Price Discrimination on Priceline

As a pricing person, priceline.com is a fascinating site. Priceline is like a "normal" travel site where travelers can purchase airline tickets, hotel rooms, and rental cars, but it also offers a "Name Your Own Price" feature. This lets people offer to pay $200 for a 4-star hotel room in Midtown Manhattan, for example, and then sees if any hotels meeting the criteria will accept the price. (That query recently saved a client of ours a few hundred dollars.)

Once you reserve a hotel room, Priceline naturally wants to sell you a rental car. Here's where it gets interesting. If your price is accepted, Priceline takes you to a new page, that looks something like this:




Priceline also send you an email a few minutes later, which also offers rental car upsells. Notice anything different?

The prices in the email are $1-$2 more expensive. This type of testing is a great idea, especially for travel purchases where customers expect that prices will fluctuate. (Amazon got into trouble with customers for randomly varying the prices of items like DVD players to different customers.) Does anyone with more knowledge and/or experience with Priceline know whether the price differences are due to:

• Just testing, or
  
• Thinking that people who want immediate results online might be more willing to commit at a lower price (seems counterintuitive to me).
• Something else?

By the way, when I got around to clicking on one of the links the next day, the prices bore no resemblence to the stating figures-- they were much higher. And they were consistent whether I used to online page or the email page.

Overcoming price objections in a down market

BNet, which is heavily focused on sales, has a couple helpful posts on pricing.

Three Successful Pricing Strategies for a Downturn urges you to react quickly when necessary, but don't hurt the long term to save the short term, and avoid price wars.

Another useful tip is to think about how to unbundle some of your offerings so that cash-strapped customers can still get some of the value your company provides without paying full price, but, and this is the important part, they have to give up something as well. If done effectively, this keeps them as a happy and profitable customer.

And what do you say when customers push back on price? Here are 12 possible responses, courtesy of sales guru Barry Rhein. (Here's an earlier post on the subject of handling price objections-- the concept that not everyone is actually a qualified prospect is a critical one. The sooner you can know that while the prospect might like your product, they cannot afford it, the sooner you can move on to somone who can, and the less effort you will spend destroying your brand value with excess discounting.

Fixing Mistakes in Your Pricing Structure: 2 Examples

You analyze reams of data. You carefully evaluate potential pricing policies. You select what you think is the best one. And then your users tell you that they hate it. And not just because no one likes to spend money unnecessarily. They actually have good reasons. Had you known them at the beginning, you would have priced differently. So what do you do now?

Zoho, makers of popular online applications for CRM and office productivity applications, apologized on their blog and revamped their pricing. Essentially, they had not understood how some of their customers actually used their Creator application. The pricing policy had forced customers to trade off between buying a lot of things they didn't need to get a few features that they did need, or going without. Pricing is about capturing value, but the initial policy failed to give free and low-cost editions the capabilities that Zoho wanted them to feature. So they tried again. Perhaps it's a bit embarrassing to write a blog post like that, but it's much better than pretending everything is fine, or queitly making a change and sweeping your mistakes under the rug.

Zoho is lucky in some ways. They can change prices easily because they sell Software as a Service (SaaS). They don't have to deal with catalogues, price tags, contracts, and other overhead that goes with a price change at many other companies.

Dell is infamous for having different prices for essentially the same computer depending on which part of the website you visit. This is because during its breakneck growth, Dell organized around segments (Small Business, Home, Student, Government, etc). Segment leaders maintained control of their pricing, leading to inconsistencies. It got worse, as different promotional policies could result in the same machine in the same segment showing different prices. Customers complained on Dell's IdeaStorm online feedback forum. Now Dell is touting consistent pricing for their Vostro laptops for small business. It's a good start.

While these approaches draw attention to past missteps, they build a better relationship with customers than the typical press release-style price changes, where everything is spun to sound wonderful.