“The Price Isn’t Right” by Detlef Schoder (http://online.wsj.com/article/SB10001424052970203922804578080693320969644.html?mod=WSJ_qtnews_wsjlatest) is a very interesting article regarding online retailers profit model and how it can be taken advantage of via extreme bargain hunters.
The article concedes that every consumer is looking for the best bargain possible, which isn’t exactly breaking news but Schoder puts an interesting spin on current retail or deal sites like Priceline which is the rise of deal site deal sites. No, that was not a typo. These are sites specifically for consumers to point out the best deals on other deal sites. Sites like SlickDeals, DansDeals and even Kayak that track the best deals on the net and post them to their following base. This poses an interesting situation for sites such as Priceline whose profitability resides in the margins (which would be cut into if algorithmic models for best deals are made public).
Schroder poses eight potential solutions to this problem:
One would be to actively monitor sales/transaction data, so if you see a spike in one of your offerings you may be able to tie it to a Deal Site Deal Site posting and squash the deal.
Two, ’embrace but try to limit these bargain hunter’s’.
Three, bundle different services making price gauging more difficult due to the inability of the consumer to determine the price of each individual good. Which I think is probably the best route to decrease extreme bargain hunters.
Four, ‘Control the Sales Network’. Priceline has no advantage here. If somebody else (Orbitz, Expedia) isn’t going to sell Delta’s tickets another Delta will themselves.
Five, ‘Ban online customers who repeatedly eat into your profit margin’. This may seem like a good idea for a site like Priceline but would most definitely aggravate their customer base and go against their business model about being a site for deal seekers.
Six, ‘Clear the Market’
Seven, ‘Offer Discounts Through Intermediaries Who Hide The Brand’. This is what Marriot, Delta, and Avis use Priceline for; not the other way around.
Eight, ‘Reshape the Landscape’, this is where Schroder goes into detail about how Priceline routinely switches up its zoning of hotels for the name your own price feature making it difficult for consumers to ‘crack the code’ and find the best possible deal. The spokesman for Priceline acknowledges that they are not trying to discourage users from getting great prices but that they must protect their other customers, the hotels, at the same time. This puts Priceline right in the middle as to whom to best cater. It makes sense to ride the middle here so that your customer base can still get great deals but that the best deals may be hard to find so as a company you don’t alienate your wholesalers and you also continue to make a profit.
