Priceline's 48 Hours

Even with strong brand recognition, priceline's name-your-own-price system is still a challenge. The company says that changing the business paradigm is going to take consumer some education. But did the recent 48 Hours report reveal a weakness in the model?

By Nico Detourn (TMF Nico)
September 22, 2000

Shares of priceline.com (Nasdaq: PCLN) were bid down to all-time lows this morning following Thursday night's airing of a less than flattering report on the CBS news magazine 48 Hours. Trading this morning in the $20 range, the stock is flirting with the $16 per share price of its March 1999 IPO.

The most recent leg of the long, slow decline actually began earlier Thursday when The Wall Street Journal published details of how 48 Hours would expose "the dark side" of priceline and its name-your-own-price system for buying airline tickets, hotel rooms, groceries, and gasoline, among other things.

Probably the juiciest part of the 48 Hours piece -- what got the most attention -- was the revelation that William Shatner, the singing pitchman and public face of priceline, has never actually used the service to bid on cheap airplane tickets. "I think of myself as having to fly first class," Shatner told 48 Hours.

But priceline is more than airline tickets. Responding to 48 Hours, priceline spokesperson Brian Ek said that Shatner in fact has used priceline, though Ek was unable to say what he bought. William Shatner is a shareholder in priceline.com and his popular commercials are credited with making it one of the Net's most recognized brands.

Better Business Bureau bids adieu
More serious among the 48 Hours revelations are customer satisfaction issues that led to priceline being booted from the Better Business Bureau last week. The program recounted how priceline met in June with the BBB in Connecticut, where the company is headquartered, to discuss the more than 300 consumer complaints that have been filed since the service began operations in 1998. Those complaints include product misrepresentation, unresolved billing problems, and failure to make promised refunds.

The company agreed at that time to deal seriously with issues of customer satisfaction -- make that, dissatisfaction. Since then, the number of customer complaints hasn't improved. According to the BBB, because of priceline's failure to "eliminate underlying causes" of the complaints, it was bid adieu from the voluntary organization on September 14. It has 30 days to appeal the revocation of its membership.

In its defense, priceline's Ek said that 300 complaints seems low given that they've sold 5 million airline tickets. Perhaps more telling, though, is that priceline attributes the complaints in part to some customers' not understanding the name-your-own-price system and the restrictions that apply with certain purchases. Ek said priceline would try to improve consumer education about how the system works. The company "fully intends to make every effort to square this away," he said.

Priceline didn't participate in the 48 Hours piece because, "I did not feel we were going to be given a reasonable opportunity to state our point of view," Ek said.

Name your own paradigm
With strong brand recognition, priceline can more easily draw people to its site. And cheap prices are always appealing. But consumer acceptance of the name-your-own-price system is still a challenge. Priceline's terms for purchasing airline tickets can be especially off-putting. The acceptance of the consumer's bid represents a non-refundable obligation to buy a ticket that may require greater flexibility than expected.

More than that, naming your own price turns the shopping process on its head and would take some getting used to under the best of circumstances. The business model itself is counterintuitive, which naturally lends itself to customer complaints. "This is a changing of the business paradigm that is going to take some education," Ek said.

Your turn:
The 48 Hours piece led to a bad 24 hours for priceline. But it hasn't been a great year, as far as the stock goes. Is the public ready for a new business paradigm that changes the basic rules of shopping? Click here for one Fool's review of the 48 Hours report. Then share your thoughts on the priceline.com discussion boards.

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