The online market for travel services will reach $63 billion within a few years, and Priceline.com aims to capture a significant share; already, it is high on the top-ten list of travel Web sites. After a brief period of diversification into name-your-price sales of groceries and gasoline, the company has refocused on its core travel and financial services offerings, including airline tickets, hotel rooms, rental cars, and mortgage loans. The company guarantees that a Priceline.com mortgage is the “lowest-cost loan on the market” and backs this up by paying $300 to any customer who finds a better price.
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Visit the Cybrary and other Internet sources, to see how the Priceline system works. At the Priceline website, follow the link marked “How it works” to read about the name-your-price process. Then return to the home page and follow several of the links promoting discounted offerings.
- Define price sensitivity. Provide relevant examples.
- What can you say about the price sensitivity of Priceline’s customers?
- What effect would Priceline’s prices be likely to have on the reference prices customers bear in mind for travel and mortgage services?
- How does the company’s lowest-cost loan guarantee affect a customer’s perception of the product’s value?
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WHAT IS PRICE SENSITIVITY
Price sensitivity is directly related to the elasticity of demand for the product. The higher the elasticity of demand for a product at a particular price the higher the price sensitiviy.
· Price sensitivity can be calculated for every new product concept screened
· First year sales can be estimated for every product concept and over a range of prices
· Price/volume can be individually optimized for every product concept tested
· New product concepts can be screened and/or completely rank ordered on consumer appeal, market share, unit volume, gross dollar volume or gross profits
· All calculations can be done for any subset of the sample as well as the total sample
YOU CAN SAY THAT ..