high price to those with strong brand preferences and at a low price to those who are not so loyal. The trouble is that the price-sensitive and the price-insensitive shoppers look the same when they walk into a store, so merchants have to come up with a way to get them to identify themselves. Coupons are a common device: If you are willing to go to all the trouble of clipping the coupons and schlepping them to the store, you must be price-conscious - otherwise you wouldn't bother. Economists say that coupon clipping is a costly signal of price sensitivity. Note the adjective "costly." A signal has to be costly; otherwise it wouldn't be effective in separating the price-sensitive and price-insensitive groups. Look at how Priceline does this same separation online. When you bid for a travel ticket, you are asked whether you are willing to be "flexible" in your departure time, number of connections and type of aircraft. Similarly, when you bid for groceries, you are asked to "tell us two or more brands you like." Consumers, by revealing their flexibility, are signaling that they are sensitive to price. Indeed, the very act of going through the "bidding" process for the online grocery purchase is the same sort of mindless activity as clipping coupons - busywork designed to separate the sheep from the goats (Varian, 2000.)

Some people who would have bought seats through traditional methods buy from Priceline (and its rivals) instead. Most probably pay less as a result, but a few pay more. This is a zero-sum game: The buyers' gain is the sellers' loss. So call it a net plus for buyers, a net minus for sellers, and a wash for society. Everyone who buys through Priceline pays a cost in time, inconvenience, and uncertainty. There is no equivalent gain to sellers. A minus for buyers, a wash for sellers, and a minus for society. Those who don't use Priceline or other discount opportunities almost certainly pay more, since sellers know they're not looking for a bargain. This might be because they're well off. But it could also be because they're short of time, because they don't know lower prices are out there, or because they're unable--say, because they lack an Internet connection--to take advantage. This is a minus for buyers, a plus for sellers, and a wash for society (Carnahan, 2000.)

Pricelinemortgage combines low rates, easy application and fast turnaround in a convenient service for borrowers looking to refinance, get a first mortgage or take out a home equity loan. Pricelinemortgage gives borrowers the option of selecting one of the specially negotiated mortgages available to qualified