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Marketing Options and Price Sensitivity

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.

1. Define price sensitivity. Provide relevant examples.
2. What can you say about the price sensitivity of Priceline's customers?
3. What effect would Priceline's prices be likely to have on the reference prices customers bear in mind for travel and mortgage services?
4. How does the company's lowest-cost loan guarantee affect a customer's perception of the product's value?
include several different research sources throughout your paper to support your the questions you are trying to answer.

Solution Preview

Please refer to the response attached, which is also presented below. I also attached one highly relevant article, as well as a guide to APA referencing. Good luck with your studies and take care.

RESPONSE:

1. Define price sensitivity. Provide relevant examples.

Prices sensitivity is the relative weight a customer attaches to price compared to other attributes (price importance), and the customer's perceived value of undertaking a search for better prices (price search).

The nature of the online medium and the characteristics of web sites can significantly alter the degree of customer price sensitivity in online markets. Many managers fear that the Internet will increase price sensitivity and intensify price competition. There is, however, very little conceptual or empirical research on this topic. In an online paper at http://mail3.rhsmith.umd.edu/Faculty/KM/papers.nsf/0/4aebcc43c249eaf3852567f4005fa724/$FILE/marriott_wrkg_paper.pdf, the authors use the information search literature to develop a conceptual framework comprising web site factors and several customer and intermediary factors, to explain the main and moderating effects of the online medium on customer price sensitivity. They use this framework to develop hypotheses, which they test using data from both online and offline customers in the hospitality industry. They examined two important aspects of price sensitivity: the relative weight a customer attaches to price compared to other attributes (price importance), and customer's perceived value of undertaking a search for better prices (price search).

The results of this study indicate that the online medium does not have a main effect on price importance, but it increases the perceived value of undertaking a price search. However, some aspects of the online medium and some web site tactics can actually dampen ...

Solution Summary

This solution defines price sensitivity through examples. Specifically, it explains the price sensitivity of Priceline's customers, the effect of Priceline's prices on the reference prices customers bear in mind for travel and mortgage services, as well as how the company's lowest-cost loan guarantee might affect a customer's perception of the product's value. Supplemented with two articles.

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