The troubled eCommerce vendor’s affiliate company, WebHouse, has ceased trading.
Last week, Priceline revealed it would not be meeting its third quarter revenue expectations. This announcement led to a 42% drop in stock price. Now the company is in even more trouble, as its affiliate WebHouse yesterday announced its closure.
The company’s downfall stems from its lack of insight into consumer behavior and expectations. The innovative model of naming your own price has not attracted mass appeal. Consumer research has time and time again revealed that a key motivator to online buying is convenience. A Datamonitor survey reveals that 61% of respondents view convenience as a key motivator for online purchasing, whilst better price motivated 36% of respondents. Speed of purchase further motivated 24% of respondents.
While Priceline can certainly offer price advantages, the lack of convenience and speed are a deterrent even to consumers whose main motivation is price. And in the case of low-priced goods like groceries, today’s time-pressured society makes very few consumers consider it worth the time to wait for price negotiation before making a purchase.
Priceline’s 39% rebuy rate, compared with Amazon’s 70%, shows that few customers are hooked by the novel experience and low price alone. As customer acquisition costs are high, online retailers must do everything they can to retain them. Priceline seems to be doing the opposite – indeed, the Connecticut attorney general is currently investigating the company for fraud after over 100 complaints.
The future for Priceline depends on its ability to move away from the highly competitive, low return area of airline ticket sales and towards other high-value items where the request doesn’t have to be satisfied immediately and where variable pricing is more acceptable. Customers have clear expectations how much gasoline and groceries should cost and so will only be looking for a fast bargain deal. But they will be less savvy about package holidays, hotel rooms, cars, and new-to-market electronic items like the Playstation II.
Another direction that Priceline should follow is to radically move away from its ‘name your own price’ model. Instead, it should reposition its service as a best-price search facility. This would serve to manage consumer expectations, allow the customer to identify minimal quality and time requirements, and enable Priceline to operate a more sustainable business model.
