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    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.

    Visit the Library and other Internet sources, to see how the Priceline system works. At the Priceline website, follow the link marked New to Priceline, Find out More. Under each of the categories, click on "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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    Solution Preview

    1) Price sensitivity can be defined as the percentage change in demand volume of a product or service, due to one percent change(negative or positive) in the price of a product or a service. Higher the fluctuation in the demand of a product or a service due to a minimal change in price, higher the price sensitivity of the product. Price sensitivity is less with well known brands and products such as BMW cars, Rolex watches etc. On the other hand, price sensitivity is very high with generic and small products such as matchbox,vegetables, etc. A little decline or increase in prices of these small products will ...

    Solution Summary

    Define price sensitivity. Provide relevant examples.