Priceline Company, Case Study Analysis

History and Growth

The company’s past can have a significant impact on the present and future state of an organization. Thus, the research of a company foundation, critical incidents, structure and growth of internal and external factors, strategy analysis, and a comprehensive case study analysis can be useful for acquiring an understanding of its present management. This analysis may help to develop system recommendations even for a successful company because all these factors create better conditions for business activity in the modern environment.

The company was founded in 1997, when the entrepreneur Jay Walker offered the service “Name Your Own Price” (“Priceline.com, Incorporated,” n.d.). Two years later, the Priceline Group entered the IPO and set a record, with its market capitalization reaching $12.9 billion during a day (Goldberg, Palmer, & Garcia, 2015). In 2001, the company became profitable (Goldberg et al., 2015). The Priceline Group focused on the tourism business and started buying a variety of services, particularly Hotels Ltd., which provides services connected with booking rooms in hotels on the entire European market, Booking.com, Agoda (hotels booking in Asia), an online car booking service TravelJigsaw, Kayak.com, and OpenTable. Capitalization of the company was $65.6 billion in 2015 (Goldberg et al., 2015).

However, a prolonged economic crisis in the US has ultimately caused dozens of critical incidents, which resulted in the fluctuations in the company’s profitability. To avoid losses, the company applied two approaches – staff layoffs and a thorough restructuring (board structure is shown in the Appendix). The company achieved growth, thus causing a revolution in its online reservations concept “Name Your Own Price” (Goldberg et al., 2015).

Strengths and Weaknesses

Strengths and weaknesses referring to the internal environment of the organization can be extracted from the information about the company’s past (“Priceline.com, Incorporated,” n.d.). Thus, the company has a number of strengths, specifically a wide range of services, staff, and pricing (“Priceline.com, Incorporated,” n.d.). A wide range of services connected with booking includes several types of services. In addition to the hotels under the brand name “Name Your Own Price,” Priceline also provides a traditional booking system (Goldberg, Palmer & Garcia, 2015). Recently, Priceline also introduced the third version of reservation services, Express Deals (“Priceline.com, Incorporated,” n.d.). The company’s pricing policy is customer-oriented and flexible. Moreover, the strength of the company is the staff, which knows how to attract customers. Qualifications of the personnel are high, which is defined by the recruitment policy. However, HR management in other spheres than hiring is weak. The company can attract personnel; however, it could not keep it. Another weakness of the company is its strong dependence on the US market. The lack of diversification of assets shows that 67% of its turnover falls to the US (Goldberg et al., 2015).

External Environment

In addition to internal resources and weaknesses, the company has external opportunities and threats. Primarily, the company has a positive attitude of clients to its current customer price policies. The positive reaction of customers is a strong factor of the external environment as it creates an opportunity to attract more clients and thus capture quickly a larger part of the market. An external factor of fame of its brand in the United States opens up another external opportunity for the company. It is one of the most popular booking web portals in the United States. Thus, the company can also use it to promote growth in the coming periods, thus using its brand more and more widely. If to speak about bargaining powers, the company reached negotiating strength in deals with Asian companies from the position of power over the past periods. These deals were regarding the purchase of shares, and the company was able to make a huge profit from Asian investors while advertising its own performance. Finally, the investors agreed to a higher price. They have already purchased more than 24 million shares of Priceline (Priceline Group Inc, 2012). In turn, there appeared an opportunity to involve additional money from Asian investors, so the company can use it to generate additional profit (Priceline Group Inc, 2012).

Threats include competition, the threat of substitute products, and fluctuations in the US market. If to speak about competition, the main competitors of the company are Expedia, Sabre Holdings Corporation, and Orbitz Worldwide. Expedia’s main competitive advantage is a greater number of customers, which means they have greater profits, a greater level of refinancing and further development. Sabre Holdings Corporation is the geographical competitor of Priceline in the US, which means that they make a claim for the market share of the company. They pose a threat of losing US market share. Orbitz Worldwide has a technological competitive advantage over Priceline as their IT technologies are more innovative. It creates a threat of depreciation of Priceline’s IT policy. (Priceline Group Inc, 2012). If to speak about substitute products, they also appear with the development of technology. For example, not only rivals but also many banks offer similar services to develop a website for cardholders, who can get discounts, however, with less comfort. It represents a threat of losing clients. Fluctuations in the US market began during the crisis when the clients of the company started to earn less and thus visit other places less. Such fluctuations in the future might present a threat of further increasing the outflow of a high number of clients.

