priceline.com Take Home Case #32 Matthias M. Edrich BCOR 4000 M,W 3:30pm Fall 2002

Transcription

1 priceline.com Take Home Case #32 Matthias M. Edrich BCOR 4000 M,W 3:30pm Fall 2002

2 Goals over next 5 years 1. Increase U.S. Online Bookings Market Share... from approx. 9% to approx. 12% by Reduce Dependency on airline ticket revenue... to below 25% of total revenue 3. Expand European Presence reach top 5 Online Travel Sites by 2007

3 Goal 1: Increase U.S. Market Share Issue 1: Bad Customer Service OVERVIEW Issue: Decline of market share due to bad customer service Unfriendly representatives Bad service results: BBB exclusion in 2001 Beware of Priceline websites 79% of customers less likely to buy again if bad customer service Course of Action Recommended: Short-term effect: Revise return policies... Instant messenger use for more responsive customer service Long-term effect: Make website more user friendly... Improve customer service quality

4 Goal 1: Increase U.S. Market Share Issue 1: Bad Customer Service Recommendation 1: Revise Return Policies Recommendation: Revise return policies Competitors offer better policies Few refunds given to customers Customer dissatisfaction with return policies Errors, exchanging, canceling, changing, didn t see policies Travel insurance only available for emergencies Revisions: Returns: $150 penalty charge until 20 days before expiration Canceling, changing order: until 30 minutes after accepting offer Clear policies on bid confirmation page Refunds for website system errors Less ticket supply Reduced cash flows from erroneous bids User- not system errors

5 Goal 1: Increase U.S. Market Share Issue 1: Bad Customer Service Recommendation 2: Improve Service Quality Recommendation: Improve service quality to match competitors Complaints mention unfriendly service representatives Long response times of service employees Automated help-line system Post-call customer service questionnaires low rated employees must attend training sessions Better work atmosphere for service employees Increase efficiency with service cases service call and outcome recorded for each customer Questionnaires may inconvenience customers Ensure training effectiveness Increase customer service budget for hiring Training needed for case system

6 Goal 1: Increase U.S. Market Share Issue 1: Bad Customer Service Recommendation 3: Implement Instant Messengers Recommendation: Implement instant messenger applications to increase customer service responsiveness Service issues handled via / telephone Complaints about long response time Gartner: 70 percent of workers in the U.S. familiar with IM Add customer service via Instant Messaging Who uses it? ebay, Depot-America, Primeconcepts.com Requires website update & IM system investment Requires retraining of service employees who will use system Business instant messengers offered by: AOL Time Warner, AnswerChat, Yahoo, Microsoft

7 Goal 1: Increase U.S. Market Share Issue 1: Bad Customer Service Recommendation 4: Improve Website Recommendation: Improve website - reduce system errors & increase usability No security- / privacy seals displayed Complaints: hidden costs & position of policies Little travel related free information compared to Expedia Display policies / taxes prominently on Bid & Confirmation page Add destination information & advice (Long-Term effect) Display security- / privacy seals (Long-term effect) customer trust in Priceline.com Find appropriate content provider First: membership at security and privacy initiatives needed Hire web design consultant: ensure optimal layout of policies

8 Goal 1: Increase U.S. Market Share Issue 2: Strong Competition OVERVIEW Issue: Decline of market share due to strong competition Priceline.com not in top 10 most visited travel sites in terms of unique visitors Increasing number of competitors (I.e. GE Perfect Getaways) Competitors borrow Priceline system Competitors have higher sales budgets and advertising Airlines own Internet sales increase about 70% -> reduce supply to Priceline Course of action recommended: Increase advertising... Partnerships with offline discount travel agencies... Acquire smaller competitors to provide more links to Priceline...

9 Goal 1: Increase U.S. Market Share Issue 2: Strong Competition Recommendation 1: Increase Advertising Recommendation: Increase advertising Advertising in radio and television Few online advertisements other than search engine and on partner sites Increased of sales and marketing expenses by - 20% - Expedia increased by + 40% in Monthly unique visitors: 3,200,000 Increase marketing budget to match Expedia, Travelocity, Orbitz, Hotwire Advertise in print media, travel related websites Heavily advertise non-travel offerings (Mortgage, Phone minutes) increases awareness Continue using William Shatner in advertisements Increase linkage across travel, phone, mortgage sites to increase unique visitors

10 Goal 1: Increase U.S. Market Share Issue 2: Strong Competition Recommendation 1: Increase Advertising (cont d) Funds needed for marketing / sales Need good relationship with William Shatner Recognize markets in which to advertise fit with target market Advertise different products to different target markets I.e. Home mortgage products advertised in home buyer markets High cost of acquiring and retaining customers

11 Goal 1: Increase U.S. Market Share Issue 2: Strong Competition Recommendation 2: Offline Partnerships Recommendation: Create additional partnerships with offline travel agencies Most partnerships with online travel companies No student discount Partner with STA Travel (largest student travel organization) Use STA Travel s access to student discounts to offer discounts to Priceline s student customers Offer Bid system access to STA Travel Must convince STA of partnership benefits Partnership may fail to provide benefits

12 Goal 1: Increase U.S. Market Share Issue 2: Strong Competition Recommendation 3: Acquire Small Competitors Recommendation: Acquire small competitors Acquired Lowestfares.com domain: links to Priceline Many small online travel companies exist Acquire AirGorilla.com Incorporate free travel content Has airline ticket, vacation, cruise, rental car subsidiaries / partnerships Incorporate business knowledge & travel agent partnerships Link all AirGorilla and subsidiary sites to Priceline Some AirGorilla travel agency partnerships may conflict with Priceline Name-your-own-price system May need to adopt aspects of AirGorilla system (disclosed ticket prices)

