Priceline Joins Fixed-Price Parade

Competition in the online travel industry is fueling a trend toward fixed-price options designed to give consumers more control over airfares.

In an effort to recapture ground lost to such competitors as Hotwire and Orbitz, reverse auction company Priceline has become the latest travel service vendor to climb aboard the fixed-price marketing train.

“The presence of Hotwire and Orbitz is a significant step in the evolution of the travel space because it has put more pressure on Priceline,” Jarvis Mak, a senior analyst at Nielsen//NetRatings, told the E-Commerce Times. “Competition is forcing Priceline to meet the challenge and provide a fixed price.”

Auction Giants Team Up

Priceline inked a deal in February with online auction giant eBay that allows it to offer its services to a broader customer base. According to eBay, 42 percent of its users purchased online travel in the last year, representing US$8.4 billion in gross merchandise sales.

Priceline will maintain its name-your-own-price services on its own Priceline.com Web site, but the company now also has an opportunity to reach millions of eBay members through its two-month-old travel service.

“The Priceline model works very well in tandem with eBay’s other offerings,” Priceline spokesperson Brian Ek told the E-Commerce Times. “An eBay user who visits the new travel section would be very comfortable with how it functions.”

Buy It Now

Indeed, the new Priceline offering is very similar to the eBay experience. Users searching for airline tickets, hotel rooms or rental cars have two options: “Make an offer” or “Buy it Now.”

Users who wish to make an offer are shown a minimum bid price. However, much like bidding elsewhere on eBay, users rarely win auctions by placing the minimum bid. Instead, the minimum bid serves as a starting point intended to discourage extremely low offers that have no chance of being accepted.

About half of Priceline’s eBay inventory is available at a “Buy It Now” price, a fixed-price option for users who do not have time to wait until the end of the auction to make travel plans.

Analysts Weigh In

Analysts said they are not surprised by Priceline’s move toward fixed-price options.

The name-your-own-price model is good for the consumer, Yankee Group Internet business strategies analyst Lisa Melsted told the E-Commerce Times, but not always great for the company.

“Moving toward the fixed-price model helps margins,” Melsted said. “But if the price is too high, then it could end up hurting them. It’s a delicate balance.”

It is still too early to gauge consumer response to the new offering, Ek noted.

Priceline plans to begin marketing the service in June.