Analysis

Further, there is a need to analyze and compare these internal and external factors. First, the company’s range of services is wide enough. For example, Priceline offers a unique service, “Name Your Own Price,” which lets users of the website select the area of interest of the city, the hotel stardom, and the acceptable price. If this price is not lower than tariffs for rooms, confirmation and the name of the hotel come immediately. All bookings under this service are fully prepaid and immutable. In the traditional booking system, the hotel name is known at the stage of the first search, but pricing is not as attractive as in Priceline’s service. Cancellation and changes in these bookings are made according to tariff rules. As for price orientation, the policy is client-focused and diversified predominantly in the United States. On the one hand, this allows managing margins. On the other hand, any fluctuation of the US economy (crisis or fluctuation due to a random factor) affects the results of the company. Moreover, despite the fact that the company has a strong staff, in order to avoid losses during the crisis or critical incidents it started to lay off employees. Thus, although the company has a strong competitive position, it can perform even more successfully (“Priceline.com, Incorporated,” n.d.).

Corporate Level Strategy

The company’s mission is to enhance people’s experience in the world (Goldberg et al., 2015). The goal is to ensure the survival and prosperity of the company. This means that the return on investment should exceed the cost of capital. The corporate level strategy includes management of the tourist service industry, in which there are favorable conditions and the rate of return exceeds the level of competition. Corporate strategic decisions relating to investments in diversification in the US, Europe, and some Asian markets, vertical integration and restructuring of the company are highly customer-oriented. At the same time, about three-fifths of the company’s subsidiaries and acquisitions are diversified in the US, so the company can easily deal with competitors in the US market (“Priceline.com, Incorporated,” n.d.). Another benefit of the client-oriented corporate strategy is customer satisfaction, which increases customer turnover. However, the drawback of such a strategy includes the lower profitability of services compared to its competitors. In addition, the company has profitability fluctuations because of such a strategy.

Business Level Strategy

If the Priceline corporate strategy is a system of actions relating to choosing the sphere of activity, the business level strategy is a system of actions regarding navigation in this sphere. Thus, the company’s business strategy developed is based on consumer research and analysis of conditions, and actions of competitors. The direction of the company is the provision of travel services at a minimum price and maximum speed to solve the basic problem of customer satisfaction with the quality of services. In other words, whereas generally, the corporate strategy includes the tourist service industry, its business strategy includes the tourist service industry with the minimum prices and maximum speeds. Regarding the marketing strategy, the company’s product includes online booking and travel services. The pricing is flexible, mainly in the low segment, and includes the self-promotion element (returning the difference in money if the customer finds a cheaper room). However, places are not as vital as trade mostly takes place online, which reduces costs. The general focus of the company’s business strategy is the low-income customer of tourist services.

Implementations

The company uses a variety of monitoring systems to implement its business strategies. Firstly, most of them are tech or software systems. For example, the Central Reservation System (CRS) is an application used to manage the hotel funds, tariffs and bookings. Secondly, control systems are structural and affect the business organization. These involve the creation of rules in a verbal or graphical form and the use of organizational control in their execution (implementation of control points) (Priceline Group Inc, 2012). The company has made the organizational change, implementing a functional organizational structure (the ordinary levels of hierarchy with a specific function: financial direction, marketing direction, etc) (Priceline Group Inc, 2012). These areas are subjected to a responsible person on the board. At the same time, employee reward systems operate within the boundaries of areas and need the approval of the responsible person. They do not act selectively. Some employees are not motivated to find creative solutions. Therefore, there is an inherent conflict of enthusiasm.

Recommendations

All studied materials allow developing clear recommendations for Priceline. In conclusion, the company is strongly recommended to review the methods of maintaining staff. Crises and critical situations in a company should not give rise to dismissal. The staff can be transferred to a temporary release, offered a temporarily reduced salary, etc. However, any future restructuring of Priceline should not lead to a reduction in personnel since it is its major strength. Moreover, the company should revise the employee reward system in order not only to attract the best staff but also to keep it.

Priceline should diversify its assets, reducing dependence from the US economy. Companies should also develop IT technologies and offer new tourist services for advancing in the field compared to its competitors. Regarding both corporate and business strategy, the company can introduce a number of new products targeted at high-income clients by changing its pricing policy.

Conclusion

Priceline is the largest American broker of hotels, flights, car rentals, cruises, tours, etc. However, the company’s profitability was fluctuating in recent years due to the crisis of the US economy. After restructuring, the situation normalized. Now Priceline has a strong competitive position, which can be further strengthened by a review of HR policies, diversification of assets, the introduction of a separate line of pricing policies, and development in the field of IT. This comprehensive case study analysis allowed developing a number of recommendations in relation to the current Priceline situation, which confirms the thesis.