13 Goal 2: Reduce Airline Dependency Issue 1: Supplier Bankruptcy Danger OVERVIEW Issue: Danger of bankruptcy of suppliers (I.e. Priceline partner Airlines) US Airways filed chapter 11 reorganization Possible United Airlines filing for chapter 11 protection Loss of one of four largest airline suppliers less supply of tickets and products less appealing to consumers brings down operation results Course of Action Recommended: Increase insurance in case of revenue fall out & negotiate better terms with airlines More non-airline travel products More non-travel product offerings

14 Goal 2: Reduce Airline Dependency Issue 1: Supplier Bankruptcy Danger Recommendation 1: Increase Insurance Coverage Recommendation: Increase insurance coverage in case of revenue fallout & Negotiate better terms with Airlines Insurance covers approx. 40% of short-term business losses Little / no notice of airline partnership termination needed Limited manner in which to sell inventory Increase coverage immediately to 100% of business losses - Include provisions for long-term (approx. 9 months) losses (Short & Long-Term Effect) 3 month notice prior partnership termination (Long-Term Effect) Negotiate discretion when selling inventory (Long-Term Effect) Justify higher insurance cost to shareholders Adjustment of partnership terms over 5-year period reduces risk of loosing partners Ensure fair treatment of partners must not risk angering partners

15 Goal 2: Reduce Airline Dependency Issue 1: Supplier Bankruptcy Danger Recommendation 2: More Non-Airline Products Recommendation: Add non-airline travel products Offer Cruises, Rental Cars, Vacation Packages, Hotels Fear of terrorism affects airlines most 53% booked offers & approx. 80% revenue from airline tickets Incorporate AirGorilla.com travel (non-airline) suppliers (Long-Term Effect) Use vacation package, cruise connections/partnerships Offer Partnership to Amtrak and Greyhound (Long-Term Effect) Rail / bus still popular travel alternative Reach rail / bus customers New products may not be successful Recommendations address dependency reduction in the long-term

16 Goal 2: Reduce Airline Dependency Issue 1: Supplier Bankruptcy Danger Recommendation 3: More Non-Travel Products Recommendation: Add non-travel products (Electronics & Appliances) Management core competencies: Travel Mostly expiring products (airline tickets, ) Non-travel: Cars, Home-Financing, Long-Distance Add Senior Executive for non-travel products Partnerships: Sony & Canon (Electronics), Maytag, Kenmore, Whirlpool & GE (Appliances) High-end appliances & electronics brands Caters Priceline audience Attract younger consumers (improves long-term brand awareness) High prices attract bargain hunters Difficulty finding executive Adapt business model to new categories First 6-9 months: heavy advertising for new categories

17 Goal 3: Expand European Presence Issue 1: Missing out on Growth Potential OVERVIEW Issue: Missing out on growth potential Priceline only in UK Internet usage growing, ground floor opportunity Europe second largest in Online Travel Sales 59% Online Travel Booking through top 5 Online Travel Sites : ebookers.com, LastMinute, Expedia, Travelprice, Thomas Cook Travel 30% of European online spending 3% Channel shift to online outlets for travel and tours per year Mobile population Course of Action Recommended: By 2005 enter: Germany, France, Spain By 2007, enable mobile device Priceline access Advertise business model

18 Goal 3: Expand European Presence Issue 1: Missing out on Growth Potential Recommendation 1: Enter Germany, France, Spain Recommendation: By 2005, enter Germany, France, Spain Priceline only in UK Germany, France, Spain highest online travel sales growth Main online travel sites: airline, rail owned Sign-up supply partners Introduce German, French, Spanish sites Offer travel products (Airline & Rail Tickets, Vacations, Hotels, Rental Cars) no non-travel products until familiar with opportunities Adapt Priceline to languages Funding scarce E-Commerce readiness Discount airline competition Need familiarity with railway industry

19 Goal 3: Expand European Presence Issue 1: Missing out on Growth Potential Recommendation 2: Access via Mobile Device Recommendation: By 2005, enable mobile device access to Priceline in Europe Data: IDC: 23 Mio. Europeans will use mobile phones to buy travel products online Competitive advantage if implemented Approx. 60% Europeans use mobile devices Design & build WAP-Compatible website system by 2004 Advertise new access point beginning 2005 Implement after entry into country s market High initial cost / effort to develop system Must address security

20 Goal 3: Expand European Presence Issue 1: Missing out on Growth Potential Recommendation 3: Advertise Business Model Recommendation: Immediately advertise name-your-own-price business model Priceline only known in UK No name recognition: Rest of Europe No comparable reverse-auction system Distrust if consumers misinformed Identify possible celebrity spokesperson Introduce business model: advertising campaign during first 9-15 Months 60% print media & television 40% radio & online advertising High starting sales budget High initial customer acquisition costs Marketing campaign may fail

21 Future Considerations Additional goals for discussion: Reduce risk of relying on third-party backend service providers Reduce communications infrastructure reliance on Worldcom, Inc. and Metromedia Fiber Networks, Inc. by switching to internet solutions company such as NTT/Verio. Optimize current U.S. products Decline in car sales over 1-year: re-evaluate if business model applicable to product