Innovations: Ideas in Action
Walker Digital’s mission is to create new business systems and profitably bring them to market, either by creating a start-up or enabling another company with a license. Examples can be helpful to illustrate how the process works.
The Idea:
Name Your Own Price
Background:
Airlines and other businesses in the hospitality segment are characterized by low variable cost products and excess, perishable inventory. The long-standing industry challenge is to sell off excess inventory without disrupting retail-pricing strategies and diluting profits. The challenge has been so confounding that trade practice is to let unsold products perish rather than to offer pricing discounts and risk the integrity of public pricing structures (and the very sophisticated revenue management systems that support them). More than 2 million airline seats go unused every day, despite genuine (and substantial) consumer demand at lower-than-published prices.
Key Insight:
Walker Digital invented a marketplace for unsold travel-related inventory by injecting a level of uncertainty into the product conditions. To do so, the identity of brand was not disclosed until the consumer made a conditional purchase commitment. (“If my offer is accepted, then I am committed.”) The uncertainty effectively “downgraded” and re-characterized the product to create separation between the retail product and pricing.
In the particular case of air travel, the airlines were able to increase sales from leisure travelers (who tend to be more flexible about itineraries) without compromising sales and revenues from business travelers (who tend to be less flexible about itineraries). Consumers were able to access travel services under pricing conditions that made the difference between flying or not flying. Sellers were able to efficiently serve demand below the published “priceline” without diluting sales of their traditional product.
Results:
Within 6 months of launch, priceline.com was serving 1% of all leisure travel tickets sold. The patented “name your own price” buyer-driven commerce system was successfully expanded into additional product categories – hotels, rental cars, cruises and vacation packages – and international markets.
Today, Priceline.com has a market cap of $22 billion, employs 2,000 people and serves more than 35 million customers per year.
