1. Hold a reverse auction. In a reverse auction, extremely price-sensitive buyers name their price for a service. If the seller accepts the price, the buyers must commit to the seller’s terms.
That’s the service that Priceline offers to desperate, price-sensitive travelers who give up convenience for the lowest price on accommodations, rental cars and airline tickets.
Priceline profits because plenty of consumers feel they are winning with their bid that’s just a tad higher than a price that would be too low for Priceline's suppliers to accept.
And Priceline’s financial statistics reveal the greatness of this business model: 22 percent revenue growth, 50 percent profit growth and a 46 percent increase in stock price on average over the last decade. Priceline's revenue per employee (it has 9,500) has been about $716,000, roughly six times the leisure industry's average.