Price Sensitivity and Shaping the Market Offering
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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.
Use the 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.
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?
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Solution Summary
This solution explains how to shape the market offering through price sensitivity by definition and example. Specifically, it explains the effect of prices on the reference prices customers bear and how the company's lowest-cost loan guarantee affect a customer's perception of the product's value. Supplemented with a highly informative article.
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Please see response attached (which is also presented below), as well as supporting document. I hope this helps 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). In other words, how important are travel prices to the customers and how likely are they search for lower prices. "Travelers have a blend of three primary travel preferences -- price-sensitivity, time-sensitivity or travel provider loyalty," said Richard Barton, general manager, Expedia.com. "We spent thousands of hours in testing to create a product that addresses all three preferences. The right trip at the right price is readily available. This update to Expedia.com focuses on providing our customers with the best tools to find and book that right trip."
However, research suggests that 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 one study about the price sensitivity for online mediums, the authors 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 other attributes means when compared to such things as promised rewards (i.e., like Priceline.com offer to pay the customer $300.00 if they found a lower price), the depth of the information provided on the website, etc. http://mail3.rhsmith.umd.edu/Faculty/KM/papers.nsf/0/4aebcc43c249eaf3852567f4005fa724/$FILE/marriott_wrkg_paper.pdf.
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. In other words, the customer has the same price sensitivity as those offline customers, but have a greater perception that they need to search the Internet to compare prices. However, this may not be the case, as other factors come into play to alter this ...
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